Question 1

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 2

An example of a job that usually involves a revenue-sharing plan would be:

Accepted Answer

A)  waiters and waitresses. 
B)  car salesman. 
C)  insurance agents. 
D)  All of the statements associated with this question are correct. 
A)  waiters and waitresses. 
B)  car salesman. 
C)  insurance agents. 
D)  All of the statements associated with this question are correct.

Question 3

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 4

The presence of minimal specialized investments relative to contracting costs suggests that the optimal input procurement method is:

Accepted Answer

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

Question 5

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 preceding statements is correct. 
A)  manager-consumer, principal-agent problem. 
B)  manager-worker, principal-agent problem. 
C)  consumer-worker, principal-agent problem. 
D)  None of the preceding statements is correct.

Question 6

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 7

General Motors purchased Fischer Auto Body to produce bodies to place on a chassis.This transaction is best described as:

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

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 9

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 10

The specificity of the asset (or investment)leads to the possibility of:

Accepted Answer

A)  collusion. 
B)  prisoner's dilemma. 
C)  opportunism. 
D)  None of the preceding statements is correct. 
A)  collusion. 
B)  prisoner's dilemma. 
C)  opportunism. 
D)  None of the preceding statements is correct.

Question 11

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 12

Suppose a firm manager has a base salary of $85,000 and earns 0.5 percent of all sales.Determine the manager's income if revenues are $2,000,000 and profits are $500,000.

Accepted Answer

A)  $50,000 
B)  $87,500 
C)  $95,000 
D)  $170,000 
A)  $50,000 
B)  $87,500 
C)  $95,000 
D)  $170,000

Question 13

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 14

Suppose compensation is given by W = 450,000 + 220 F1F1F1S1F1F1F10 + 15S,where W = total compensation of the CEO,F1F1F1S1F1F1F10 = company profits (in millions)= $300,and S = sales (in millions)= $500.What percentage of the CEO's total earnings is tied to profits of the firm?

Accepted Answer

A)  6.0 percent 
B)  7.9 percent 
C)  12.6 percent 
D)  43.4 percent 
A)  6.0 percent 
B)  7.9 percent 
C)  12.6 percent 
D)  43.4 percent

Question 15

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

Accepted Answer

A)  Commission plans for salespeople 
B)  Paying waitresses low wages, but allowing them to collect tips 
C)  Bonuses for managers that increase with profits 
D)  Straight hourly wages for construction workers 
A)  Commission plans for salespeople 
B)  Paying waitresses low wages, but allowing them to collect tips 
C)  Bonuses for managers that increase with profits 
D)  Straight hourly wages for construction workers

Question 16

Suppose a firm manager has a base salary of $50,000 and earns 2.5 percent of all sales.Determine the manager's income if revenues are $20,000,000 and profits are $5,000,000.

Accepted Answer

A)  $50,000 
B)  $175,000 
C)  $550,000 
D)  $700,000 
A)  $50,000 
B)  $175,000 
C)  $550,000 
D)  $700,000

Question 17

A potential problem with paying workers based on a piece rate is that:

Accepted Answer

A)  effort cannot be expended engaging in quality control. 
B)  effort should not be expended engaging in quality control. 
C)  workers will attempt to produce quality at the expense of quantity. 
D)  workers will attempt to produce quantity at the expense of quality. 
A)  effort cannot be expended engaging in quality control. 
B)  effort should not be expended engaging in quality control. 
C)  workers will attempt to produce quality at the expense of quantity. 
D)  workers will attempt to produce quantity at the expense of quality.

Question 18

Suppose compensation is given by W = 100,000 + 157 F1F1F1S1F1F1F10 + 12S,where W = total compensation of the CEO,F1F1F1S1F1F1F10 = company profits (in millions)= $340,and S = sales (in millions)= $700.What percentage of the CEO's total earnings is tied to sales of the firm?

Accepted Answer

A)  5.2 percent 
B)  13.5 percent 
C)  19.6 percent 
D)  33.0 percent 
A)  5.2 percent 
B)  13.5 percent 
C)  19.6 percent 
D)  33.0 percent

Question 19

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 20

Which of the following payment plans does NOT give an incentive to a manager to stop shirking?

Accepted Answer

A)  Flat salary with additional pay based on profits of the firm 
B)  Pay schedule based solely on profits earned by the firm 
C)  Flat salary regardless of firm profits 
D)  None of the preceding statements is correct. 
A)  Flat salary with additional pay based on profits of the firm 
B)  Pay schedule based solely on profits earned by the firm 
C)  Flat salary regardless of firm profits 
D)  None of the preceding statements is correct.

The agent is an individual:

An example of a job that usually involves a revenue-sharing plan would be:

A firm might choose to produce its own inputs if:

The presence of minimal specialized investments relative to contracting costs suggests that the optimal input procurement method is:

Spot checks are typically a solution to the:

Long-term contracts are LESS likely when:

General Motors purchased Fischer Auto Body to produce bodies to place on a chassis.This transaction is best described as:

Spot checks:

Relationship-specific exchange:

The specificity of the asset (or investment)leads to the possibility of:

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

Suppose a firm manager has a base salary of $85,000 and earns 0.5 percent of all sales.Determine the manager's income if revenues are $2,000,000 and profits are $500,000.

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

Suppose compensation is given by W = 450,000 + 220  + 15S,where W = total compensation of the CEO, = company profits (in millions)= $300,and S = sales (in millions)= $500.What percentage of the CEO's total earnings is tied to profits of the firm?

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

Suppose a firm manager has a base salary of $50,000 and earns 2.5 percent of all sales.Determine the manager's income if revenues are $20,000,000 and profits are $5,000,000.

A potential problem with paying workers based on a piece rate is that:

Suppose compensation is given by W = 100,000 + 157  + 12S,where W = total compensation of the CEO, = company profits (in millions)= $340,and S = sales (in millions)= $700.What percentage of the CEO's total earnings is tied to sales of the firm?

Which type of compensation method works by performance bonus?

Which of the following payment plans does NOT give an incentive to a manager to stop shirking?

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

The agent is an individual:

An example of a job that usually involves a revenue-sharing plan would be:

A firm might choose to produce its own inputs if:

The presence of minimal specialized investments relative to contracting costs suggests that the optimal input procurement method is:

Spot checks are typically a solution to the:

Long-term contracts are LESS likely when:

General Motors purchased Fischer Auto Body to produce bodies to place on a chassis.This transaction is best described as:

Spot checks:

Relationship-specific exchange:

The specificity of the asset (or investment)leads to the possibility of:

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

Suppose a firm manager has a base salary of $85,000 and earns 0.5 percent of all sales.Determine the manager's income if revenues are $2,000,000 and profits are $500,000.

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

Suppose compensation is given by W = 450,000 + 220  + 15S,where W = total compensation of the CEO, = company profits (in millions)= $300,and S = sales (in millions)= $500.What percentage of the CEO's total earnings is tied to profits of the firm?

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

Suppose a firm manager has a base salary of $50,000 and earns 2.5 percent of all sales.Determine the manager's income if revenues are $20,000,000 and profits are $5,000,000.

A potential problem with paying workers based on a piece rate is that:

Suppose compensation is given by W = 100,000 + 157  + 12S,where W = total compensation of the CEO, = company profits (in millions)= $340,and S = sales (in millions)= $700.What percentage of the CEO's total earnings is tied to sales of the firm?

Which type of compensation method works by performance bonus?

Which of the following payment plans does NOT give an incentive to a manager to stop shirking?

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