Business in Action, 9e (Bovee/Thill)
Chapter 1 Developing a Business Mindset
1) is money that an organization brings in through the sale of its goods and services.
A) Competitive advantage
B) Revenue
C) Sales
D) Capital investment
E) Finance
Answer: B
Explanation: Revenue is the money a company brings in through the sale of goods and services.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
2) The risk and reward relationship .
A) is a key aspect of social responsibility
B) applies only to service-intensive businesses
C) is essential to the counter-cyclical business model
D) is fundamental to businesses in every modern economy
E) is an outdated concept that's been replaced by corporate sustainability
Answer: D
Explanation: A company needs to see some promise of reward before it will decide to accept the
risks involved in creating and selling products. However, to ensure responsible behavior, these
risks need to stay attached to those decisions, meaning that if the decisions turn out bad, that
company should suffer the consequences.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
3) A(n) is a framework of how a business intends to generate revenue.
A) business model
B) strategic management tool
C) profitability analysis
D) competitive advantage
E) entrepreneurial mindset
Answer: A
Explanation: A company's business model is a clear, simple outline of how the business intends
to generate revenue.
Difficulty: 1: Easy
AACSB: Analytical thinking
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
1
Copyright © 2020 Pearson Education, Inc.
,4) is the term used to describe the difference between revenue and expenses.
A) Economies of scale
B) Interest
C) Sales
D) Owner's equity
E) Profit
Answer: E
Explanation: Profit is the amount of money left over after all the costs involved in doing
business, have been deducted from revenue.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
5) refers to some aspect of a product or company that makes it more appealing to
target customers.
A) Competitive advantage
B) Economies of scale
C) Horizontal integration
D) Vertical integration
E) Barrier to entry advantage
Answer: A
Explanation: Competitive advantage refers to some aspect of a product or company that makes it
more appealing to target customers.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
6) An organization that seeks to operate efficiently and effectively to achieve its goals without
focusing on profit as a motive is a .
A) business intermediary
B) nonprofit organization
C) service business
D) government-owned corporation
E) goods-producing business
Answer: B
Explanation: Not-for-profit organizations (also known as nonprofit organizations) such as
museums, most universities, and charities do not have a profit motive.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
2
Copyright © 2020 Pearson Education, Inc.
,7) If individuals and companies believe they can pursue rewards without facing the risks that
should be attached to those pursuits, they are more likely to engage in irresponsible and even
unethical behavior. This situation is known as a(n) .
A) ethical dilemma
B) professional dilemma
C) barrier to entry
D) competitive advantage
E) moral hazard
Answer: E
Explanation: If individuals and companies believe they can pursue rewards without facing the
risks that should be attached to those pursuits, they are more likely to engage in irresponsible and
even unethical behavior—a situation known as moral hazard.
Difficulty: 2: Moderate
AACSB: Ethical understanding and reasoning
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
8) Business is any profit-seeking organization that provides goods and services designed to
satisfy customers' needs.
Answer: TRUE
Explanation: In a general sense business can be defined as any profit-seeking organization that
provides goods and services designed to satisfy customers' needs.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
9) Profit refers to the money the company brings in through the sale of goods and services.
Answer: FALSE
Explanation: Profit is the amount of money left over after expenses—all the costs involved in
doing business—have been deducted from revenue.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
10) Businesses add value by transforming lower-value inputs (like paper and ink) into higher-
value outputs (like textbooks).
Answer: TRUE
Explanation: Businesses add value by transforming lower-value inputs to higher-value outputs.
In other words, they make goods and services more attractive from the buyer's perspective.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
3
Copyright © 2020 Pearson Education, Inc.
, 11) In a free-market economy, companies generally have limited autonomy in deciding which
customers they want to focus on and how they want to compete.
Answer: FALSE
Explanation: In a free-market economy, companies generally have considerable freedom in
deciding which customers they want to focus on and how they want to compete.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
12) A company has competitive advantage when its products are more appealing to its chosen
customers.
Answer: TRUE
Explanation: Competitive advantage makes a company's products or the company as a whole
more appealing to its chosen customers.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
13) Assets refer to the tangible economic resources owned by a firm.
Answer: FALSE
Explanation: Assets refer to anything of meaningful value, from patents and brand names to real
estate and company stock.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
14) A firm uses competitive advantage to reduce its costs. Using competitive advantage is an
example of barrier to entry.
Answer: FALSE
Explanation: Barrier to entry refers to any resource or capability a company must have before it
can start competing in a given market.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
4
Copyright © 2020 Pearson Education, Inc.
Chapter 1 Developing a Business Mindset
1) is money that an organization brings in through the sale of its goods and services.
