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Contemporary Economics 2nd Edition William A. McEachern - Solutions
Sole proprietors enjoy each of the following advantages excepta. they receive all the profit their businesses earn.b. it is easy for them to gather large amounts of financial capital.c. they can make business decisions quickly.d. it is easy for them to form their business.
True or False Sole proprietorships are the most common form of business organization in the United States.
Which of the following examples demonstrates entrepreneurship?a. A scientist invents a long-lasting paint and sells it to a large manufacturer.b. A government official creates a new tax form that is easier to complete.c. A technician discovers a new type of wax that is used by the firm that employs
Competitors are attracted to a market that yieldsa. profit.b. unlimited liability.c. lower prices for consumers.d. higher tax revenues.
True or False Once established, most entrepreneurs are able to maintain a substantial profit margin on the products they produce and sell.
Entrepreneurs bring about creative change in each of the following ways excepta. they improve the quality of existing products.b. they introduce new products.c. they find ways to eliminate competition.d. they introduce new production methods.
What sort of organization should Rita use to start her business—a sole proprietorship, a partnership, or a corporation? Explain the reasons for your choice.
Rita doesn’t know very much about marketing. Should she hire someone to market her ornaments and pay that person a 25 percent commission? Or, should she try to convince a mail-order firm to sell her ornaments. If she makes this choice, the firm will keep half the revenue from her sales. How much
Rita has $25,000 to invest in the business.How much more does she need to start her business? What method would you advise her to use to raise the rest of the money? Explain the reasons for your advice.
History Investigate the history of a major U.S. corporation. How did it begin?What factors led to its growth? What impact has it had on the lives of American consumers?
In the years between 2000 and 2004, many publicly held corporations in the United States reported large and growing profits. Although some of their profits were paid to stockholders in dividends, a large part was kept as retained earnings. Use the data in the table to construct a double line graph
Identify a local not-for-profit organization that operates in your community. In what ways is this firm different from other businesses?
If publicly traded corporations account for only 1 percent of all corporations, why should society care what they do?
Although stockholders do not need to be professional managers, they should remain aware of decisions made by the people who run the firm. Why is this true?
Why might a family business organize as a private corporation rather than as a sole proprietorship?
Why would most people refuse to invest in corporations if there were no limited liability for stock owners?
Research Review listings for physicians in your local Yellow Pages. How many of them are partners in a group and how many of them practice independently?Why do you think so many physicians prefer to participate in partnerships with other physicians?
Management Make a list of all the management functions a sole proprietor must perform to be successful. What types of courses should a person who wants to own a business take? What types of experience should such a person look for in a job he or she might work in while going to school?
In 2002 all U.S. partnerships had a total of $2.7 trillion in sales. The federal government classified partnerships into 19 categories. However, the bulk of the sales were made by partnerships in seven of the federal classifications, as listed in the table below. Use the data in this table to
Why do many new lawyers seek to become partners in established law firms?
Why do most partnerships last for only a few years or less?
Why are many sole proprietorships run by part-time owners who earn most of their income as employees elsewhere?
Why do some sole proprietorships become less efficient as they grow?
Why are more restaurants organized as sole proprietorships than are industrial construction firms?
Marketing Entrepreneurship may involve finding a new way to market an existing product. For example, Wal-Mart sells the same products as many other discount stores, but it is much more successful than most. What did Sam Walton do differently that made him a successful entrepreneur?
History Review an American history textbook to identify a historical figure who was an important entrepreneur. Explain what this person did and the influence he or she had on the development of the United States.
Many entrepreneurs begin their businesses by inventing a product and then patenting it. Construct a bar graph from the data in the table that concerns patents granted by the federal government. What does your graph show about the number of inventions that are being made by individuals and
What role do entrepreneurs play in the U.S. economy?
Why wasn’t the Bell Labs employee who invented the first transistor an entrepreneur?
Why aren’t entrepreneurs likely to earn large profits from their businesses over many years?
What creative changes have fast-food restaurant owners used to distinguish their products from similar products offered by other firms?
Which of the following describes an entrepreneur? (a) a person employed to mow lawns by a landscaping firm or (b) a person who buys a lawn mower to cut her neighbor’s lawn for $20. Explain your answer.
How could it be possible that most U.S. businesses have no hired employees?
What do Corp. or Inc. in a company’s name tell you about how the owners treat company debt?
What does your summer lawnmowing operation have in common with Wal-Mart?
Why start a business if most new businesses don’t last five years?
Why do some people want to call themselves “boss”?
Access EconDebate Online at thomsonedu.com/school/econxtra. Read the policy debate entitled “Should the antititrust exemption for baseball be eliminated?” Analyze this issue from both points of view, and write a paragraph summarizing each side.
