Question 1

Which of the following is an outside incentive that forces managers to put forth maximal effort?

Accepted Answer

A) Incentive contracts. 
B) Performance bonuses. 
C) Flat fees. 
D) Reputation. 
A) Incentive contracts. 
B) Performance bonuses. 
C) Flat fees. 
D) Reputation.

Question 2

Spot checks

Accepted Answer

A) measure presence only. 
B) monitor the effort of workers precisely. 
C) are the same as spot markets. 
D) must be frequent enough to induce workers not to risk getting caught shirking. 
A) measure presence only. 
B) monitor the effort of workers precisely. 
C) are the same as spot markets. 
D) must be frequent enough to induce workers not to risk getting caught shirking.

Question 3

The activity known as shirking is least likely to occur when

Accepted Answer

A) workers are not monitored. 
B) the earnings of a worker are closely tied to the worker's output. 
C) all workers are paid the same wage rate. 
D) firm ownership is separated from the managerial control. 
A) workers are not monitored. 
B) the earnings of a worker are closely tied to the worker's output. 
C) all workers are paid the same wage rate. 
D) firm ownership is separated from the managerial control.

Question 4

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $100.Based on this information, the optimal contract length should be

Accepted Answer

A) increased by half. 
B) increased by two-thirds. 
C) decreased. 
D) held constant at the contract length where MB = 100 and MC = 100. 
A) increased by half. 
B) increased by two-thirds. 
C) decreased. 
D) held constant at the contract length where MB = 100 and MC = 100.

Question 5

The cost to a manager of doing a poor job running the firm is

Accepted Answer

A) a decrease in his fixed salary. 
B) a decrease in the profit of the firm. 
C) a decrease in the sales of the firm. 
D) an increase in the likelihood of being replaced. 
A) a decrease in his fixed salary. 
B) a decrease in the profit of the firm. 
C) a decrease in the sales of the firm. 
D) an increase in the likelihood of being replaced.

Question 6

Determine whether the following transactions involve spot exchange, contracts, or vertical integration.
a.A major oil company refines gasoline from crude oil produced by oil wells that it owns.
b.Transcontinental, an interstate natural-gas pipeline, has a legal obligation to purchase a specified amount of gas per week from a well owned by Fred Smith in Enid, Oklahoma.
c.A cabinetmaker purchased a dozen wood screws from the local hardware store.
d.An electric utility purchases coal from an underground mine.

Accepted Answer

(a) Vertical Integra

Question 7

Managerial reputation is an _____ incentive that helps to mitigate the _______ principal agent problem.

Accepted Answer

A) internal; manager-worker. 
B) external; manager-consumer. 
C) internal; owner-manager. 
D) external; owner-consumer. 
A) internal; manager-worker. 
B) external; manager-consumer. 
C) internal; owner-manager. 
D) external; owner-consumer.

Question 8

Which of the following is a not a transactions costs associated with using inputs?

Accepted Answer

A) Time spent negotiating labor contracts with union workers. 
B) Opportunity costs of negotiating the price of renting machines. 
C) Wages paid to labor. 
D) Costs of searching for a new supplier of machines. 
A) Time spent negotiating labor contracts with union workers. 
B) Opportunity costs of negotiating the price of renting machines. 
C) Wages paid to labor. 
D) Costs of searching for a new supplier of machines.

Question 9

Which type of compensation method works by performance bonus?

Accepted Answer

A) Profit sharing. 
B) Revenue sharing. 
C) Piece rate. 
D) All of the statements associated with this question are correct. 
A) Profit sharing. 
B) Revenue sharing. 
C) Piece rate. 
D) All of the statements associated with this question are correct.

Question 10

The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal agent problem.

Accepted Answer

A) internal; manager-worker. 
B) external; manager-consumer. 
C) internal; owner-manager. 
D) external; owner-consumer. 
A) internal; manager-worker. 
B) external; manager-consumer. 
C) internal; owner-manager. 
D) external; owner-consumer.

Question 11

A spot exchange involves a market where goods are bought and sold at

Accepted Answer

A) contracted market price. 
B) prevailing market price. 
C) pre-determined market price. 
D) post-determined market price. 
A) contracted market price. 
B) prevailing market price. 
C) pre-determined market price. 
D) post-determined market price.

Question 12

Suppose a new contracting environment that requires less specialized investments is considered.This new contract will result in

Accepted Answer

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

Question 13

In order for spot checks to be effective, they must be:

Accepted Answer

A) random in nature. 
B) performed at regular intervals. 
C) partaken twice daily. 
D) rarely if ever done. 
A) random in nature. 
B) performed at regular intervals. 
C) partaken twice daily. 
D) rarely if ever done.

