Test Bank for Small Business Management Creating a Sustainable Competitive Advantage 8e
Timothy Hatten | All Chapters 1-16 | MCQs, True False, Essay Questions with Answers
, Hatten, Small Business Management, 8e
Chapter 1 - Complete Test Bank
Multiple Choice Questions
1. What characteristics of a business are commonly used to determine whether it is a small business?
A. Number of employees, sales revenue, value of assets, value of owner equity
B. Number of employees, return on investment, value of assets, value of debts
C. Sales revenue, return on investment, annual growth, value of owner equity
D. Sales revenue, value of assets, value of owner equity, value of debts
Correct Answer: A. Number of employees, sales revenue, value of assets, value of owner equity
2. The term "economy of scale" refers to which of the following?
A. increasing costs through the production of larger quantities
B. decreasing costs through the production of larger quantities
C. decreasing costs through the production of smaller quantities
D. increasing costs through the production of smaller quantities
ec k
n
Correct Answer: B. decreasing costs through the production of larger quantities
rS n
tio
3. Why has the number of U.S. college students studying entrepreneurship increased so dramatically since the
early 1970s?
to Ba
A. More students study business in the standard high school curriculum and wish to continue.
B. The economy has been uncertain, so starting one's own business seems like a good backup plan.
C. Large employers have worse pay and benefits than the typical startup.
Tu st
D. The cost of mistakes in time and money for a small business is high, and education can help prevent those mistakes.
Correct Answer: D. The cost of mistakes in time and money for a small business is high, and education can help
Te
prevent those mistakes.
4. Large telecommunications companies have an incentive to improve existing products and services to better
serve their customers, rather than invent new products. This best demonstrates what aspect of innovation in
business?
A. Research and development departments in large companies fuel innovation.
B. Compared to larger companies, small businesses are not financially equipped to innovate.
C. Real innovation tends to come from independent inventors and small businesses.
D. Large companies are too inflexible to handle real innovation.
Correct Answer: C. Real innovation tends to come from independent inventors and small businesses.
5. In order to take advantage of economies of scale, large businesses usually devote resources ______.
A. to producing selected quantities of products
B. to producing large quantities of products
C. to a given product for only a short time
D. flexibly so as to respond quickly to a changing market
Correct Answer: B. to producing large quantities of products
Chapter 1 - Page 1
,6. Big business competes based on mass production and, thus, lower prices. Small business can compete based
on ______.
A. specialty products and personalized service
B. manufacturing closer to markets
C. brand recognition and strong marketing
D. access to large amounts of capital
Correct Answer: A. specialty products and personalized service
7. The most common cause of business failure is ______.
A. choosing the wrong type of business ownership
B. starting a business that is too innovative
C. spending too much on marketing and salaries
D. lack of management experience and financing
Correct Answer: D. lack of management experience and financing
8. A business failure occurs when a business ______.
A. closes because the owner retires
B. ceases to exist because it is sold to another company
ec k
n
C. closes because demand for the product declines
rS n
tio
D. closes with financial losses to creditors
to Ba
Correct Answer: D. closes with financial losses to creditors
9. Ronald Meese is the owner and operator of Meese Mining. To be considered a small business by the Small
Business Association (SBA), what is the maximum number of employees that Ronald can employ?
A. 50
Tu st
B. 100
Te
C. 200
D. 500
Correct Answer: D. 500
10. William Smith works for a data processing company that employs more than 500 employees at certain times of
the year but generates annual revenue of less than $25 million. Based on this information, the Small Business
Association (SBA) would consider the company a ______.
A. conglomerate
B. corporation
C. small business
D. franchise
Correct Answer: C. small business
11. John Deere relies on hundreds of vendors to produce component parts for its farm equipment. This illustrates
which secret of small business success?
A. Small businesses have competitive advantage over large businesses.
B. A symbiotic relationship exists between small and large businesses.
C. Small businesses perform more efficiently than larger ones.
D. Small businesses are able to innovate more easily than larger ones.
Chapter 1 - Page 2
, Correct Answer: B. A symbiotic relationship exists between small and large businesses.
12. You own a small business that offers printing services, including making high-speed color copies. You are
currently the only company in your metro area that offers such a service. You currently have ______.
A. creative destruction
B. a competitive advantage
C. a qualitative advantage
D. a capital advantage
Correct Answer: B. a competitive advantage
13. Linda Waters, a chemical engineer at a large pharmaceutical company, has led a team in the development of a
new drug that effectively treats the common flu faster than any other drug on the market. This is an example of
what type of innovation?
A. process innovation
B. product innovation
C. service innovation
D. management innovation
Correct Answer: B. product innovation
14. Allen Campbell's small business selling tires has recently closed due to credit foreclosure. This is an example
ec k
n
of ______.
rS n
tio
A. voluntary withdrawal
to Ba
B. bankruptcy
C. business failure
D. adequate management
Tu st
Correct Answer: C. business failure
15. Sam had to shut down her home-based consulting company after only two years because she had not
Te
anticipated the 80-hour weeks required to service clients and acquire new ones. This is an example of which
mistake leading to business failure?
A. failing to understand the level of commitment required
B. neglecting to establish a road map for the future
C. not using employees effectively
D. mishandling finances
Correct Answer: A. failing to understand the level of commitment required
16. Lawrence is starting an interior decorating business with his brother. To begin with, he and his brother will not
only be the owners but also the sole workers. However, they plan to contract work out to other industry
professionals as soon as they have enough clients, when annual revenues will be about $500,000. If Lawrence
seeks specialized sources of funding, he should approach organizations and investors that support which kind of
business?
