Question 1

Which of the following is not a solution to the manager-worker principal agent problem?

Accepted Answer

A) Sales sharing. 
B) Piece rates. 
C) Fixed hourly wages. 
D) Spot checks. 
A) Sales sharing. 
B) Piece rates. 
C) Fixed hourly wages. 
D) Spot checks.

Question 2

A manager derives satisfaction from income and leisure on the job (shirking).
a.If the manager is paid a fixed salary of $100,000, how much leisure will he or she consume on the job during an eight-hour day? Explain.
b.When the manager is given a salary of $100,000 plus 10 percent of the firm's profits, she or he chooses to spend six hours managing and two hours consuming leisure.Salary and bonus total $120,000.Does the manager necessarily prefer this situation to the situation in part a?

Accepted Answer

a.He will consume the whole eight (8) ho

Question 3

Suppose a new contracting environment with an economic environment that looks more uncertain.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

If a manager is not the owner, the manager

Accepted Answer

A) receives the full benefit of good decisions. 
B) bears the full cost of bad decisions. 
C) does not receive the full benefit nor the full cost of his or her decisions. 
D) none of the statements associated with this question are correct. 
A) receives the full benefit of good decisions. 
B) bears the full cost of bad decisions. 
C) does not receive the full benefit nor the full cost of his or her decisions. 
D) none of the statements associated with this question are correct.

Question 5

Which of the following is not a type of specialized investment?

Accepted Answer

A) Site specificity. 
B) Physical-asset specificity. 
C) Human capital. 
D) All of the statements associated with this questions are types of specialized investments. 
A) Site specificity. 
B) Physical-asset specificity. 
C) Human capital. 
D) All of the statements associated with this questions are types of specialized investments.

Question 6

The agent is an individual

Accepted Answer

A) who acts independently of the principal. 
B) who can direct the principal to achieve goals. 
C) hired by the principal to achieve goals. 
D) hired by the principal to consult with him. 
A) who acts independently of the principal. 
B) who can direct the principal to achieve goals. 
C) hired by the principal to achieve goals. 
D) hired by the principal to consult with him.

Question 7

Explain why people in the following occupations are compensated as they are.
a.Insurance agents.
b.Football players.
c.Authors.
d.CEOs of major corporations.
e.Food servers.

Accepted Answer

a.Insurance agents are usually compensat

Question 8

Long-term contracts are less likely when

Accepted Answer

A) specialized investments are important. 
B) hold up is likely. 
C) the exchange environment is complex. 
D) workers are paid based on piece-rates. 
A) specialized investments are important. 
B) hold up is likely. 
C) the exchange environment is complex. 
D) workers are paid based on piece-rates.

Question 9

Vertical integration

Accepted Answer

A) occurs when a firm purchases its inputs in a market. 
B) is attractive when relationship-specific exchange is unimportant. 
C) occurs when a firm produces its own inputs. 
D) is a spot exchange phenomenon. 
A) occurs when a firm purchases its inputs in a market. 
B) is attractive when relationship-specific exchange is unimportant. 
C) occurs when a firm produces its own inputs. 
D) is a spot exchange phenomenon.

Question 10

In the absence of worker incentives

Accepted Answer

A) everyone always gives maximum effort. 
B) there is a natural tendency for workers to not give their maximum effort. 
C) managers have little or no control. 
D) none of the statements associated with this question are correct. 
A) everyone always gives maximum effort. 
B) there is a natural tendency for workers to not give their maximum effort. 
C) managers have little or no control. 
D) none of the statements associated with this question are correct.

Question 11

If a manager desires to produce a large level of output, which compensation mechanism is most effective?

Accepted Answer

A) Spot check. 
B) Piece rate. 
C) Revenue sharing. 
D) Profit sharing. 
A) Spot check. 
B) Piece rate. 
C) Revenue sharing. 
D) Profit sharing.

Question 12

Is it necessarily in the best interest of shareholders for management to ensure that there is absolutely no shirking in the workplace? Explain.

Accepted Answer

Ensuring absolutely no shirking in the w

Question 13

A profit sharing pay scheme

Accepted Answer

A) increases both productivity and profits. 
B) decreases productivity but increases profits. 
C) increases productivity but decreases profits. 
D) decreases both productivity and profits. 
A) increases both productivity and profits. 
B) decreases productivity but increases profits. 
C) increases productivity but decreases profits. 
D) decreases both productivity and profits.

Question 14

A person who monitors the production process and evaluates the productivity of workers is:

Accepted Answer

A) A manager. 
B) An employee. 
C) A shareholder. 
D) A self-proprietor. 
A) A manager. 
B) An employee. 
C) A shareholder. 
D) A self-proprietor.

