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Week 8 · Midterm study guide

Midterm Exam — Study Guide

Introduction to Business Free sample edition

Coverage — what the midterm covers

The midterm is cumulative over Weeks 1–7. It opens in the Week 8 module and closes at the due time your instructor sets. There is no time limit, and you get one attempt. The questions appear one at a time, and you cannot go back once you move on.

Format: 25 questions, and every question counts the same. Twenty-two ask you to pick one option, and three ask you to judge a statement as true or false. Every list, schedule, or set of figures a question uses is written out in words inside the question. A few questions ask for a short calculation, and scratch paper is enough for each one.

What is in scope, with the number of midterm questions on each course objective:

Midterm coverage by course objective: the weeks its questions come from, its main skills, and its number of questions out of 25
Course objective Weeks its questions come from Main skills Questions
The business and its environment (Objective 1) 1, 2, 3, and 7 Revenue and profit; the not-for-profit contrast; the SWOT's inside and outside; the PESTEL scan; supply and demand; the factors of production; market segmentation 9
Entrepreneurship, the plan, and the legal form (Objective 2) 3 and 4 Small business and the SBA's size standards; the five forces; the start-up list; the ownership forms and their liability; franchising 8
Ethics and social responsibility (Objective 3) 5 Ethics and legality; the tools that shape conduct; the shareholder and stakeholder positions; the net change in positions 3
Operations and pricing (Objective 4) 6 and 7 The bottleneck and capacity; quality approaches; the four Ps; fixed and variable costs; the break-even 5

The business and its environment carries the most questions, 9, and 6 of them come from Week 1, so put the most review time on the SWOT, the PESTEL scan, and the not-for-profit contrast. Entrepreneurship, the plan, and the legal form comes next with 8, split evenly between Weeks 3 and 4. By week, Week 1 has 6 questions, Week 3 has 5, Week 4 has 4, Weeks 5, 6, and 7 have 3 each, and Week 2 has 1. By difficulty, 8 questions are easy, 14 are medium, and 3 are hard. Week 8's organization chart belongs to Objective 5, and the syllabus places it on the final, not the midterm.

Topic-by-topic review

Each week gives the key idea in plain words, the course's own definitions, the coffee cart's numbers for that week, and the mistakes students make most often with their cures. Each week also names the one tool or the one distinction it asks for, the way Week 8 reviewed it. Every coffee-cart figure is illustrative, built for this course. The deeper review for every topic is that week's chapter, lecture page, and slide deck.

Week 1 — The idea and its environment

  • The distinction: revenue vs. profit, and inside vs. outside. Revenue is what comes in; profit is what is left. Strengths and weaknesses sit inside the business; opportunities and threats sit outside it.
  • Key idea: a busy day is not the same as a good day. Money can pour in while costs pour out faster, so the course always asks what is left.
  • Definitions: a business is any organization that sells goods or services with the aim of taking in more money than it spends. Revenue is the money that comes in from selling goods or services, before anything is paid out. Expenses are the money that goes out to run a business, such as supplies, wages, fuel, and insurance. Profit is what is left when expenses are subtracted from revenue; when expenses are larger than revenue, the difference is a loss instead. Risk is the chance that a business's expenses end up larger than its revenue, so that it takes a loss.
  • The not-for-profit contrast: a not-for-profit organization brings in revenue and pays expenses as a business does but puts any surplus back into its mission instead of paying it out to owners. It can end a year with money left over; it does not pay that money out to owners.
  • Stakeholders: a stakeholder is anyone who can affect a business or is affected by it: its owners, employees, customers, suppliers, lenders, the community, and government.
  • Factors of production: the resources used to make goods and services, which economics conventionally names as four: natural resources, labor, capital (the tools, machines, equipment, and buildings that are made to help produce other goods and services), and entrepreneurship (the work of spotting a chance to sell something, combining the other resources to do it, and carrying the risk that it fails). Some courses add knowledge or information as a fifth, so the course never keys a count.
  • The external environment: the forces outside a business that it cannot control but must respond to. PESTEL is a checklist for scanning it for political, economic, social, technological, environmental, and legal forces. Other versions use other letters, such as PEST or PESTLE, so the letters are never keyed. Competitors and the global setting are weighed alongside the scan, not as one of its letters.
  • The SWOT, a classroom model and a planning tool with no inventor named: it sorts a situation into strengths and weaknesses, which sit inside the organization, and opportunities and threats, which sit outside it. Two questions do the sorting: inside or outside, and helps or hurts.
  • Course example: the coffee cart's SWOT. Strengths: low fixed costs, and it can move to where the customers are. Weaknesses: one espresso machine, and one person at the counter. Opportunities: an office building opening two blocks away, and a weekend farmers' market looking for vendors. Threats: a chain café opening nearby, and rising bean prices. The tally: 2 + 2 = 4 inside entries, 2 + 2 = 4 outside entries, and 4 + 4 = 8 entries in all.
  • Predictable mistakes → cures: (1) Revenue read as profit. Cure: ask what is left after the expenses. (2) A not-for-profit read as an organization that "cannot make money". Cure: it can run a surplus; it puts the surplus back into its mission. (3) Good news outside the business filed as a strength. Cure: ask who controls it; the office building is outside the cart, so it is an opportunity. (4) Stakeholders read as shareholders only. Cure: name all seven groups. (5) A rival filed under a PESTEL letter. Cure: competitors sit beside the scan.

