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Microeconomics Quiz 2

Q.1

The purpose of a business is the provision of goods and services in exchange for money. The major business goal is making profits.

Q.2

a) Marginal cost is the change in the firm's total cost resulting from one unit change in the output.

b) Industry is a group of companies or firms that produce the same goods and services, for example, the oil industry

c) Fixed cost is the expense incurred by a firm or business regardless of the level of output. This classification includes salaries, rent or the interest of the borrowed capital

d) Separation of ownership and control is the delegation of duties by the financers of an enterprise, to people who are qualified in the running of a company

e) A plant is a workplace with several departments usually in one location. For example a cement plant

f) Three sources of capital include debt financing, leasing, and equity financing

g) Cost leadership occurs when a company reduces the prices of goods and services so that they are low than the competitors thereby increasing its competitive advantages over the rival companies.

h) Market equilibrium occurs when the level of supplies is equal to the level of demand for a particular good or service.

i) A surplus condition occurs when the supply of a commodity is more than the demand

j) Consumer saturation occurs when no further growth can be achieved regarding new customers because there is no improvement in goods and services

3. Advantages

a) A corporation is formed by a larger pool of individuals than a partnership; hence, it provides more money for investment than the latter.

b) A corporation provides a limited liability for the shareholders while a partnership has no limited liability clause unless it is a limited liability partnership.

c) A corporation assumes a perpetual