A) Competitive advantage
B) Revenue
C) Sales
D) Capital investment
E) Finance
Answer: B
Explanation: Revenue is the money a company brings in through the sale of goods and services.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
2) The risk and reward relationship .
A) is a key aspect of social responsibility
B) applies only to service-intensive businesses
C) is essential to the counter-cyclical business model
D) is fundamental to businesses in every modern economy
E) is an outdated concept that's been replaced by corporate sustainability
Answer: D
Explanation: A company needs to see some promise of reward before it will decide to accept the
risks involved in creating and selling products. However, to ensure responsible behavior, these
risks need to stay attached to those decisions, meaning that if the decisions turn out bad, that
company should suffer the consequences.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
3) A(n) is a framework of how a business intends to generate revenue.
A) business model
B) strategic management tool
C) profitability analysis
D) competitive advantage
E) entrepreneurial mindset
Answer: A
Explanation: A company's business model is a clear, simple outline of how the business intends
to generate revenue.
Difficulty: 1: Easy
AACSB: Analytical thinking
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
1
Copyright © 2020 Pearson Education, Inc.
,4) is the term used to describe the difference between revenue and expenses.
A) Economies of scale
B) Interest
C) Sales
D) Owner's equity
E) Profit
Answer: E
Explanation: Profit is the amount of money left over after all the costs involved in doing
business, have been deducted from revenue.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
5) refers to some aspect of a product or company that makes it more appealing to
target customers.
A) Competitive advantage
B) Economies of scale
C) Horizontal integration
D) Vertical integration
E) Barrier to entry advantage
Answer: A
Explanation: Competitive advantage refers to some aspect of a product or company that makes it
more appealing to target customers.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
6) An organization that seeks to operate efficiently and effectively to achieve its goals without
focusing on profit as a motive is a .
A) business intermediary
B) nonprofit organization
C) service business
D) government-owned corporation
E) goods-producing business
Answer: B
Explanation: Not-for-profit organizations (also known as nonprofit organizations) such as
museums, most universities, and charities do not have a profit motive.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
2
Copyright © 2020 Pearson Education, Inc.
,7) If individuals and companies believe they can pursue rewards without facing the risks that
should be attached to those pursuits, they are more likely to engage in irresponsible and even
unethical behavior. This situation is known as a(n) .
A) ethical dilemma
B) professional dilemma
C) barrier to entry
D) competitive advantage
E) moral hazard
Answer: E
Explanation: If individuals and companies believe they can pursue rewards without facing the
risks that should be attached to those pursuits, they are more likely to engage in irresponsible and
even unethical behavior—a situation known as moral hazard.
Difficulty: 2: Moderate
AACSB: Ethical understanding and reasoning
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
8) Business is any profit-seeking organization that provides goods and services designed to
satisfy customers' needs.
Answer: TRUE
Explanation: In a general sense business can be defined as any profit-seeking organization that
provides goods and services designed to satisfy customers' needs.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
9) Profit refers to the money the company brings in through the sale of goods and services.
Answer: FALSE
Explanation: Profit is the amount of money left over after expenses—all the costs involved in
doing business—have been deducted from revenue.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
10) Businesses add value by transforming lower-value inputs (like paper and ink) into higher-
value outputs (like textbooks).
Answer: TRUE
Explanation: Businesses add value by transforming lower-value inputs to higher-value outputs.
In other words, they make goods and services more attractive from the buyer's perspective.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
3
Copyright © 2020 Pearson Education, Inc.
, 11) In a free-market economy, companies generally have limited autonomy in deciding which
customers they want to focus on and how they want to compete.
Answer: FALSE
Explanation: In a free-market economy, companies generally have considerable freedom in
deciding which customers they want to focus on and how they want to compete.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
12) A company has competitive advantage when its products are more appealing to its chosen
customers.
Answer: TRUE
Explanation: Competitive advantage makes a company's products or the company as a whole
more appealing to its chosen customers.
Difficulty: 1: Easy
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
13) Assets refer to the tangible economic resources owned by a firm.
Answer: FALSE
Explanation: Assets refer to anything of meaningful value, from patents and brand names to real
estate and company stock.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
14) A firm uses competitive advantage to reduce its costs. Using competitive advantage is an
example of barrier to entry.
Answer: FALSE
Explanation: Barrier to entry refers to any resource or capability a company must have before it
can start competing in a given market.
Difficulty: 2: Moderate
AACSB: Application of knowledge
LO: 1.1: Explain the concept of adding value in a business, and identify four useful ways to
categorize businesses.
4
Copyright © 2020 Pearson Education, Inc.