Week 2 — The market it sells into

  • The tool: the supply-and-demand schedule, read to its equilibrium. The placement: the cart in monopolistic competition.
  • Key idea: a price is where buyers and sellers meet, not a number one side picks alone.
  • Economic systems, sorted by two questions, who owns the productive resources and who decides what gets produced. A market economy is one in which private individuals and businesses own the productive resources and prices are set by buyers and sellers. A command economy is one in which central planners decide what gets produced, how much of it, and how resources are used. Socialism is a system in which the government owns or closely directs key industries. A mixed economy combines private ownership and market prices with a government role in owning, directing, or regulating parts of the economy; nearly every country runs one. These are positions with reasons on each side. The case for markets: prices carry information and reward new ideas and careful use of resources; critics answer that markets can leave people without basics and ignore harms to others. The case for more planning: resources can be steered toward shared goals; critics answer that planners lack the information prices carry. Smith (1776), Wealth of Nations, is named as the classic case for markets. The course gives no verdict.
  • Definitions: demand is the amount of a good that buyers want to purchase at each possible price, read as a whole schedule of prices and amounts. Supply is the amount of a good that sellers want to offer for sale at each possible price. Equilibrium is the price at which the amount buyers want to purchase matches the amount sellers want to sell. A shortage is the gap that opens at a price below equilibrium, when buyers want more than sellers offer; it tends to push the price up. A surplus, in a market, is the gap that opens at a price above equilibrium; it tends to push the price down, and it is a different idea from the money a not-for-profit has left over. A shift of demand is a change in the amount buyers want at every price at once, caused by something other than the good's own price.
  • Market structures: perfect competition (very many sellers of an identical product, none of whom can set the price), monopolistic competition (many sellers of slightly different products and easy entry), oligopoly (a handful of large sellers and steep barriers that keep new sellers out), and monopoly (a single seller protected by high barriers to entry). The Sherman Act (1890) is the antitrust law the course names as the one that polices monopoly.
  • Health indicators and policy: growth, measured by GDP (gross domestic product: the total value of the final goods and services an economy produces in a year, named and never computed), employment, and price stability. Fiscal policy is government spending and taxation, set by Congress and the President. Monetary policy is run by the Federal Reserve toward maximum employment and stable prices.
  • Course example: the farmers'-market strawberry schedule, a classroom model. At 5 dollars a pint, buyers want 400 pints and sellers offer 400, so the equilibrium is 5 dollars and 400 pints. At 4 dollars, the shortage = 500 − 300 = 200 pints. A summer festival adds 200 pints of demand at every price, and the new equilibrium is 6 dollars and 500 pints. The cart sits in monopolistic competition: many sellers, each drink a little different, and easy entry.
  • Predictable mistakes → cures: (1) A higher price read as "more demand". Cure: a price change moves buyers along the same schedule; a shift changes the amount at every price. (2) A shortage read as "the sellers ran out". Cure: it means the price is under the equilibrium price. (3) Monopolistic competition read as a kind of monopoly. Cure: it has many sellers and easy entry. (4) Fiscal policy credited to the Federal Reserve. Cure: Congress and the President set spending and taxes. (5) A real country fitted into one pure box. Cure: nearly every country runs a mixed economy.

Week 3 — From idea to plan

  • The calculation: the start-up list must equal the funding plan. The framework: the five forces.
  • Key idea: a plan turns "I have an idea" into "here is what it costs, where the money comes from, and why it can earn money."
  • Definitions: an entrepreneur is a person who starts and runs a new venture and carries the risk that it fails. Comfort with uncertainty, persistence, and initiative are common tendencies, never a checklist. A small business is a business that falls under the SBA's size standard for its industry, a limit based on the number of employees or the amount of annual receipts. According to the SBA Office of Advocacy's Frequently Asked Questions About Small Business 2026, 99.9 percent of U.S. businesses are small; the count is about 36 million in words, because it is revised every edition.
  • The plan: a business plan is a written description of a business that says what it sells, to whom, how it will run, how it will be funded, and how it will earn money; owners revise it as the business changes. The SBA's traditional plan has eight sections: executive summary, company description, market analysis, organization and management, service or product line, marketing and sales, funding request, and financial projections. The lean startup plan sums up a business's key elements on about one page so the idea can be tested quickly.
  • The five forces, a classroom model from Porter (1979), "How Competitive Forces Shape Strategy": the threat of new entrants, the bargaining power of customers, the bargaining power of suppliers, the threat of substitute products or services, and rivalry among existing competitors. They are five pressures on an industry, not five competitors.
  • Course example: the cart's start-up needs, 20,000 + 2,000 + 8,000 = 30,000 dollars, match its funding sources, 20,000 of the owner's money + a 10,000-dollar equipment loan = 30,000 dollars. The loan costs 10 percent a year, so the first year's interest = 10,000 × 0.10 = 1,000 dollars. In the five forces, the chain café is rivalry and a possible new entrant, the bean supplier holds supplier power, customers who can walk to another cart hold buyer power, and bottled cold brew in a grocery store is a substitute.
  • Predictable mistakes → cures: (1) A plan read as a document written once and filed. Cure: owners revise it as the business changes. (2) "Small business" read as fewer than 10 employees everywhere. Cure: the SBA's standard varies by industry. (3) The funding request read as a promise of profit. Cure: it says how much money is needed and for what. (4) An entrepreneur's traits read as a checklist. Cure: they are tendencies. (5) The five forces read as five competitors. Cure: only rivalry is about the competitors already there.

