ECON ch.6 – Flashcards

The three major types of firms in the United States are called

Limited liability means that

The government grants limited liability to the owners of corporations

Limited liability becomes more important for firms trying to raise funds from a large number of investors, rather than from a small number of investors, because

Suppose that shortly after graduation from college you decide to start your own business. Assuming you are starting a small business and realize that you need someone with particular expertise or business skills, which category or firm are you most likely to start?

The establishment of limited liability for the owners of corporations

Although only __ percent of all firms are corporations, corporations account for _______ of revenue and profits earned by all firms.

Which of the following statements most accurately characterizes the role of small firms in the U.S. economy? Small firms

A sole proprietorship is

In the United states, there are three legal categories of firms: Sole proprietorships, partnerships, and corporations. Which of the following is an advantage for partnerships?

In the United states, there are three legal categories of firms: Sole proprietorships, partnerships, and corporations. Which of the following is disadvantage for corporations?

The United States has three legal categories of firms. Which of the three categories accounts for the most revenue in the United States? _______ account for the most revenue in the United States.

The owners of corporations have

For which of the following types of business organizations is there a legal distinction between the personal assets of the owners of the firm and the assets of the firm?

Your friend asks you to join him in the new Internet business he is setting up as a partnership. If you invest $10,000 in the business, what is the limit to your liability?

In the United States, ____ account for the majority of revenue earned and ____ account for the majority of business organizations.

What do we mean by the separation of ownership from control in large corporations?

How is the separation of ownership from control related to the principal-agent problem?

It is better to have outside directors on the board of directors, as opposed to only inside directors, because

The principal-agent problem arises almost everywhere in the business world- but it also crops up even closer to home, such as the case of the college classroom. In this case, who is the principal and who is the agent? The principal is the ___ and the agent is the ____.

The principal-agent problem in the public corporation between ownership and top management results from asymmetric information. All of the following are correct, except

ExxonMobil is a large corporation. Who owns this company?

The principal-agent problem occurs when

What term do economist use to refer to the conflict between the interests of shareholders and the interests of top management?

A bond represents ____, while a share of stock represents ____.

The stock and bond markets provide information to businesses through changes in prices. A decrease in the price of a firm's stock would tell managers which of the following?

The stock and bond markets provide information to businesses through changes in prices. A decrease in the price of a firm's bonds would tell managers which of the following?

Suppose that a firm in which you have invested is making a lot of money. Would you rather own the firm's stock or the firm's bonds?

Suppose you originally invested in a firm when it was large and profitable. Now the firm has downsized and is small and unprofitable. Would you be better off now if you have bought the firm's stock or the firm's bonds

An Asset is ____, and a liability is ____. An example of an asset would be ____, while and example of a liability would be ____.

A balance sheet shows ___ at some point in time, while an income statement shows ____ at some point in time.

A firm's

All of the following statements are true, expect

Suppose a business earned a positive accounting profit, but a negative economic profit, then

Dan decides to give up a job earning $110,000 per year as a corporate lawyer and converts the duplex that he owns into a UFO museum. (He had been renting out the duplex for $21,000 a year) His direct expenses include $55,000 per year paid to his assistants and $21,000 per year for utilities. Fans flock to the museum to see his collection of extraterrestrial paraphernalia, which he easily could sell on eBay for $1,050,000. Over the course of the year the museum brings in revenues of $105,000. A. How much is Dane's economic profit for the year?

Dan decides to give up a job earning $110,000 per year as a corporate lawyer and converts the duplex that he owns into a UFO museum. (He had been renting out the duplex for $21,000 a year) His direct expenses include $55,000 per year paid to his assistants and $21,000 per year for utilities. Fans flock to the museum to see his collection of extraterrestrial paraphernalia, which he easily could sell on eBay for $1,050,000. Over the course of the year the museum brings in revenues of $105,000. B. Is he earning an accounting profit?