Chapter 2 Test – Understanding Characteristics of Business

A business model explains how a company makes money.

• True

• False

Answer explanation

True. A business model outlines how a company generates revenue, detailing the strategies and processes involved in making money.

A franchise allows another person to use the company’s name for free.

• True

• False

Answer explanation

A franchise typically requires the franchisee to pay fees or royalties to use the company's name and brand. Therefore, the statement that a franchise allows use of the name for free is false.

A subscription model charges customers one time only.

• True

• False

Answer explanation

A subscription model typically involves recurring charges for ongoing access to a service, not a one-time fee. Therefore, the statement is false.

A sole proprietorship is owned by one person who keeps all profits.

• True

• False

Answer explanation

A sole proprietorship is indeed owned by one person, who retains all profits generated by the business. This structure allows for complete control and financial benefit to the owner, making the statement true.

Organizational design connects a company’s mission to its structure.

• True

• False

Answer explanation

True. Organizational design aligns a company's mission with its structure, ensuring that the organization effectively supports its goals and objectives.

Which of the following is an example of a direct sales model?

• Netflix

• Avon representative

• Spotify

• Walmart

Answer explanation

An Avon representative exemplifies a direct sales model by selling products directly to consumers, often through personal interactions, unlike Netflix, Spotify, and Walmart, which use subscription or retail models.

What is the main focus of the direct sales model?

• Online advertising

• Customer service and relationships

• Manufacturing efficiency

• Selling stock

Answer explanation

The direct sales model primarily emphasizes customer service and building relationships with clients, which is essential for fostering loyalty and repeat business.

Which of these is an example of the franchise model?

• Amazon

• Hilton Hotels

• Spotify

• Netflix

Answer explanation

Hilton Hotels is an example of the franchise model, where individual owners operate hotels under the Hilton brand, following its established business model and standards. In contrast, Amazon, Spotify, and Netflix are not franchises.

In a freemium model, what is the strategy?

• Customers pay a flat fee

• Services are free but extra features cost money

• Customers invest in stock

• Only nonprofits can use it

Answer explanation

In a freemium model, basic services are offered for free, while users can pay for additional features. This strategy attracts a larger user base, with the potential for revenue from those who choose to upgrade.

A business that charges monthly or yearly fees is using which model?

• Subscription

• Direct Sales

• Freemium

• Partnership

Answer explanation

A business that charges monthly or yearly fees operates on a subscription model, where customers pay regularly for continued access to a product or service.