Week 4 — Choosing a legal form

  • The distinction: the forms' liability. Who pays the business's debts if it fails?
  • Key idea: the legal form decides whether a failed business's debts can follow the owner home.
  • Definitions: a sole proprietorship is a business owned by one person, easy to start, in which the owner answers personally for every business debt and the business ends with the owner. Unlimited liability is an owner's duty to pay the business's debts out of personal assets, such as savings or a car, with no cap on the amount. A general partnership is owned by two or more general partners who share its management, its profits, and unlimited personal liability for its debts; a written partnership agreement sets out who puts in what, who decides what, how profits are shared, and what happens if a partner wants out. A corporation is a business that the law treats as a legal person separate from its owners, so it can own property, owe debts, and continue after its owners change. Limited liability is protection that caps an owner's loss from a business's debts at what the owner put into the business. A limited liability company is a business structure created under state law, often called an LLC, that gives its owners limited liability without being a corporation. The IRS also names the S corporation, and cooperatives are named as another form. Every tax point is general education, never advice.
  • Personal exposure is the most an owner could lose personally if a business fails: the money the owner put in plus any business debt the owner must repay from personal assets.
  • Franchising and mergers: in a franchise, a business owner pays for the right to run an outlet under another company's brand and system in a defined territory. The franchisor owns the brand and supplies its name, operating system, training, and ongoing support. The franchisee pays fees for that right without owning the brand. The FTC's Franchise Rule requires a franchisor to give a prospective franchisee a disclosure document before the sale, covering 23 specified items. A merger combines two companies into one; an acquisition is one company buying another. Mergers come in three types: horizontal (same product at the same stage), vertical (different stages of making and selling one product), and conglomerate (unrelated lines of business).
  • Course example: the cart's ownership-form comparison. As a sole proprietor, the owner's worst-case exposure = 20,000 + 10,000 = 30,000 dollars: the savings plus the whole loan. As a single-member LLC, the owner could lose the 20,000 put in but not the 10,000-dollar loan, so the shield removes 30,000 − 20,000 = 10,000 dollars. In a two-person partnership, the loan can be collected from either general partner's personal assets, with no cap at half each. The case chooses the LLC for its liability shield; that choice belongs to the illustrative case and is not advice.
  • Predictable mistakes → cures: (1) A sole proprietor shielded because the business has its own name. Cure: a trade name creates no separate legal person. (2) An LLC read as a kind of corporation. Cure: state law creates it as its own form. (3) A franchisee read as owning the brand. Cure: the franchisee buys the right to use it. (4) "Limited liability" read as "cannot lose money". Cure: owners can lose what they put in. (5) Each partner read as owing only half a debt. Cure: each general partner answers for the whole debt.

Week 5 — What the business owes

  • The distinction: ethics vs. legality. The two positions: shareholder and stakeholder.
  • Key idea: the law sets a floor; ethics asks what is right above it.
  • Definitions: business ethics is the standards of right and wrong that guide the choices people make in a business, including choices the law leaves open. Legality is whether the law allows an act; the law sets a minimum that conduct must not fall below, so a legal act can still be unethical. The ethical-reasoning questions are a short set a manager can run on any decision: is it legal, is it fair to everyone it touches, and would I be comfortable if it were public.
  • Shaping conduct: a code of ethics writes the expected conduct down; ethics training shows people how to use it when the right choice at work is unclear; leadership by example has managers follow the same rules they ask of others, in plain view; and a protected reporting channel lets a worker report suspected wrongdoing without being punished for a good-faith report. A whistleblower is a worker or other insider who reports suspected wrongdoing to someone who can act on it.
  • Two frameworks, both classroom models: the pyramid of corporate social responsibility, Carroll (1991), "The pyramid of corporate social responsibility", Business Horizons, stacks economic responsibility at the base, then legal, then ethical, with philanthropic at the top. The triple bottom line, associated with Elkington and his 1997 book Cannibals with Forks, weighs a business's results on profit, people, and planet instead of on profit alone. It is not an accounting standard every firm must report.
  • The two positions, with no verdict: the shareholder position, Friedman (1970), "The Social Responsibility of Business Is to Increase Its Profits", The New York Times Magazine: within the law and ethical custom, a corporate executive's duty runs to the owners who employ them. The stakeholder position, Freeman (1984), Strategic Management: A Stakeholder Approach: a firm is managed for everyone who can affect it or is affected by it, not for its owners alone. Each side has its reasons, and the choice between them is yours.
  • Course example: the illustrative appliance-parts plant with 120 employees automates one line, eliminating 40 positions and retraining 15 of those workers for maintenance. Net change in positions = 40 − 15 = 25 positions, so the plant goes from 120 to 120 − 25 = 95 employees. Both positions accept that count; they differ on whether the change is right.
  • Predictable mistakes → cures: (1) "Ethical means legal". Cure: the law is only the floor. (2) Corporate social responsibility read as charity only. Cure: the pyramid's base is economic and its next level is legal. (3) Friedman's position read as "anything goes". Cure: his essay keeps the law and ethical custom as limits. (4) The triple bottom line read as a required accounting standard. Cure: it is a classroom model. (5) The net change read as the whole story. Cure: the count is a fact, and the judgment is a separate question. (6) A posted code read as enough. Cure: it needs training, leaders who follow it, and a safe way to report.