Distinguish Between Competition and Monopoly The graph below provides demand curves for two different firms. One of them is for a competitive firm and the other is for a firm with monopoly power. Identify the firm that is competitive and the one that is a monopoly. Explain how you know which is
Problems with Monopoly During the 1960s the three largest U.S. producers of automobiles (Ford, General Motors, and Chrysler)sold nearly 90 percent of the cars purchased by U.S. consumers. During the 30 years between 1970 and 2000 these firms lost about one-third of their market to foreign
Sharpen Your Skills: Auto Industry Review changes in the distribution of sales in the U.S. automobile market that were presented in the Sharpen Your Skills activity on page 199 of this chapter. Assume that the trend in sales between 1980 and 2002 demonstrated by the pie graphs continues for another
History There was a time when Nabisco, Post Cereals, Kellogg’s, and General Mills sold nearly 75 percent of the breakfast cereal purchased in the United States. These firms were part of an oligopoly, but those days are now gone. Describe what has happened to reduce the monopoly power of these
Business Law An important question today is whether limits should be placed on what consumers may download from the Internet.According to copyright law, those who produce literature, music, films, or works of art should be able to profit from what they create. They should, in effect, have a
Analyze Pricing in Oligopoly The two largest producers of commercial aircraft in the world are Airbus of Europe and the Boeing Corporation of the United States. Most economists regard the market for large commercial aircraft as a good example of an oligopoly. Describe what you think Boeing would do
True or False Consumers usually benefit from deregulation because of the resulting lower prices.
Each of the following is a basic federal antitrust law in the United States excepta. the Fair Labor Standards Act of 1938.b. the Clayton Act of 1914.c. the Sherman Act of 1890.d. the Federal Trade Commission Act of 1914.
True or False Government regulatory agencies are designed to protect the public’s interests.
Which of the following industries is most likely to be regulated by government?a. consumer productsb. electrical servicec. dry-cleaning serviced. precious jewels
True or False The minimum efficient scale is the greatest rate of output at which a firm takes full advantage of economies of scale.
Firms in an oligopolya. are totally independent from each other.b. are interdependent.c. always have excess capacity.d. none of the above is true.
In a(n) __?__ oligopoly, the product is identical across producers.
The demand curve facing an individual firm operating in perfect competitiona. is a vertical line drawn at the number of units.b. is a horizontal line drawn at the market price.c. slopes down from left to right.d. slopes up from left to right.
A firm that experiences __?__ can lower its average cost by selling more of the good.
Which of the following is not a way in which sellers in monopolistic competition differentiate their products?a. physical differencesb. location and servicesc. collusiond. product image
True or False One problem for society resulting from monopoly is that the monopoly may have too much influence on the political system.
Firms in monopolistic competitiona. all produce exactly the same product.b. all charge the same price.c. all earn the same profit.d. all work to differentiate their products.
Suppose a giant monopoly is created when one firm buys up all the individual firms in a perfectly competitive market. In this case, the __?__ curve becomes the monopolist’s demand curve.
True or False Most monopolies tend to last for a long time.
True or False By definition, all monopolies earn substantial profits.
Monopolies must lower the price of the products they sell in order toa. sell more output.b. earn a profit.c. shift the demand curve.d. meet their competition.
True or False Monopolies may emerge naturally when a firm has substantial economies of scale.
A firm operating in the __?__ market structure has no market power.
True or False The demand curve for a single firm in competition is a horizontal line.
Which of the following statements is not true of firms in perfect competition?a. All producers charge the same price.b. All producers make the same product.c. Each firm tries to sell more by reducing its price.d. There are no barriers to entry.
Government The U.S. Postal Service (USPS) lost billions of dollars in the decade between 1992 and 2002. In 2003, some people argued that the USPS should be privatized or sold to private businesses. What has happened to the USPS since then? Has its monopoly power been increased or decreased? Does it
Study the two demand curves below. One is for a drug manufactured by Acme Pharmaceuticals that thousands of people need in order to stay healthy. The other is for a particular brand of shampoo. In which case is demand elastic and in which case is it inelastic? Which of these products is Product A
What would happen to the market power of a firm that found, patented, and received FDA approval to market a drug that prevents HIV infections? Why might such a firm not charge an extremely high price for this drug?
Fifty years ago, the vast majority of shoes sold in the United States were manufactured in this country. In recent years, U.S.-made shoes have accounted for less than 10 percent of this market. How has foreign competition reduced the monopoly power of U.S. shoe producers?
The basic antitrust laws in the United States have not changed very much in many years. Still, over time, there has been a significant difference in the way these laws have been enforced. What could explain this situation?
Imagine there are two large discount stores in a small town. Describe one way in which consumers might be harmed if these stores merged and one way they might benefit.
