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1. A corporation differs from a proprietorship in all of the following ways except:
- A. having limited liability for its owners.
- B. its income is subject to double taxation.
- C. it is assumed to be seeking to maximize profits.
- D. it is a legal entity separate from its owners.
- E. all of the above are ways in which corporations differ from proprietorships.
2. Implicit costs:
- A. are the opportunity costs of the productive resources that the firm's owner makes available without
direct outlays of cash.
- B. refer to inputs wrongly included in costs, from the economists's view point.
- C. plus all fixed and variable costs equal total costs.
- D. include interest payments made when a firm finances its operations with bank loans.
- E. from an economist's view point, should be included in total cost because they represent direct payments
for production.
3. A firm's "normal" profit is:
- A. equal to a firms total revenues minus its total costs.
- B. the imputed returns to capital and risk taking (as well as any other implicit costs) just necessary to
prevent firms from withdrawing from the industry.
- C. the same as accounting profits.
- D. the excess of revenue over full economic costs including imputed returns to capital and risk taking.
- E. a way of adjusting economic profit to consider both explicit and implicit costs.
4. Which of the following would most likely represent an imputed or implicit cost for a firm?
- A. wages for current employees.
- B. interest paid on borrowed funds.
- C. dividends paid to shareholders of the firm's stock.
- D. taxes paid to the local government.
- E. interest that could have been received on money currently invested in inventory.
5. Normal profits refers to:
- A. what all firms, on average, obtain as a return on investment.
- B. the excess of revenue over full economic costs including imputed returns to capital and risk-taking.
- C. the base used by the government to levy business taxes.
- D. the imputed returns to capital and risk taking (as well as any other implicit costs) just necessary to
prevent firms from withdrawing from the industry.
- E. the level of profits necessary to ensure that the firm covers its day-to-day operating costs.
6. Which of the following is not a characteristic of a corporation?
- A. it can legally enter into contracts.
- B. it is a legal entity separate from its owners and, as such, confers limited liability upon its owners.
- C. it is legally obligated to distribute all profits.
- D. owners of a corporation may not be able to easily control management of the corporation.
- E. its income is subject to double taxation.
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