Week 6 — Making the product

  • The calculation: the bottleneck and capacity.
  • Key idea: a process can go no faster than its slowest step.
  • Definitions: operations management is the work of planning, running, and improving the process that turns a business's inputs into the goods or services it sells, for goods and for services alike. Mass production makes large numbers of identical items the same way every time. Mass customization makes items from standard parts and steps while letting each buyer choose some features. Customization makes each item from scratch to one buyer's own wishes. A continuous process runs for long stretches without stopping; an intermittent process stops and resets to make different outputs.
  • Planning the work: the location decision weighs nearness to customers, suppliers, and workers against what each place costs. Resource planning covers the inventory, the suppliers, and the schedule. A Gantt chart shows each task of a project as a horizontal bar against a timeline. Production control tracks the work against its plan and corrects course when something slips.
  • The process: a process map lists how a product moves from start to finish, with the time each step takes. The bottleneck is the slowest step, the one that limits how much the whole process can produce. Capacity is the most output a process can produce in a given time, set by its slowest step: minutes in an hour ÷ the bottleneck's step time.
  • Quality: total quality management (everyone works to improve every process continuously, instead of leaving quality to an inspection at the end); Six Sigma (introduced at Motorola in 1986, aiming for no more than 3.4 defects per 1,000,000 opportunities, through define, measure, analyze, improve, and control); lean production (removing every step that adds no value for the customer); JIT inventory (materials arrive as they are needed, so a business keeps a small, steady stock instead of a large pile); and ISO 9000, a family of international standards for quality management.
  • Information systems and cybersecurity: an information system holds the data a business keeps, such as sales, customers, suppliers, and payroll. The common threats are phishing messages, malicious software such as ransomware, unauthorized access to accounts, and lost or stolen devices. The basic protections are recognizing and reporting phishing, strong passwords with a password manager, multifactor authentication at sign-in, prompt software updates, and regular backups.
  • Course example: the cart's counter takes 1 minute per drink and drink preparation takes 2 minutes on the one espresso machine, so the machine is the bottleneck. Capacity = 60 ÷ 2 = 30 drinks an hour, or 30 × 4 = 120 drinks in a four-hour morning rush. With a second machine and a second person, preparation runs at an effective 1 minute, so the counter caps capacity at 60 ÷ 1 = 60 drinks an hour.
  • Predictable mistakes → cures: (1) Capacity read as the speed of the fastest step. Cure: find the slowest step first. (2) Operations read as factory work only. Cure: a transit agency turns buses and drivers into rides. (3) Quality read as an inspection at the end. Cure: it is built into every step. (4) JIT read as "no inventory ever". Cure: a small, steady stock arrives as needed. (5) Cybersecurity read as only the IT department's job. Cure: everyone who opens a message or holds a device is part of it. (6) A schedule made once and filed. Cure: production control keeps checking it.