Research In 2006 the American Broadcasting Company (ABC) charged $2.5 million for a 30-second advertisement on television during the Super Bowl. Investigate the cost of this type of advertising during the latest Super Bowl. Why are businesses willing to spend this amount for a 30-second
The graph below shows the long-run average cost curve (discussed in Chapter 5) for Sleepwell Mattresses, one of several firms that manufacture mattresses.At present, suppose the firm maximizes profit in the short run by producing at the rate of output where its long-run average cost is $150 per
In the 1990s, many nations that grew coffee beans tried to set up a cartel that would have limited coffee production and stabilized prices at a higher level.This effort failed. Explain why it is so hard to create a successful cartel when there are many producers.
Why can’t most oil producers compete successfully with large oil refiners such as Chevron, Shell Oil, or ExxonMobil?
There are probably 20 or more brands of laundry detergent in the grocery store where your family shops. Make a list of different ways in which producers try to differentiate one detergent brand from another. Why can some brands have prices that are much higher than the price of others and still
How could the U.S. government help U.S.producers regain their share of the U.S. motor vehicle market? Do you think the U.S. government should do these things? Explain your answer.
If U.S. producers wanted to regain a larger share of the U.S. motor vehicle market, how could they achieve their goal?
History Between 1880 and 1900, the Standard Oil Company came to control almost 90 percent of the production of oil products in the United States. It did this by buying up or driving other firms out of business. With this monopoly power, the firm’s owners were able to earn as much as a 20 percent
Advertising Although individual farmers do not purchase advertising for their products, it is common for groups of farmers to join together to do this. In New York, for example, the Upstate Milk Cooperative collects funds from thousands of dairy farmers and uses the money to buy advertisements for
Use data in the table to draw two graphs: the market demand and supply curve, and the individual demand curve for the Apex Coal Mine.Apex is able to produce a maximum of 1,000 tons of coal per month. What is the market equilibrium price? Explain how you were able to derive the individual demand
At one time, the American Telephone and Telegraph Corp. (AT&T) had a great deal of monopoly power and earned large profits. In recent years AT&T has lost money. What happened to AT&T’s monopoly power?
Identify a firm that operates in your community that you think has a significant amount of monopoly power. Explain why you chose this firm.
Three years ago, the town of Mt. Utopia had three fast-food restaurants. The town’s population has grown rapidly in the past two years. As the town grew, the sales and profits of these restaurants increased. There now are seven fastfood restaurants in Mt. Utopia. None of them earns a large
What characteristics of farms suggest that these firms operate in perfectly competitive markets?
Is the U.S. economy more competitive now than it used to be?
Why was OPEC created?
Why are some panty hose sold in egg-shaped cartons?
What’s so perfect about perfect competition?
What does a share of Microsoft stock have in common with one head of cattle?
Access EconNews Online at thomsonedu.com/school/econxtra. Click on “Supply and Demand” under “Economic Fundamentals.”Read the article entitled “If the Feds Won't Increase the Minimum Wage, Some States Will.” Then draw a graph showing the impact of the imposition of a minimum wage,
Make Predictions Predict how the equilibrium price of coffee would be affected by the following changes:a. Poor growing conditions for coffee beans(demand remains constant)b. A major advertising campaign in the United States by a group of the world’s coffee growers (supply remains constant)c. The
Sharpen Your Skills: Analyze Supply and Demand Graphs Between 2000 and June of 2003, the unemployment rate in the United States rose from 4.0 percent to 6.4 percent.This 2.4 percent increase added more than 3.6 million workers to the ranks of the unemployed in this country. People who are out of
Graphing Shifts in Demand and Supply On your graph, draw and label the shifts of demand and supply curves for tacos that would result from each of the following events.a. The cost of corn meal increases 50 percent.b. The price of pizza goes down 25 percent.c. The number of people who like tacos
Graphing Demand and Supply Construct a graph of the demand and supply for tacos from the data provided in the table in exercise 27.
Equilibrium On a separate sheet of paper, complete the table below: Demand and Supply Schedule for Tacos Price Quantity Quantity Surplus/ Per Taco Demanded Supplied Shortage Will the price rise or fall? $2.00 25 175 $1.75 50 150 $1.50 75 125 $1.25 100 100 $1.00 125 75 $0.75 150 50
__?__ is the difference between the total amount consumers would be willing and able to pay for a product and what they actually had to pay.
Suppose the current equilibrium price for natural gas is $1.05 per thousand cubic feet. The government decides to impose a price ceiling of $.90. This will causea. the quantity demanded to decrease and the quantity supplied to decrease.b. the quantity demanded to decrease and the quantity supplied
There is __?__ when a firm produces products at the lowest possible cost.
True or False If firms’ costs of production fall while the demand for their product grows, you can be sure the equilibrium price for the product will fall.
Each of the following will cause supply to increase excepta. workers are trained to be more efficient.b. a new, lower-cost source of electric power is found.c. firms invest in new technology that reduce their costs of production.d. a number of experienced workers retire and are replaced by new
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