Question 1

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

Accepted Answer

A)  opportunism is a problem. 
B)  suppliers engage in hold-up. 
C)  profit sharing is used to compensate managers. 
D)  opportunism is a problem and suppliers engage in hold-up. 
A)  opportunism is a problem. 
B)  suppliers engage in hold-up. 
C)  profit sharing is used to compensate managers. 
D)  opportunism is a problem and suppliers engage in hold-up.

Question 2

Suppose compensation is given by W = 500,000 + 200 π + 17S, where W = total compensation of the CEO, π = company profits (in millions) = $400, and S = sales (in millions) = $700. What percentage of the CEO's total earnings is tied to profits of the firm?

Accepted Answer

A)  2.0 percent 
B)  13.5 percent 
C)  19.6 percent 
D)  31.4 percent 
A)  2.0 percent 
B)  13.5 percent 
C)  19.6 percent 
D)  31.4 percent

Question 3

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 4

In order for spot checks to work:

Accepted Answer

A)  employees must be monitored continually. 
B)  the time of the checks must not be predictable. 
C)  Both employees must be monitored continually and the time of the checks must not be predictable are correct. 
D)  None of the answers are correct. 
A)  employees must be monitored continually. 
B)  the time of the checks must not be predictable. 
C)  Both employees must be monitored continually and the time of the checks must not be predictable are correct. 
D)  None of the answers are correct.

Question 5

It would be undesirable to reduce the executive's compensation if her earnings are due largely to:

Accepted Answer

A)  a flat fee. 
B)  performance. 
C)  the owner's demand. 
D)  the employee's demand. 
A)  a flat fee. 
B)  performance. 
C)  the owner's demand. 
D)  the employee's demand.

Question 6

The presence of substantial specialized investment 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 7

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 8

Transaction costs refer to:

Accepted Answer

A)  fixed costs of capital. 
B)  variable costs of labor. 
C)  costs of exchange unrelated to production costs. 
D)  economies of scale. 
A)  fixed costs of capital. 
B)  variable costs of labor. 
C)  costs of exchange unrelated to production costs. 
D)  economies of scale.

Question 9

Which type of compensation method does NOT involve a performance bonus?

Accepted Answer

A)  Profit sharing 
B)  Revenue sharing 
C)  Piece rate 
D)  None of the answers are correct. 
A)  Profit sharing 
B)  Revenue sharing 
C)  Piece rate 
D)  None of the answers are correct.

Question 10

As a manager of the WeDoWell Corporation, you have negotiated with several vendors and are on the verge of signing an eight-year contract with Bolts Enterprises. Under the contract, they would ship to you 2,000 titanium bolts per month at a price of $1,000 per bolt. Your assistant has just brought you an article from a trade publication that indicates another company has developed a new technology that reduces the cost of producing the titanium bolts. How would this information affect the optimal length of your contract with Bolts Enterprises? Explain.

Accepted Answer

The reduction in another supplier's cost

Question 11

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 10 years. What impact do you think this new contract will have on Southwest Airlines?

Accepted Answer

The contract provides pilots an incentiv

Question 12

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.

Question 13

One problem with revenue-based incentive schemes is they do NOT provide an incentive to:

Accepted Answer

A)  maximize profit. 
B)  maximize sales. 
C)  minimize costs. 
D)  maximize productivity. 
A)  maximize profit. 
B)  maximize sales. 
C)  minimize costs. 
D)  maximize productivity.

Question 14

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 15

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 16

Is it necessarily in the best interests 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 17

Suppose compensation is given by W = 450,000 + 220 π + 15S, 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?

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 18

A decrease in the marginal cost arising from a less 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.

Question 19

The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal-agent problem.

Accepted Answer

A)  internal; manager-worker 
B)  internal; manager-consumer 
C)  external; owner-manager 
D)  external; owner-consumer 
A)  internal; manager-worker 
B)  internal; manager-consumer 
C)  external; owner-manager 
D)  external; owner-consumer

Question 20

Point B in the figure below is:

Accepted Answer

A)  efficient since it produces 20 units of output at the lowest possible cost. 
B)  efficient since it produces 10 units of output at the lowest possible cost. 
C)  inefficient since it produces 20 units of output at a cost greater than the minimum cost. 
D)  inefficient since it produces 10 units of output at a cost greater than the minimum cost. 
A)  efficient since it produces 20 units of output at the lowest possible cost. 
B)  efficient since it produces 10 units of output at the lowest possible cost. 
C)  inefficient since it produces 20 units of output at a cost greater than the minimum cost. 
D)  inefficient since it produces 10 units of output at a cost greater than the minimum cost.

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

Suppose compensation is given by W = 500,000 + 200 π + 17S, where W = total compensation of the CEO, π = company profits (in millions) = $400, and S = sales (in millions) = $700. 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?

In order for spot checks to work:

It would be undesirable to reduce the executive's compensation if her earnings are due largely to:

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

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

Transaction costs refer to:

Which type of compensation method does NOT involve a performance bonus?

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

One problem with revenue-based incentive schemes is they do NOT provide an incentive to:

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

Vertical integration:

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

Suppose compensation is given by W = 450,000 + 220 π + 15S, 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?

A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to:

The threat of a corporate takeover is an _ incentive that helps to mitigate the _ principal-agent problem.

Point B in the figure below is:

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

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

Suppose compensation is given by W = 500,000 + 200 π + 17S, where W = total compensation of the CEO, π = company profits (in millions) = $400, and S = sales (in millions) = $700. 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?

In order for spot checks to work:

It would be undesirable to reduce the executive's compensation if her earnings are due largely to:

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

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

Transaction costs refer to:

Which type of compensation method does NOT involve a performance bonus?

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

One problem with revenue-based incentive schemes is they do NOT provide an incentive to:

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

Vertical integration:

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

Suppose compensation is given by W = 450,000 + 220 π + 15S, 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?

A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to:

The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal-agent problem.

Point B in the figure below is:

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

The threat of a corporate takeover is an _ incentive that helps to mitigate the _ principal-agent problem.