Week 7 — Who buys and at what price

  • The calculation: the break-even. The distinction: markup vs. margin.
  • Key idea: a price has to cover the cost of each drink and then, drink by drink, the bills that arrive anyway.
  • Marketing: the marketing concept is the idea that a business should find out what customers want and deliver it better than its rivals do, while still earning a profit. A target market is the particular group of buyers a business decides to serve. Market segmentation splits a whole market into smaller groups of buyers who share a trait, on four bases: geographic (where buyers live or work), demographic (measurable traits such as age, life stage, household size, or income), psychographic (lifestyle, values, and interests), and behavioral (how buyers use a product, how often they buy it, and what benefit they want). Buyer behavior runs from noticing a need through comparing options, buying, and judging the purchase afterward.
  • The four Ps, the framework McCarthy (1960), Basic Marketing, set out: product, price, place (every decision about how the offer reaches the buyer, including where, when, and through whom it is sold, not only a store's address), and promotion. Some courses add further Ps for services; only these four are keyed.
  • Products, services, and the life cycle: a service is produced and used at the same moment, so it cannot be made ahead and stored. The product life cycle is a classroom model of a product's sales over time in four stages: introduction, growth, maturity, and decline.
  • Costs and the break-even: a fixed cost stays the same however many units a business sells in a period; a variable cost rises with every unit sold. The per-unit margin is the price of one unit minus its variable cost. The break-even point is the number of units a business must sell to cover all its costs: break-even units = fixed costs ÷ (price − variable cost per unit). Markup on cost = (price − cost) ÷ cost × 100. Margin on price = (price − cost) ÷ price × 100. A break-even assumes one price and a constant variable cost.
  • Pricing strategies: price skimming launches a new product at a high price to the buyers most eager for it and cuts the price over time. Penetration pricing launches at a low price to build sales volume and market share fast. Price sensitivity, how strongly buyers react to a price change, is described in words and never computed.
  • Course example: the cart's price is 5 dollars and its variable cost is 2 dollars, so each drink contributes 5 − 2 = 3 dollars toward fixed costs of 35,000 + 1,000 = 36,000 dollars a year. Break-even = 36,000 ÷ 3 = 12,000 drinks a year, which is 12,000 ÷ 250 = 48 drinks a day and 12,000 × 5 = 60,000 dollars of revenue. Markup on cost = 3 ÷ 2 × 100 = 150 percent; margin on price = 3 ÷ 5 × 100 = 60 percent. At a 4-dollar penetration price, break-even = 36,000 ÷ (4 − 2) = 18,000 drinks.
  • Predictable mistakes → cures: (1) Break-even computed as fixed costs ÷ price. Cure: 36,000 ÷ 5 = 7,200 divides by the price where the per-unit margin belongs. (2) Markup and margin read as the same percentage. Cure: say "of the cost" or "of the price" out loud. (3) A lower price assumed to lower the break-even. Cure: each sale contributes less, so more sales are needed. (4) Marketing read as advertising. Cure: start with what customers want. (5) Place read as only an address. Cure: place includes when and through whom. (6) A product and a service treated as interchangeable. Cure: a service cannot be stored.

Week 8's new idea (not on the midterm)

Week 8 asked what changes when one cart becomes two and answered with the organization chart: at one cart, 2 people on 2 levels with a span of control of 1; at two carts, 1 + 2 + 2 × 2 = 7 people on 3 levels with a span of control of 2 at each level. Line and staff positions, span of control, centralization and decentralization, and tall and flat structures belong to Objective 5, which the final checks. Use the chart as a map of the business you have built, not as midterm material.

Representative practice

These are fresh variants, not the midterm's questions. Work each worked example yourself first, then compare your steps. Every scenario and every number below is illustrative, invented for this guide, and attributed to no one, and every result was computed and checked in advance.

Worked example — a kayak stand sorts its SWOT (Week 1)

An illustrative kayak-rental stand on a lake lists seven facts about its situation:

  1. Its guides are certified in water safety.
  2. Its stand sits right at the boat launch.
  3. It has no way for customers to book online.
  4. A campground is opening across the lake next summer.
  5. A hotel nearby wants to offer its guests guided paddles.
  6. A dry summer could lower the lake.
  7. A rental company plans a dock on the far shore.
  • Step 1, inside or outside: facts 1, 2, and 3 are about the stand itself, which its owner controls. Facts 4 to 7 are about the world around it.
  • Step 2, helps or hurts: facts 1 and 2 help (strengths); fact 3 hurts (a weakness); facts 4 and 5 could help (opportunities); facts 6 and 7 could hurt (threats).
  • Tally: 2 strengths + 1 weakness = 3 inside entries; 2 opportunities + 2 threats = 4 outside entries; 3 + 4 = 7 entries in all.
  • The trap: the campground is good news, but the stand does not own or control it, so it is an opportunity, not a strength.
  • Revenue vs. profit: a crowded holiday weekend brings in a lot of revenue. Profit is only what is left after the guides' wages, the insurance, and the repairs are paid, so the busiest weekend is not automatically the most profitable one.

Why it matters: the two questions, inside or outside and helps or hurts, decide every box. Good news is not a strength unless the business controls it.

Worked example — a scan and a surplus (Week 1)

An illustrative yoga studio runs a PESTEL check on the world around it:

  • The city council debates a tax break for small fitness businesses: political.
  • Rents across town rise: economic.
  • More people nearby work from home and want midday classes: social.
  • Members expect to book classes on their phones: technological.
  • Summer heat waves make the studio's warmest room hard to use: environmental.
  • A new state rule requires instructors to hold a certificate: legal.
  • A gym two blocks away adds yoga classes: a competitor, weighed alongside the scan rather than filed under one of its letters.

Tally: 6 forces, one under each letter, plus 1 competitor = 7 facts.

Now set two illustrative stages side by side. A comedy club is a business; a community theater company is a not-for-profit. Both sell tickets (revenue), both pay for lights and rent (expenses), and both can finish a season with money left over. The club's owners may take what is left as their profit. The theater keeps what is left inside the organization and spends it on next season's shows, which serve its mission; no owner takes it home.

