Question 1

Shirking can take the form of:

Accepted Answer

A) Long lunch hours. 
B) Sleeping at work. 
C) Leaving work early. 
D) All of the statements associated with this question are correct. 
A) Long lunch hours. 
B) Sleeping at work. 
C) Leaving work early. 
D) All of the statements associated with this question are correct.

Question 2

Suppose a firm manager has a base salary of $75,000 and earns 1.5% of all profits.Determine the manager's income, if revenues are $10,000,000 and profits are $5,000,000?

Accepted Answer

A) $75,000. 
B) $150,000. 
C) $225,000. 
D) $300,000. 
A) $75,000. 
B) $150,000. 
C) $225,000. 
D) $300,000.

Question 3

A payment plan that induces better worker effort by linking compensation to revenues of the firm is known as:

Accepted Answer

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

Question 4

Generally, revenue-based incentive schemes

Accepted Answer

A) reduce incentives to produce low-quality products. 
B) increase incentives to minimize costs. 
C) reduce worker productivity. 
D) reduce incentives to produce low-quality products and increase incentives to minimize costs. 
A) reduce incentives to produce low-quality products. 
B) increase incentives to minimize costs. 
C) reduce worker productivity. 
D) reduce incentives to produce low-quality products and increase incentives to minimize costs.

Question 5

Often owners of firms who hire managers must install incentive or bonus plans to ensure that the

Accepted Answer

A) company is financially secure. 
B) manager will work hard. 
C) manager will maintain employee morale. 
D) company will have positive economic profits. 
A) company is financially secure. 
B) manager will work hard. 
C) manager will maintain employee morale. 
D) company will have positive economic profits.

Question 6

Revenue sharing tries to induce worker effort by linking

Accepted Answer

A) worker compensation to profits. 
B) worker compensation to revenues. 
C) worker output to profits. 
D) worker output to revenues. 
A) worker compensation to profits. 
B) worker compensation to revenues. 
C) worker output to profits. 
D) worker output to revenues.

Question 7

Sydney Roofers Incorporated recently purchased 100 pounds of standard roofing nails from Lowes - a nationwide hardware and building supplies store.This transaction most likely involves

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.

Question 8

Long-term contracts become longer

Accepted Answer

A) when specialized investment becomes more important. 
B) when the exchange environment is more complex. 
C) spot markets work well. 
D) marginal costs are declining. 
A) when specialized investment becomes more important. 
B) when the exchange environment is more complex. 
C) spot markets work well. 
D) marginal costs are declining.

Question 9

If a firm manager has a base salary of $100,000 and also receive 5% of all profits, what percentage of his/her final income will be from the profit sharing plan given profit equals $1,500,000?

Accepted Answer

A) 51%. 
B) 27%. 
C) 43%. 
D) 48%. 
A) 51%. 
B) 27%. 
C) 43%. 
D) 48%.

Question 10

Suppose a principal knew with certainty the level of profits that would result if an agent put forth maximum effort.
a.Would there be a principal-agent problem?
b.Devise two incentive contracts that would induce the manager to put forth maximum effort in this instance.

Accepted Answer

a.The principal must still devise a cont

Question 11

The solutions to the principal-agent problem ensures that the firm is operating

Accepted Answer

A) on the production function. 
B) above the production function. 
C) below the production function. 
D) above the isoquant curve. 
A) on the production function. 
B) above the production function. 
C) below the production function. 
D) above the isoquant curve.

Question 12

A firm might choose to produce its own inputs if

Accepted Answer

A) specialized investment is not important. 
B) long-term contracts are costly to write. 
C) the exchange environment is not complex. 
D) spot markets for the input exist. 
A) specialized investment is not important. 
B) long-term contracts are costly to write. 
C) the exchange environment is not complex. 
D) spot markets for the input exist.

Question 13

Spot checks are typically a solution to the

Accepted Answer

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

Question 14

Dallas-based Southwest Airlines recently announced a 10-year contract that gives pilots a greater opportunity to share in the profits of the airline.According to the terms of the contract, the pilots will receive options to buy 14 million shares of the firm's stock over the next ten years.What impact do you think this new contract will have on Southwest Airlines?

Accepted Answer

The contract provides pilots an incentiv

Question 15

Spot exchange can be inefficient in the presence of

Accepted Answer

A) opportunism. 
B) a complex contracting environment. 
C) spot checks. 
D) none of the statements associated with this question are correct. 
A) opportunism. 
B) a complex contracting environment. 
C) spot checks. 
D) none of the statements associated with this question are correct.