Question 14

At the recent shareholders' meeting, the CEO of a small bank proposed a plan to offer each of its employees 250 incentive options for Class A common stock.The key provisions of the plan are that employees must exercise the options between January 2002 and December 2007, and if an employee terminates his or her employment with the bank (or is terminated), the options are no longer exercisable.One shareholder feverishly objected to the plan, claiming that such a move would dilute the value of the outstanding shares.As CEO, how would you defend the stock option plan to the shareholders?

Accepted Answer

The first important point to make with t

Question 15

Relationship specific exchange

Accepted Answer

A) is a consequence of profit sharing. 
B) makes firms use spot markets. 
C) occurs because of specialized investments. 
D) reduces worker shirking. 
A) is a consequence of profit sharing. 
B) makes firms use spot markets. 
C) occurs because of specialized investments. 
D) reduces worker shirking.

Question 16

Under a profit sharing compensation scheme, the manager will

Accepted Answer

A) shirk all day. 
B) not shirk all day. 
C) optimize his choice between income and leisure. 
D) do the same thing as under a fixed salary scheme. 
A) shirk all day. 
B) not shirk all day. 
C) optimize his choice between income and leisure. 
D) do the same thing as under a fixed salary scheme.

Question 17

A decrease in the marginal cost arising from a less complex specialized investment environment 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 18

If a firm manager has a base salary of $50,000 and also get two percent of all profits, how much will his/her income be if revenues are $8,000,000 and profits are $2,000,000?

Accepted Answer

A) $250,000. 
B) $210,000. 
C) $90,000. 
D) $150,000. 
A) $250,000. 
B) $210,000. 
C) $90,000. 
D) $150,000.

Question 19

A relationship-specific exchange occurs when

Accepted Answer

A) a partnership is dissolved. 
B) specialized investments are important. 
C) a partnership is initiated. 
D) shareholders receive dividends. 
A) a partnership is dissolved. 
B) specialized investments are important. 
C) a partnership is initiated. 
D) shareholders receive dividends.

Question 20

Jiffyburger, a fast-food outlet, sells approximately 8,000 quarter-pound hamburgers in a given week.To meet that demand, Jiffyburger needs 2,000 pounds of ground beef delivered to its premises every Monday morning by 8:00
A.M.sharp.If you were the manager of a Jiffyburger franchise, how would you acquire the ground beef? Explain.
I would use a contract, since this would decrease the problems of opportunism while still allowing for specialization in production.

Accepted Answer

I would use a contract, since

Which of the following is an outside incentive that forces managers to put forth maximal effort?

Spot checks

The activity known as shirking is least likely to occur when

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $100.Based on this information, the optimal contract length should be

The cost to a manager of doing a poor job running the firm is

Managerial reputation is an _ incentive that helps to mitigate the ___ principal agent problem.

Which of the following is a not a transactions costs associated with using inputs?

Which type of compensation method works by performance bonus?

The threat of a corporate takeover is an _ incentive that helps to mitigate the _ principal agent problem.

A spot exchange involves a market where goods are bought and sold at

Suppose a new contracting environment that requires less specialized investments is considered.This new contract will result in

In order for spot checks to be effective, they must be:

Relationship specific exchange

Under a profit sharing compensation scheme, the manager will

A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to

If a firm manager has a base salary of $50,000 and also get two percent of all profits, how much will his/her income be if revenues are $8,000,000 and profits are $2,000,000?

A relationship-specific exchange occurs when

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

Exam 6: The Organization of the Firm

Which of the following is an outside incentive that forces managers to put forth maximal effort?

Spot checks

The activity known as shirking is least likely to occur when

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $100.Based on this information, the optimal contract length should be

The cost to a manager of doing a poor job running the firm is

Managerial reputation is an _____ incentive that helps to mitigate the _______ principal agent problem.

Which of the following is a not a transactions costs associated with using inputs?

Which type of compensation method works by performance bonus?

The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal agent problem.

A spot exchange involves a market where goods are bought and sold at

Suppose a new contracting environment that requires less specialized investments is considered.This new contract will result in

In order for spot checks to be effective, they must be:

Relationship specific exchange

Under a profit sharing compensation scheme, the manager will

A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to

If a firm manager has a base salary of $50,000 and also get two percent of all profits, how much will his/her income be if revenues are $8,000,000 and profits are $2,000,000?

A relationship-specific exchange occurs when

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

Managerial reputation is an _ incentive that helps to mitigate the ___ principal agent problem.

The threat of a corporate takeover is an _ incentive that helps to mitigate the _ principal agent problem.