Why it matters: the scan's letters are only a checklist, and the course never keys them. Money left over is allowed in both organizations; the difference is who receives it.

Worked example — a pumpkin patch finds its price (Week 2)

An illustrative pumpkin patch market, a classroom model, on one market day:

Illustrative pumpkin schedule: pumpkins buyers want and pumpkins sellers offer at each price in dollars, before and after a new bakery starts buying
Price (dollars a pumpkin) Buyers want Sellers offer Buyers want once the bakery buys
3 260 20 340
4 220 60 300
5 180 100 260
6 140 140 220
7 100 180 180
8 60 220 140

In words: as the price rises from 3 to 8 dollars, the amount buyers want falls by 40 pumpkins at each step and the amount sellers offer rises by 40.

  1. Equilibrium: at 6 dollars, buyers want 140 and sellers offer 140; 140 = 140, so the equilibrium is 6 dollars and 140 pumpkins.
  2. Below equilibrium: at 5 dollars, the shortage = 180 − 100 = 80 pumpkins, which pushes the price up.
  3. Above equilibrium: at 7 dollars, the surplus = 180 − 100 = 80 pumpkins, which pushes the price down.
  4. The shift: a new pie bakery in town starts buying pumpkins, so buyers want 80 more pumpkins at every price. At the old 6-dollar price, buyers now want 220 and sellers still offer 140, a shortage of 220 − 140 = 80.
  5. New equilibrium: at 7 dollars, buyers now want 180 and sellers offer 180, so the new equilibrium is 7 dollars and 180 pumpkins.
  6. What changed: the price rose 7 − 6 = 1 dollar and the amount sold rose 180 − 140 = 40 pumpkins.

In words: the bakery raised demand at every price, so both the price and the amount sold went up. A price change alone would have moved buyers along the old schedule instead.

Placing four sellers: an illustrative corn grower selling the same corn as hundreds of others is in perfect competition; a noodle stand in a food court of slightly different stands is in monopolistic competition; three large airlines sharing a route with steep barriers to entry form an oligopoly; a town's only electric utility is a monopoly.

Why it matters: "shortage" names a price below equilibrium, not empty shelves, and "shift" names a change at every price.

Worked example — a repair kiosk's plan (Week 3)

An illustrative phone-repair kiosk in a shopping mall plans its start-up:

  • Start-up needs: tools and the kiosk 14,000 + parts inventory 3,000 + cash cushion 5,000 = 22,000 dollars.
  • Funding sources: owner's money 16,000 + equipment loan 6,000 = 22,000 dollars.
  • The check: 22,000 = 22,000, so every dollar the kiosk needs has a source. The loan covers 22,000 − 16,000 = 6,000 dollars, the part the owner's money does not.
  • First year's interest: the loan costs 9 percent a year, so interest = 6,000 × 0.09 = 540 dollars.
  • In words: the kiosk needs 22,000 dollars before it fixes a single phone, and the loan adds a 540-dollar cost in the first year whether or not the kiosk earns a profit.

The five forces on the kiosk's industry:

The five competitive forces applied to an illustrative phone-repair kiosk, one fact per force
Force The kiosk's fact
Threat of new entrants Anyone with a toolkit can start fixing phones from home.
Bargaining power of customers Shoppers can compare three repair kiosks in the mall in a few minutes.
Bargaining power of suppliers Only two wholesalers carry the screens the kiosk installs.
Threat of substitute products or services A customer can buy a new phone instead of repairing the old one.
Rivalry among existing competitors Two other kiosks in the same mall compete on price.

Why it matters: the funding plan must add up to the start-up needs to the dollar, and only one of the five forces is about the competitors already in the market.

Worked example — an escape room picks a legal form (Week 4)

To open an illustrative escape-room business, the owner puts in 15,000 dollars of savings and borrows 9,000 dollars for equipment. The worst case: the business closes, and its leftover assets cover none of the loan.

  • Start-up money: 15,000 + 9,000 = 24,000 dollars.
  • Sole proprietorship: the owner loses the 15,000 put in and still owes the 9,000 loan personally, so personal exposure = 15,000 + 9,000 = 24,000 dollars.
  • Single-member LLC: the loan is the LLC's debt, so personal exposure = 15,000 dollars.
  • The shield: 24,000 − 15,000 = 9,000 dollars removed, equal to the loan.
  • General partnership with a friend: each general partner answers for the whole 9,000 with personal assets; the debt is not split in half.
  • In words: as a sole proprietor the owner could lose 24,000 dollars; as a single-member LLC, 15,000. Limited liability caps the loss, but the owner can still lose what was put in.

Now the owner considers a second location as a franchise of a national escape-room brand instead. The owner would be the franchisee, paying fees to run the outlet in a territory without owning the brand. Before the sale, the franchisor must hand over the disclosure document that the FTC's Franchise Rule requires, covering 23 specified items. This comparison is an illustrative case, not legal or tax advice; a real owner takes such questions to the agency that administers the rule or a qualified professional.

