Question 1

Which of the following occurs as firm size grows?

Accepted Answer

A) A decrease in the number of managers needed. 
B) A decrease in transaction costs. 
C) A loss of opportunity cost. 
D) Administrative and bureaucratic costs rise at an increasing rate. 
A) A decrease in the number of managers needed. 
B) A decrease in transaction costs. 
C) A loss of opportunity cost. 
D) Administrative and bureaucratic costs rise at an increasing rate.

Question 2

Long term contracts are generally preferable to

Accepted Answer

A) spot markets. 
B) short-term contracts. 
C) vertical integration. 
D) none of the statements associated with this question are correct. 
A) spot markets. 
B) short-term contracts. 
C) vertical integration. 
D) none of the statements associated with this question are correct.

Question 3

Suppose a new contracting environment that requires more standardized inputs is considered.This new contract will result in

Accepted Answer

A) an increase in the marginal cost and result in a longer optimal contract. 
B) an increase in the marginal cost and result in a shorter optimal contract. 
C) a decrease in the marginal cost and result in a longer optimal contract. 
D) a decrease in the marginal cost and result in a shorter optimal contract. 
A) an increase in the marginal cost and result in a longer optimal contract. 
B) an increase in the marginal cost and result in a shorter optimal contract. 
C) a decrease in the marginal cost and result in a longer optimal contract. 
D) a decrease in the marginal cost and result in a shorter optimal contract.

Question 4

The least risky payment plan from the viewpoint of the worker is:

Accepted Answer

A) piece rate. 
B) profit sharing. 
C) revenue sharing. 
D) hourly wage. 
A) piece rate. 
B) profit sharing. 
C) revenue sharing. 
D) hourly wage.

Question 5

Specialized investments

Accepted Answer

A) result in relationship-specific exchange. 
B) make spot exchange efficient. 
C) cause managers to shirk. 
D) are equally valuable in any productive use. 
A) result in relationship-specific exchange. 
B) make spot exchange efficient. 
C) cause managers to shirk. 
D) are equally valuable in any productive use.

Question 6

The principal-agent problem happens because the owner cannot

Accepted Answer

A) control the production process. 
B) spend time at the physical plant site. 
C) monitor the efforts of the manager. 
D) evaluate the efforts of the manager. 
A) control the production process. 
B) spend time at the physical plant site. 
C) monitor the efforts of the manager. 
D) evaluate the efforts of the manager.

Question 7

Which of the following is the primary disadvantage of producing inputs within a firm?

Accepted Answer

A) increases in transaction costs. 
B) loss of specialization. 
C) reductions in opportunism. 
D) mitigation of hold-up problems. 
A) increases in transaction costs. 
B) loss of specialization. 
C) reductions in opportunism. 
D) mitigation of hold-up problems.

Question 8

Spot markets are an efficient way for the firm to purchase inputs if

Accepted Answer

A) opportunism is not a problem. 
B) suppliers engage in hold-up. 
C) profit-sharing is used to compensate managers. 
D) the supplier needs specialized investment to produce the input. 
A) opportunism is not a problem. 
B) suppliers engage in hold-up. 
C) profit-sharing is used to compensate managers. 
D) the supplier needs specialized investment to produce the input.

Question 9

A long-term contract

Accepted Answer

A) occurs when a firm produces its own inputs. 
B) is most likely in complex exchange environments. 
C) is when a firm is legally bound to purchase inputs from a particular supplier. 
D) is shorter when specialized investments are important. 
A) occurs when a firm produces its own inputs. 
B) is most likely in complex exchange environments. 
C) is when a firm is legally bound to purchase inputs from a particular supplier. 
D) is shorter when specialized investments are important.

Question 10

Franchising mitigates

Accepted Answer

A) opportunism. 
B) relationship-specific investment. 
C) the hold up problem. 
D) the principal-agent problem. 
A) opportunism. 
B) relationship-specific investment. 
C) the hold up problem. 
D) the principal-agent problem.

Question 11

A potential problem with piece rate plans is that:

Accepted Answer

A) workers will out produce a large quantity. 
B) workers have no incentive to work hard. 
C) it is difficult for managers to control. 
D) workers may stress quantity instead of quality. 
A) workers will out produce a large quantity. 
B) workers have no incentive to work hard. 
C) it is difficult for managers to control. 
D) workers may stress quantity instead of quality.

Question 12

To ensure quality, piece rate plans must usually be accompanied by:

Accepted Answer

A) quality control mechanisms. 
B) time clocks. 
C) spot checks. 
D) profit sharing plans. 
A) quality control mechanisms. 
B) time clocks. 
C) spot checks. 
D) profit sharing plans.