A. large business
B. corporation
C. microbusiness
D. nonprofit organization
Correct Answer: C. microbusiness
Chapter 1 - Page 3
Timothy Hatten | All Chapters 1-16 | MCQs, True False, Essay Questions with Answers
, Hatten, Small Business Management, 8e
Chapter 1 - Complete Test Bank
Multiple Choice Questions
1. What characteristics of a business are commonly used to determine whether it is a small business?
A. Number of employees, sales revenue, value of assets, value of owner equity
B. Number of employees, return on investment, value of assets, value of debts
C. Sales revenue, return on investment, annual growth, value of owner equity
D. Sales revenue, value of assets, value of owner equity, value of debts
Correct Answer: A. Number of employees, sales revenue, value of assets, value of owner equity
2. The term "economy of scale" refers to which of the following?
A. increasing costs through the production of larger quantities
B. decreasing costs through the production of larger quantities
C. decreasing costs through the production of smaller quantities
D. increasing costs through the production of smaller quantities
ec k
n
Correct Answer: B. decreasing costs through the production of larger quantities
rS n
tio
3. Why has the number of U.S. college students studying entrepreneurship increased so dramatically since the
early 1970s?
to Ba
A. More students study business in the standard high school curriculum and wish to continue.
B. The economy has been uncertain, so starting one's own business seems like a good backup plan.
C. Large employers have worse pay and benefits than the typical startup.
Tu st
D. The cost of mistakes in time and money for a small business is high, and education can help prevent those mistakes.
Correct Answer: D. The cost of mistakes in time and money for a small business is high, and education can help
Te
prevent those mistakes.
4. Large telecommunications companies have an incentive to improve existing products and services to better
serve their customers, rather than invent new products. This best demonstrates what aspect of innovation in
business?
A. Research and development departments in large companies fuel innovation.
B. Compared to larger companies, small businesses are not financially equipped to innovate.
C. Real innovation tends to come from independent inventors and small businesses.
D. Large companies are too inflexible to handle real innovation.
Correct Answer: C. Real innovation tends to come from independent inventors and small businesses.
5. In order to take advantage of economies of scale, large businesses usually devote resources ______.
A. to producing selected quantities of products
B. to producing large quantities of products
C. to a given product for only a short time
D. flexibly so as to respond quickly to a changing market
Correct Answer: B. to producing large quantities of products
Chapter 1 - Page 1
,6. Big business competes based on mass production and, thus, lower prices. Small business can compete based
on ______.
A. specialty products and personalized service
B. manufacturing closer to markets
C. brand recognition and strong marketing
D. access to large amounts of capital
Correct Answer: A. specialty products and personalized service
7. The most common cause of business failure is ______.
A. choosing the wrong type of business ownership
B. starting a business that is too innovative
C. spending too much on marketing and salaries
D. lack of management experience and financing
Correct Answer: D. lack of management experience and financing
8. A business failure occurs when a business ______.
A. closes because the owner retires
B. ceases to exist because it is sold to another company
ec k
n
C. closes because demand for the product declines
rS n
tio
D. closes with financial losses to creditors
to Ba
Correct Answer: D. closes with financial losses to creditors
9. Ronald Meese is the owner and operator of Meese Mining. To be considered a small business by the Small
Business Association (SBA), what is the maximum number of employees that Ronald can employ?
A. 50
Tu st
B. 100
Te
C. 200
D. 500
Correct Answer: D. 500
10. William Smith works for a data processing company that employs more than 500 employees at certain times of
the year but generates annual revenue of less than $25 million. Based on this information, the Small Business
Association (SBA) would consider the company a ______.
A. conglomerate
B. corporation
C. small business
D. franchise
Correct Answer: C. small business
11. John Deere relies on hundreds of vendors to produce component parts for its farm equipment. This illustrates
which secret of small business success?
A. Small businesses have competitive advantage over large businesses.
B. A symbiotic relationship exists between small and large businesses.
C. Small businesses perform more efficiently than larger ones.
D. Small businesses are able to innovate more easily than larger ones.
Chapter 1 - Page 2
, Correct Answer: B. A symbiotic relationship exists between small and large businesses.
12. You own a small business that offers printing services, including making high-speed color copies. You are
currently the only company in your metro area that offers such a service. You currently have ______.
A. creative destruction
B. a competitive advantage
C. a qualitative advantage
D. a capital advantage
Correct Answer: B. a competitive advantage
13. Linda Waters, a chemical engineer at a large pharmaceutical company, has led a team in the development of a
new drug that effectively treats the common flu faster than any other drug on the market. This is an example of
what type of innovation?
A. process innovation
B. product innovation
C. service innovation
D. management innovation
Correct Answer: B. product innovation
14. Allen Campbell's small business selling tires has recently closed due to credit foreclosure. This is an example
ec k
n
of ______.
rS n
tio
A. voluntary withdrawal
to Ba
B. bankruptcy
C. business failure
D. adequate management
Tu st
Correct Answer: C. business failure
15. Sam had to shut down her home-based consulting company after only two years because she had not
Te
anticipated the 80-hour weeks required to service clients and acquire new ones. This is an example of which
mistake leading to business failure?
A. failing to understand the level of commitment required
B. neglecting to establish a road map for the future
C. not using employees effectively
D. mishandling finances
Correct Answer: A. failing to understand the level of commitment required
16. Lawrence is starting an interior decorating business with his brother. To begin with, he and his brother will not
only be the owners but also the sole workers. However, they plan to contract work out to other industry
professionals as soon as they have enough clients, when annual revenues will be about $500,000. If Lawrence
seeks specialized sources of funding, he should approach organizations and investors that support which kind of
business?
A. large business
B. corporation
C. microbusiness
D. nonprofit organization
Correct Answer: C. microbusiness
Chapter 1 - Page 3