Why it matters: the form, not the business's name, decides whether a lender can reach the owner's savings.

Worked example — a printing plant automates (Week 5)

An illustrative printing plant that serves several towns has 80 employees. Automating its folding line eliminates 24 positions, and the plant retrains 9 of those workers for press maintenance.

  • Net change in positions: 24 − 9 = 15 positions.
  • Employees after automation: 80 − 15 = 65 employees.
  • In words: the plant ends with 15 fewer positions, 65 employees instead of 80. That count is a fact both positions accept.
  • From the shareholder position (Friedman, 1970): within the law and ethical custom, the managers' duty runs to the owners, and lower costs serve them.
  • From the stakeholder position (Freeman, 1984): the plant is managed for everyone it affects, so the 15 workers who leave, the town's payroll, and the retrained workers all weigh in the decision.
  • The ethical-reasoning questions: suppose no rule requires the plant to give the departing workers more than a short notice. Is it legal? Yes, in this illustrative case. Is it fair to everyone it touches? Would the plant's managers be comfortable if the notice period were public? Those last two are questions of ethics, and the law has not settled them.

The guide gives no verdict. Your work is to state each side accurately and keep the count apart from the judgment.

Why it matters: "legal" answers only the first of the three questions.

Worked example — an ice-cream window keeps its bottleneck (Week 6)

Each order at an illustrative ice-cream window passes through a counter, where ordering and paying take 1.5 minutes, and then a freezer station, where scooping takes 4 minutes. The window has one freezer station.

  1. Bottleneck: scooping, at 4 minutes, is the slowest step.
  2. Capacity: 60 ÷ 4 = 15 orders an hour.
  3. A five-hour evening: 15 × 5 = 75 orders.
  4. A second freezer station and a second scooper: scooping now runs at an effective 4 ÷ 2 = 2 minutes per order.
  5. The new bottleneck check: 2 minutes is still slower than the 1.5-minute counter, so scooping is still the bottleneck. Capacity = 60 ÷ 2 = 30 orders an hour, and 30 ÷ 15 = 2, so capacity doubles.
  6. The counter's own limit: 60 ÷ 1.5 = 40 orders an hour, which the window will not reach until scooping gets faster than 1.5 minutes.

In words: the second station doubles the window's capacity to 30 orders an hour, and this time the bottleneck stays where it was, because scooping is still slower than the counter.

A quality note: every scooper logs each wrong flavor handed out, and the whole team meets weekly to fix the cause. That is total quality management: quality built into every step by everyone, not an inspection at the end.

Why it matters: after any change, recheck every step's time; the bottleneck moves only when another step becomes the slowest.

Worked example — a plant stall prices its pots (Week 7)

An illustrative houseplant stall sells potted plants at 10 dollars each. Each plant, pot, and bag of soil costs 2 dollars, and the stall's fixed costs, its rent and insurance, are 24,000 dollars a year. It opens 300 days a year.

  1. Per-unit margin: 10 − 2 = 8 dollars a plant toward fixed costs.
  2. Break-even units: 24,000 ÷ (10 − 2) = 24,000 ÷ 8 = 3,000 plants a year.
  3. Per day: 3,000 ÷ 300 = 10 plants a day.
  4. Break-even revenue: 3,000 × 10 = 30,000 dollars a year.
  5. Markup on cost: (10 − 2) ÷ 2 × 100 = 8 ÷ 2 × 100 = 400 percent.
  6. Margin on price: (10 − 2) ÷ 10 × 100 = 8 ÷ 10 × 100 = 80 percent.
  7. A lower opening price of 7 dollars (penetration pricing): 24,000 ÷ (7 − 2) = 24,000 ÷ 5 = 4,800 plants a year.
  8. The wrong-formula check: 24,000 ÷ 10 = 2,400 divides by the price where the per-unit margin belongs, so it is not the break-even.

In words: at 10 dollars a plant the stall must sell 3,000 plants a year, about 10 a day, before it earns a single dollar of profit. The same 8-dollar gap is a 400 percent markup on cost and an 80 percent margin on price. Dropping the price to 7 dollars raises the break-even to 4,800 plants, because each sale contributes less.

The stall's mix and its buyers: the product is potted houseplants; the price is 10 dollars; place is a stall at a train station on weekdays and a craft fair on weekends; promotion is a chalkboard sign and a newsletter. The stall's target market could be split four ways: commuters who pass the station (geographic), first-time renters (demographic), people who care about green living (psychographic), and repeat buyers who return each month (behavioral).

Why it matters: the price is the divisor only in the margin-on-price formula; in the break-even, the divisor is the per-unit margin, never the price.

Self-check questions

Try each one, then read the check and the one-line why.

