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multiple-choice questions
1. Which of the following legal forms of business organization provides for limited liability?
a. The sole proprietorship.
b. The partnership.
c. The corporation.
e. None of the above has limited liability.
2. Which of the following is an advantage of the corporation?
a. Unlimited liability
b. Simplicity
c. Greater ability to raise capital
d. The owners are stockholders
3. The major disadvantage of the corporation is
a. that the owners and managers are the same.
b. limited liability.
c. double taxation.
d. single taxation.
4. The concentration ratio seeks to measure
a. the concentration of the distribution of income.
b. the Gini coefficient.
c. the percentage of output or sales accounted for by the largest firms in a particular industry.
d. the distribution of power between capital and labor.
5. A 20-firm concentration ratio of 99 percent means that
a. the bottom (smallest) 20 firms control 1 percent of the industry output.
b. the top (largest) 20 firms control 99 percent of industry output.
c. the bottom (smallest) 20 percent of firms control 99 percent of industry output.
d. 99 firms control 20 percent of industry output.
6. In a “perfect market”
a. all buyers have the same income.
b. all buyers have gathered different amounts of information.
c. all buyers are identical.
d. all buyers pay the same price for the same product.
7. In the United States economy, the interest rate is
a. the equilibrium cost of borrowing capital.
b. determined by the supply and demand for loanable investment funds.
c. controlled to some degree by the Federal Reserve System.
e. answers a, b, and c are correct.
8. One feature that distinguishes American policy toward monopoly from that of Western Europe is
a. that natural monopolies in the United States tend to be owned by the state.
b. that Europe relies more on regulation than on ownership.
c. the U.S. decision to leave natural monopolies in the hands of private owners.
d. American and Western European policies are the same.
9. The greatest difference between a partnership and a corporation is that
a. laws are involved in corporations but not in partnerships.
b. partnerships are limited to no more than 1,000 partners.
c. partnership owners have unlimited liability, whereas corporate owners have limited liability.
d. corporations are monopolistic, whereas partnerships are not.
10. The major advantage of a single proprietorship is
a. limited liability.
b. the owner has full control and it is easy to set up.
c. capital funding is readily available in financial markets.
d. none of the above.
11. A shift of economic activity from the public sector to the private sector is described as
a. privatization.
b. monopolization.
c. arbitrage.
d. all of the above.
12. A frequently used yardstick of performance in regulated industries is
a. the rate of return on invested capital.
b. the ratio of debt to equity.
c. market share.
d. none of the above.

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