Question 13

The problem with spot exchange in the presence of specific assets is that both parties

Accepted Answer

A) have incentives to behave as principals. 
B) have incentives to behave opportunistically. 
C) take the risk of price fluctuations. 
D) do not take advantage of the economies of scope. 
A) have incentives to behave as principals. 
B) have incentives to behave opportunistically. 
C) take the risk of price fluctuations. 
D) do not take advantage of the economies of scope.

Question 14

A potential problem with piece rate plans is that

Accepted Answer

A) workers will have a tendency to under-produce the good. 
B) workers have no incentive to work hard. 
C) workers may put little emphasis on the quality of the good. 
D) it is difficult for managers to enforce. 
A) workers will have a tendency to under-produce the good. 
B) workers have no incentive to work hard. 
C) workers may put little emphasis on the quality of the good. 
D) it is difficult for managers to enforce.

Question 15

Hold-up

Accepted Answer

A) is a hazard associated with relationship-specific exchange. 
B) mitigates worker shirking. 
C) makes spot exchange efficient. 
D) solves the principal-agent problem. 
A) is a hazard associated with relationship-specific exchange. 
B) mitigates worker shirking. 
C) makes spot exchange efficient. 
D) solves the principal-agent problem.

Question 16

A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to

Accepted Answer

A) increase. 
B) decrease. 
C) remain constant. 
D) may increase or decrease. 
A) increase. 
B) decrease. 
C) remain constant. 
D) may increase or decrease.

Question 17

One problem with revenue-based incentive schemes is they do not provide an incentive to

Accepted Answer

A) maximize profit. 
B) maximize sales. 
C) minimize costs. 
D) maximize productivity. 
A) maximize profit. 
B) maximize sales. 
C) minimize costs. 
D) maximize productivity.

Question 18

Which of the following is not a benefit associated with producing inputs within a firm?

Accepted Answer

A) reduction in transaction costs. 
B) gains of specializing. 
C) reductions in opportunism. 
D) mitigation of hold-up problem. 
A) reduction in transaction costs. 
B) gains of specializing. 
C) reductions in opportunism. 
D) mitigation of hold-up problem.

Question 19

Relationship-specific investments include

Accepted Answer

A) site specificity. 
B) dedicated assets. 
C) human capital. 
D) all of the statements associated with this question are correct. 
A) site specificity. 
B) dedicated assets. 
C) human capital. 
D) all of the statements associated with this question are correct.

Question 20

General Motors purchased Fischer Auto Body to produce bodies to place on chassis.

Accepted Answer

A) spot exchange. 
B) vertical integration. 
C) contract. 
D) contract or vertical integration. 
A) spot exchange. 
B) vertical integration. 
C) contract. 
D) contract or vertical integration.

Which of the following occurs as firm size grows?

Long term contracts are generally preferable to

Suppose a new contracting environment that requires more standardized inputs is considered.This new contract will result in

The least risky payment plan from the viewpoint of the worker is:

Specialized investments

The principal-agent problem happens because the owner cannot

Which of the following is the primary disadvantage of producing inputs within a firm?

Spot markets are an efficient way for the firm to purchase inputs if

A long-term contract

Franchising mitigates

A potential problem with piece rate plans is that:

To ensure quality, piece rate plans must usually be accompanied by:

The problem with spot exchange in the presence of specific assets is that both parties

A potential problem with piece rate plans is that

Hold-up

A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to

One problem with revenue-based incentive schemes is they do not provide an incentive to

Which of the following is not a benefit associated with producing inputs within a firm?

Relationship-specific investments include

General Motors purchased Fischer Auto Body to produce bodies to place on chassis.

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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Exam 6: The Organization of the Firm

Which of the following occurs as firm size grows?

Long term contracts are generally preferable to

Suppose a new contracting environment that requires more standardized inputs is considered.This new contract will result in

The least risky payment plan from the viewpoint of the worker is:

Specialized investments

The principal-agent problem happens because the owner cannot

Which of the following is the primary disadvantage of producing inputs within a firm?

Spot markets are an efficient way for the firm to purchase inputs if

A long-term contract

Franchising mitigates

A potential problem with piece rate plans is that:

To ensure quality, piece rate plans must usually be accompanied by:

The problem with spot exchange in the presence of specific assets is that both parties

A potential problem with piece rate plans is that

Hold-up

A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to

One problem with revenue-based incentive schemes is they do not provide an incentive to

Which of the following is not a benefit associated with producing inputs within a firm?

Relationship-specific investments include

General Motors purchased Fischer Auto Body to produce bodies to place on chassis.

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters