Question 1

An increase in the marginal cost arising from a more complex specialized investment environment will cause the optimal contract length to:

Accepted Answer

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

Question 2

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. A

Question 3

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. A

Question 4

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

Question 5

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 6

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

Accepted Answer

A)  Revenue sharing 
B)  Profit sharing 
C)  Time clocks and spot checks 
D)  The threat of a takeover 
A)  Revenue sharing 
B)  Profit sharing 
C)  Time clocks and spot checks 
D)  The threat of a takeover

Question 7

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

Accepted Answer

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

Question 8

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 9

Long-term contracts become shorter:

Accepted Answer

A)  when specialized investment becomes less important. 
B)  when the exchange environment is less complex. 
C)  when spot markets work poorly. 
D)  when marginal costs are increasing. 
A)  when specialized investment becomes less important. 
B)  when the exchange environment is less complex. 
C)  when spot markets work poorly. 
D)  when marginal costs are increasing.

Question 10

If a manager wishes 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 11

High transaction 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 12

Suppose compensation is given by W = 100,000 + 157 π + 12S, where W = total compensation of the CEO, π = 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 13

In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?

Accepted Answer

Engine manufacturing involves

Question 14

If we reduce performance-based rewards to CEOs, the profits of firms will:

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain constant. 
D)  None of the answers are correct. 
A)  rise. 
B)  fall. 
C)  remain constant. 
D)  None of the answers are correct.

Question 15

Suppose a new contracting environment that requires clearing fewer legal hurdles is considered. This new contract will result in:

Accepted Answer

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

Question 16

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 17

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 18

Suppose compensation is given by W = 512,000 + 217π + 10.08S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?

Accepted Answer

A)  $812,431 
B)  $43,400 
C)  $559,432 
D)  $512,000 
A)  $812,431 
B)  $43,400 
C)  $559,432 
D)  $512,000

Question 19

The disadvantage of vertical integration is that:

Accepted Answer

A)  relationship-specific exchange may cause hold-up. 
B)  long-term contracts may be inflexible. 
C)  the principal-agent problem causes shirking. 
D)  firms no longer specialize in what they do best. 
A)  relationship-specific exchange may cause hold-up. 
B)  long-term contracts may be inflexible. 
C)  the principal-agent problem causes shirking. 
D)  firms no longer specialize in what they do best.

Question 20

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.

An increase in the marginal cost arising from a more complex specialized investment environment will cause the optimal contract length to:

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

Generally, revenue-based incentive schemes:

Spot checks are typically a solution to the:

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

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

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

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

Long-term contracts become shorter:

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

High transaction costs:

Suppose compensation is given by W = 100,000 + 157 π + 12S, where W = total compensation of the CEO, π = 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?

In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?

If we reduce performance-based rewards to CEOs, the profits of firms will:

Suppose a new contracting environment that requires clearing fewer legal hurdles is considered. This new contract will result in:

The principal-agent problem happens because the owner cannot:

Suppose compensation is given by W = 512,000 + 217π + 10.08S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?

The disadvantage of vertical integration is that:

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

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Exam 6: The Organization of the Firm

An increase in the marginal cost arising from a more complex specialized investment environment will cause the optimal contract length to:

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

Generally, revenue-based incentive schemes:

Spot checks are typically a solution to the:

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

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

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

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

Long-term contracts become shorter:

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

High transaction costs:

Suppose compensation is given by W = 100,000 + 157 π + 12S, where W = total compensation of the CEO, π = 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?

In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?

If we reduce performance-based rewards to CEOs, the profits of firms will:

Suppose a new contracting environment that requires clearing fewer legal hurdles is considered. This new contract will result in:

The principal-agent problem happens because the owner cannot:

Suppose compensation is given by W = 512,000 + 217π + 10.08S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?

The disadvantage of vertical integration is that:

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