Question 15

Long-term contracts are not efficient if

Accepted Answer

A) a firm engages in relationship-specific exchange. 
B) specialized investments are unimportant. 
C) the contractual environment is simple. 
D) managers shirk. 
A) a firm engages in relationship-specific exchange. 
B) specialized investments are unimportant. 
C) the contractual environment is simple. 
D) managers shirk.

Question 16

Given that the income for a franchise restaurant manager is directly tied to profits, while the income for the manager of a company-owned restaurant is paid a flat fee, we might expect profits to be

Accepted Answer

A) lower in franchise restaurants. 
B) higher in franchise restaurants. 
C) equal in both types of restaurants. 
D) Profit comparisons can not be made based on the given information. 
A) lower in franchise restaurants. 
B) higher in franchise restaurants. 
C) equal in both types of restaurants. 
D) Profit comparisons can not be made based on the given information.

Question 17

A negative side of long-term contracts is:

Accepted Answer

A) High transaction costs. 
B) A loss of flexibility. 
C) The continual need to re-negotiate the contract. 
D) None of the statements associated with this question are correct. 
A) High transaction costs. 
B) A loss of flexibility. 
C) The continual need to re-negotiate the contract. 
D) None of the statements associated with this question are correct.

Question 18

High transactions costs

Accepted Answer

A) occur when specialized investment is not important. 
B) make spot exchange an efficient way to obtain inputs. 
C) may be a result of buyer opportunism. 
D) may be the result of downward-sloping demand. 
A) occur when specialized investment is not important. 
B) make spot exchange an efficient way to obtain inputs. 
C) may be a result of buyer opportunism. 
D) may be the result of downward-sloping demand.

Question 19

A firm chooses the institution to purchase inputs

Accepted Answer

A) which minimizes the transactions costs of obtaining inputs. 
B) in order to create more divisions. 
C) which minimizes worker shirking. 
D) to implement profit-sharing. 
A) which minimizes the transactions costs of obtaining inputs. 
B) in order to create more divisions. 
C) which minimizes worker shirking. 
D) to implement profit-sharing.

Question 20

Time clocks are typically a solution to the

Accepted Answer

A) manager-consumer, principal-agent problem. 
B) manager-owner, principal-agent problem. 
C) consumer-worker, principal-agent problem. 
D) none of the statements associated with this question are correct. 
A) manager-consumer, principal-agent problem. 
B) manager-owner, principal-agent problem. 
C) consumer-worker, principal-agent problem. 
D) none of the statements associated with this question are correct.

Which of the following is not a solution to the manager-worker principal agent problem?

Suppose a new contracting environment with an economic environment that looks more uncertain.This new contract will result in

If a manager is not the owner, the manager

Which of the following is not a type of specialized investment?

The agent is an individual

Explain why people in the following occupations are compensated as they are. a.Insurance agents. b.Football players. c.Authors. d.CEOs of major corporations. e.Food servers.

Long-term contracts are less likely when

Vertical integration

In the absence of worker incentives

If a manager desires to produce a large level of output, which compensation mechanism is most effective?

Is it necessarily in the best interest of shareholders for management to ensure that there is absolutely no shirking in the workplace? Explain.

A profit sharing pay scheme

A person who monitors the production process and evaluates the productivity of workers is:

Long-term contracts are not efficient if

Given that the income for a franchise restaurant manager is directly tied to profits, while the income for the manager of a company-owned restaurant is paid a flat fee, we might expect profits to be

A negative side of long-term contracts is:

High transactions costs

A firm chooses the institution to purchase inputs

Time clocks are typically a solution to the

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 is not a solution to the manager-worker principal agent problem?

Suppose a new contracting environment with an economic environment that looks more uncertain.This new contract will result in

If a manager is not the owner, the manager

Which of the following is not a type of specialized investment?

The agent is an individual

Explain why people in the following occupations are compensated as they are. a.Insurance agents. b.Football players. c.Authors. d.CEOs of major corporations. e.Food servers.

Long-term contracts are less likely when

Vertical integration

In the absence of worker incentives

If a manager desires to produce a large level of output, which compensation mechanism is most effective?

Is it necessarily in the best interest of shareholders for management to ensure that there is absolutely no shirking in the workplace? Explain.

A profit sharing pay scheme

A person who monitors the production process and evaluates the productivity of workers is:

Long-term contracts are not efficient if

Given that the income for a franchise restaurant manager is directly tied to profits, while the income for the manager of a company-owned restaurant is paid a flat fee, we might expect profits to be

A negative side of long-term contracts is:

High transactions costs

A firm chooses the institution to purchase inputs

Time clocks are typically a solution to the

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