Question 1

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 2

Managerial reputation 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 3

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 4

Point A 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.

Question 5

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 6

When the owner runs the business:

Accepted Answer

A)  he does not bear the full cost of a bad decision. 
B)  there is not a principal-agent problem. 
C)  he does not receive the full benefit nor the full cost of any decision. 
D)  he has only limited liability for the actions of the business. 
A)  he does not bear the full cost of a bad decision. 
B)  there is not a principal-agent problem. 
C)  he does not receive the full benefit nor the full cost of any decision. 
D)  he has only limited liability for the actions of the business.

Question 7

A long-term contract:

Accepted Answer

A)  occurs when a firm produces its own inputs. 
B)  is most likely in complex exchange environments. 
C)  exists when a firm is legally bound to purchase inputs from a particular supplier. 
D)  is shorter when specialized investments are important. 
A)  occurs when a firm produces its own inputs. 
B)  is most likely in complex exchange environments. 
C)  exists when a firm is legally bound to purchase inputs from a particular supplier. 
D)  is shorter when specialized investments are important.

Question 8

Under a profit-sharing compensation scheme, the manager will:

Accepted Answer

A)  shirk all day. 
B)  not shirk all day. 
C)  optimize his choice between income and leisure. 
D)  do the same thing as under a fixed salary scheme. 
A)  shirk all day. 
B)  not shirk all day. 
C)  optimize his choice between income and leisure. 
D)  do the same thing as under a fixed salary scheme.

Question 9

Long-term contracts are generally preferable to:

Accepted Answer

A)  spot markets. 
B)  short-term contracts. 
C)  vertical integration. 
D)  None of the statements is correct. 
A)  spot markets. 
B)  short-term contracts. 
C)  vertical integration. 
D)  None of the statements is correct.

Question 10

Solving 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 11

Which of the following is NOT a transaction cost associated with using inputs?

Accepted Answer

A)  Time spent negotiating labor contracts with union workers 
B)  Opportunity costs of negotiating the price of renting machines 
C)  Wages paid to labor 
D)  Costs of searching for a new supplier of machines 
A)  Time spent negotiating labor contracts with union workers 
B)  Opportunity costs of negotiating the price of renting machines 
C)  Wages paid to labor 
D)  Costs of searching for a new supplier of machines

Question 12

By instituting performance-based rewards to CEOs the profits of firms will:

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain constant. 
D)  None of the statements is correct. 
A)  rise. 
B)  fall. 
C)  remain constant. 
D)  None of the statements is correct.

Question 13

Long-term contracts:

Accepted Answer

A)  increase transaction costs and increase opportunism. 
B)  increase transaction costs. 
C)  can reduce opportunistic behavior. 
D)  reduce transaction costs and increase flexibility. 
A)  increase transaction costs and increase opportunism. 
B)  increase transaction costs. 
C)  can reduce opportunistic behavior. 
D)  reduce transaction costs and increase flexibility.

Question 14

Relationship-specific investments include:

Accepted Answer

A)  site specificity. 
B)  dedicated assets. 
C)  human capital. 
D)  All of the statements associated with this question are correct. 
A)  site specificity. 
B)  dedicated assets. 
C)  human capital. 
D)  All of the statements associated with this question are correct.

Question 15

Suppose a new contracting environment with an economic environment that looks more uncertain 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

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 17

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 18

EFI Conveyor Systems recently visited a local AC motor distributor. 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 19

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 20

One way of alleviating opportunism is:

Accepted Answer

A)  spot exchange. 
B)  dedicated assets. 
C)  vertical integration. 
D)  contracts in complex contracting environments. 
A)  spot exchange. 
B)  dedicated assets. 
C)  vertical integration. 
D)  contracts in complex contracting environments.

Which type of compensation method works by performance bonus?

Managerial reputation is an _ incentive that helps to mitigate the ___ principal-agent problem.

Spot checks:

Point A in the figure below 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.

When the owner runs the business:

A long-term contract:

Under a profit-sharing compensation scheme, the manager will:

Long-term contracts are generally preferable to:

Solving the principal-agent problem ensures that the firm is operating:

Which of the following is NOT a transaction cost associated with using inputs?

By instituting performance-based rewards to CEOs the profits of firms will:

Long-term contracts:

Relationship-specific investments include:

Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in:

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

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

EFI Conveyor Systems recently visited a local AC motor distributor. This transaction most likely involves:

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

One way of alleviating opportunism 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

Which type of compensation method works by performance bonus?

Managerial reputation is an _____ incentive that helps to mitigate the _______ principal-agent problem.

Spot checks:

Point A in the figure below 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.

When the owner runs the business:

A long-term contract:

Under a profit-sharing compensation scheme, the manager will:

Long-term contracts are generally preferable to:

Solving the principal-agent problem ensures that the firm is operating:

Which of the following is NOT a transaction cost associated with using inputs?

By instituting performance-based rewards to CEOs the profits of firms will:

Long-term contracts:

Relationship-specific investments include:

Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in:

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

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

EFI Conveyor Systems recently visited a local AC motor distributor. This transaction most likely involves:

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

One way of alleviating opportunism 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

Managerial reputation is an _ incentive that helps to mitigate the ___ principal-agent problem.