  1. An illustrative ski-rental shop learns that the resort will open a new chairlift next winter. Where does that fact go in the shop's SWOT? Check: opportunity. Why: it is outside the shop and could help it.
  2. An illustrative seafood stall owns a small fishing boat it uses every morning. Among the factors of production, what kind of resource is the boat? Check: capital. Why: it is equipment made to help produce other goods.
  3. A bank that lent an illustrative tailor's shop money for sewing machines. Is the bank a stakeholder? Check: yes, as a lender. Why: it can affect the business and is affected by it.
  4. A change in federal income tax rates. Is that fiscal or monetary policy, and who sets it? Check: fiscal. Congress and the President decide it. Why: taxes and spending are fiscal tools.
  5. Three large firms sell nearly all the cement in an illustrative region, and building a new plant costs a fortune. Name the market structure. Check: oligopoly. Why: a handful of large sellers and steep barriers to entry.
  6. Customers of an illustrative alterations shop can walk to another tailor on the same block in minutes. Which of the five forces does that show? Check: the bargaining power of customers. Why: buyers who can easily switch can push prices down.
  7. Two illustrative regional chains of shoe-repair shops combine into one company. Which type of merger is it? Check: horizontal. Why: both sell the same service at the same stage.
  8. An illustrative grocery co-op gives a share of its yearly profit to a local food pantry. Which level of the pyramid of corporate social responsibility is that? Check: philanthropic, the top level. Why: it is voluntary giving back.
  9. An illustrative tailor sews one suit from scratch to a client's measurements. Name the production approach. Check: customization. Why: each item is made from scratch to one buyer's wishes.
  10. An employee of an illustrative moving company leaves a tablet with the customer list on a bus. Name the threat and one protection that limits the damage. Check: a lost or stolen device; regular backups (or a strong password with multifactor sign-in). Why: the course names lost devices among the four common threats.
  11. An illustrative e-reader launches at a high price to its most eager buyers, and the price is cut a year later. Which pricing strategy is it? Check: price skimming. Why: it launches high and cuts the price over time.
  12. An illustrative fitness app's sales are climbing fast, and new rivals are entering. Which stage of the product life cycle is it in? Check: growth. Why: rising sales and new entrants mark the growth stage of the model.

Check yourself — choose one. Write two or three sentences to a friend.

  • (a) Explain why a lower price raises a break-even instead of lowering it.
  • (b) Explain why a not-for-profit can end a year with a surplus and still be a not-for-profit.

Either one rehearses an explain-why skill the midterm checks.

Watch before the exam

These ten videos come from the course's vetted Week 8 pool, and every one has captions. Use them to review and to connect weeks, not to learn anything new.

Study plan

A short countdown. Count back from the day you plan to sit the midterm.

  • Two weeks out: as you finish Week 6, start a one-page list of the course's swapped pairs: revenue and profit, a strength and an opportunity, a shortage and a surplus, monopoly and monopolistic competition, a franchisor and a franchisee, ethics and legality, and the fastest step and the slowest step. Add fixed and variable costs and markup and margin when Week 7 arrives.
  • One week out: as you finish Week 7, reread the topic reviews above for Weeks 1 and 3. Week 1 is the furthest back and holds 6 of the midterm's 25 questions; Week 3 holds 5.
  • At the start of Week 8: take the practice exam once, cold and closed-note. Note which objectives cost you the most, and remember that it has no Week 1 questions while the midterm has 6.
  • Three or four days before you sit it: reread the topic reviews for your two weakest objectives, and redo the matching worked examples from scratch without looking. Write every calculation one step per line and end it with a sentence in words.
  • Two days before: run the paired exam-prep tutorial (the copy-and-paste chatbot tutor, or its no-AI route) for active recall. Tell it which areas the practice exam exposed, and ask it to drill Week 1.
  • The day before: retake the practice exam, explain every miss out loud, and work the self-check questions above.
  • Right before: skim the "predictable mistakes → cures" lines for all seven weeks. Then stop studying; a few slow breaths and a look at your one-page list are enough.

This guide is for review. The exam-prep tutorial and the practice exam are where you rehearse. Pulling ideas back out of memory, not rereading, is what makes them stick.

Exam format

Every one of the 25 questions counts the same, and the midterm checks your own understanding without AI. The questions come one at a time, and there is no going back, so settle each one before you move on. After you submit, Canvas shows your result.

Test-taking strategies for this material:

  • Name the pair before you choose. Most questions turn on two neighboring ideas, such as a strength and an opportunity, or a franchisor and a franchisee. Say which pair is in play first.
  • Ask the one-line test. Inside or outside? Below or above equilibrium? Whose debt is it? Legal, or right? Which step is slowest? Of the cost, or of the price?
  • For a calculation, write the formula first, then each step on its own line, then the result in words. For a break-even, check that you divided by the per-unit margin and not by the price.
  • Treat "illustrative" as a cue. The business was invented for the question, so judge it by the course's definitions, not by what you guess about real firms.
  • For a true-or-false statement, test every part. One wrong word, such as "every", "never", or "no", makes the whole statement false.
  • Watch the trap answers. Most wrong options are a swapped pair of terms or a swapped pair of inputs. If an option looks right but uses the price where the margin belongs, or calls good news outside the business a strength, it is the trap.

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