Exam 6: The Organization of the Firm

Discuss the benefits and costs of the following methods of monitoring worker performance: a. Hidden video cameras in the workplace. b. Time clocks. c. Paying workers based on the output they produce.

If a manager is not the owner, the manager:

You are the manager of Door-to-Door Vacuum Cleaners, Inc. Each salesperson is paid a base salary plus a percentage of the revenues she or he generates. In addition, each salesperson drives his or her car to and from each sales call and is reimbursed $0.40 per mile driven. On average, each salesperson drives about 150 miles per day and 240 days per year. As manager of Door-to-Door, how might you restructure the compensation of your sales force to enhance your profits? Are there any potential disadvantages of your plan? Explain.

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.

Which of the following is NOT an implication of specialized investments that lead to increased transaction costs?

A drawback of separating ownership from control by creating a firm is:

A negative side of a revenue-sharing plan is that it:

Which of the following involves the most risk from the point of view of the employee?

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

Revenue sharing tries to induce worker effort by linking:

Which of the following is NOT an example of a piece-rate compensation method?

A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to:

Suppose compensation is given by W = 500,000 + 200 π + 17S, where W = total compensation of the CEO, π = 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?

When a manager enters the workplace from time to time to monitor workers, he is using:

An incentive for managers to maximize profits is:

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

An increase in the marginal benefit arising from a specialized investment will cause the optimal contract length to:

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 purchases a dozen wood screws from the local hardware store. d. An electric utility purchases coal from an underground mine.

A firm manager is an agent hired by the:

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