Question 16

Art-R-Us makes hand-painted art reproductions.The owner-manager wishes to hire another artist, and is considering paying a fixed wage plus either (1) a share of the profits from each painting sold or (2) a fixed payment for each piece produced.Which plan would you choose if you were the owner? Explain.

Accepted Answer

A share of the profits from ea

Question 17

Which of the following forms of payment is not an incentive plan?

Accepted Answer

A) commission plans for salesmen. 
B) flat salary for a plant manager. 
C) bonuses for managers that increase as profits increase. 
D) none of the statements associated with this question are correct. 
A) commission plans for salesmen. 
B) flat salary for a plant manager. 
C) bonuses for managers that increase as profits increase. 
D) none of the statements associated with this question are correct.

Question 18

Which of the following mergers is an example of vertical integration?

Accepted Answer

A) Bethlehem Steel purchases U.S.Steel. 
B) IBM purchasing a California computer chip company. 
C) AT&T purchases MCI. 
D) GM purchases Ford. 
A) Bethlehem Steel purchases U.S.Steel. 
B) IBM purchasing a California computer chip company. 
C) AT&T purchases MCI. 
D) GM purchases Ford.

Question 19

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $50.Based on this information, the optimal contract length should

Accepted Answer

A) be increased. 
B) be decreased by half. 
C) be decreased by two-thirds. 
D) be held constant at the contract length where MB = 100 and MC = 50. 
A) be increased. 
B) be decreased by half. 
C) be decreased by two-thirds. 
D) be held constant at the contract length where MB = 100 and MC = 50.

Question 20

By making managerial compensation depend on the performance of the firm's profits, the firm owner's profits

Accepted Answer

A) rise. 
B) fall. 
C) remain constant. 
D) initially fall, then rise. 
A) rise. 
B) fall. 
C) remain constant. 
D) initially fall, then rise.

Shirking can take the form of:

Suppose a firm manager has a base salary of $75,000 and earns 1.5% of all profits.Determine the manager's income, if revenues are $10,000,000 and profits are $5,000,000?

A payment plan that induces better worker effort by linking compensation to revenues of the firm is known as:

Generally, revenue-based incentive schemes

Often owners of firms who hire managers must install incentive or bonus plans to ensure that the

Revenue sharing tries to induce worker effort by linking

Sydney Roofers Incorporated recently purchased 100 pounds of standard roofing nails from Lowes - a nationwide hardware and building supplies store.This transaction most likely involves

Long-term contracts become longer

If a firm manager has a base salary of $100,000 and also receive 5% of all profits, what percentage of his/her final income will be from the profit sharing plan given profit equals $1,500,000?

Suppose a principal knew with certainty the level of profits that would result if an agent put forth maximum effort. a.Would there be a principal-agent problem? b.Devise two incentive contracts that would induce the manager to put forth maximum effort in this instance.

The solutions to the principal-agent problem ensures that the firm is operating

A firm might choose to produce its own inputs if

Spot checks are typically a solution to the

Spot exchange can be inefficient in the presence of

Which of the following forms of payment is not an incentive plan?

Which of the following mergers is an example of vertical integration?

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $50.Based on this information, the optimal contract length should

By making managerial compensation depend on the performance of the firm's profits, the firm owner's profits

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

Shirking can take the form of:

Suppose a firm manager has a base salary of $75,000 and earns 1.5% of all profits.Determine the manager's income, if revenues are $10,000,000 and profits are $5,000,000?

A payment plan that induces better worker effort by linking compensation to revenues of the firm is known as:

Generally, revenue-based incentive schemes

Often owners of firms who hire managers must install incentive or bonus plans to ensure that the

Revenue sharing tries to induce worker effort by linking

Sydney Roofers Incorporated recently purchased 100 pounds of standard roofing nails from Lowes - a nationwide hardware and building supplies store.This transaction most likely involves

Long-term contracts become longer

If a firm manager has a base salary of $100,000 and also receive 5% of all profits, what percentage of his/her final income will be from the profit sharing plan given profit equals $1,500,000?

Suppose a principal knew with certainty the level of profits that would result if an agent put forth maximum effort. a.Would there be a principal-agent problem? b.Devise two incentive contracts that would induce the manager to put forth maximum effort in this instance.

The solutions to the principal-agent problem ensures that the firm is operating

A firm might choose to produce its own inputs if

Spot checks are typically a solution to the

Spot exchange can be inefficient in the presence of

Which of the following forms of payment is not an incentive plan?

Which of the following mergers is an example of vertical integration?

Suppose that the marginal benefit of writing a contract is $100 and the marginal cost of that contract is $50.Based on this information, the optimal contract length should

By making managerial compensation depend on the performance of the firm's profits, the firm owner's profits

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