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Solutions Manual to accompany Managerial Economics and Organizational Architecture, 6e Answers to “Analyzing Managerial Decisions” Discussion Questions By Jim Brickley, Cliff Smith, and Jerry Zimmerman Chapter 1: Introduction ORGANIZING XEROX SERVICE CENTER Discussion Question Answer: The individuals who answer the […]

Chapter 10: Incentive Conflicts and Contracts OPENING A NEW RESTAURANT Discussion Question Answers: 1. Restaurant owners have a strong interest in the restaurant’s profitability and value. Owners get to keep the profits and naturally want them to be high. Profits […]

Chapter 11: Organizational Architecture TIPPING IN RESTAURANTS Discussion Question Answers: a. Tipping provides incentives for waiters to do a better job compared to paying them a job. c. For tipping to work, the customer must follow through on the implicit […]

Chapter 12: Decision Rights: The Level of Empowerment TEAMS AT NUCOR VS. LEVI STRAUSS Discussion Question Answers: 1. Advantage: Sharing knowledge, skill, expertise among team members Advantage: Cooperation among team members 2. Nucor Plant Levi Strauss + employees self-selected to […]

Chapter 13: Decision Rights: Bundling Tasks into Jobs and Subunits JOG PCS Discussion Question Answers: 1. Note: All three divisions have the functional areas displayed for the High Volume User Division. 2. Pros: (1) More effective use of customer information; […]

Chapter 14: Attracting and Retaining Qualified Employees STRUCTURING CRUISE LINE COMPENSATION 1. Salaries will probably go down. The fringe benefit is a form of compensation. If you add 2. + Selects for people who like to cruise. It may be […]

Chapter 15: Incentive Compensation GRANTING STOCK OPTIONS Discussion Question Answers: 1. It is not obvious that the stock plan will provide strong incentives to unit managers. Individually each manager has only a small effect on the stock price of the […]

Chapter 16: Individual Performance Evaluation SEMCO S.A. Discussion Question Answer: One problem is the risk this system imposes on employees. They can be fired because ex post random events prevented them from generating their full worth to the company. Also, […]

Chapter 17: Divisional Performance Evaluation THE COPPER BOX COMPANY Discussion Question Answers: A basic principle in economics says that to maximize the value of the firm, a monopoly price should be charged only once whereas all other transfers are charged […]

Chapter 18: Corporate Governance CEO PAY IN PUBLIC AND PRIVATE FIRMS Discussion Question Answers: 1. Several factors potentially explain the higher pay packages for private company CEOs. First, the private equity firm might just be investing in more talented managers […]

Chapter 19: Vertical Integration and Outsourcing BIOCHEM PRICING POLICY Discussion Question Answers: 1. To find the optimal price for each market segment, simply set MR = MC and solve for Q 2. A problem with trying to implement this pricing […]

Chapter 2: Economists’ View of Behavior MARGINAL ANALYSIS Discussion Question Answers: The marginal (incremental) benefit of this transaction is the $600 of increased revenue. You need to calculate your marginal (incremental) costs to decide if you should accept or reject […]

Chapter 20: Leadership: Motivating Change within Organizations GLOBAL INSURANCE Discussion Question Answers: 1. The human resources manager is likely to be against the proposal. The changes make her worse off because it reduces her influence and power within the organization. […]

Chapter 21: Understanding the Business Environment: The Economics of Regulation EFFECT OF THE MICROSOFT CASE ON OTHER COMPUTER FIRMS Discussion Question Answer: Several possible reasons can reconcile these facts. First, the stock market did not expect the suit would have […]

Chapter 22: Ethics and Organizational Architecture WILMORITE MALL DEVELOPMENT Discussion Question Answers: 1. There are several points on which everyone should agree. Wilmorite (its managers and owners) and the mall’s potential customers are expected to be better off if the […]

Managerial Economics and Organizational Architecture – Solutions Manual Chapter 23: Organizational Architecture and the Process of Management Innovation SOFTWARE DEVELOPMENT, INC. Discussion Question Answers: 1. One often hears that “quality is free.” In fact a well-known quality expert has The […]

Chapter 3: Exchange and Markets COMPARATIVE ADVANTAGE IN THE WORKPLACE Discussion Question Answers: 1. With the current allocation of time, Julio is producing 98 keyboards and 2 modems, while 2. The opportunity cost for Julio to produce 1 modem is […]

Chapter 4: Demand SETTING TUITION AND FINANCIAL AID AT URSINUS COLLEGE Discussion Question Answer The Law of Demand states that demand curves slope downward. Managers should be very skeptical of analysis that is based on an assumption that demand curves […]

Chapter 5: Production and Cost CHOOSING THE MIX OF PEOPLE AND MACHINES IN A RETAIL SUPERCENTER Discussion Question Answers 1. You should lease the additional 10 machines rather than continue to service your customers with the same input mix. Your […]

Chapter 6: Market Structure UNITED AIRLINES Discussion Question Answer: This fact does not necessarily imply that United should discontinue these flights. Some of the costs that are being included under the “costs associated with running the hub at the two […]

(000’s) Price Case of Beer (€) ((Euros) 50 10 MC 30 a b c d e f Chapter 7: Pricing with Market Power PROFIT POTENTIAL FOR A MICROBREWERY Discussion Question Answers: 1. The profit maximizing quantity is found by setting […]

Chapter 8: Economics of Strategy: Creating and Capturing Value INVESTING IN A NEW RESTAURANT CONCEPT Discussion Question Answer: You have worked in the health food industry for ten years. You have relatively good information about the demand for this type […]

Chapter 9: Economics of Strategy: Game Theory FAVORING A GOVERNMENT BAN ON ADVERTISING Discussion Question Answers: 1. The following hypothetical two-company game illustrates why cigarette companies might favor a government ban on advertising. The payoffs in this game assume that […]

Profit center managers are allocated decision rights for: A. input mix, product mix, and selling prices. B. selling prices and capital expenditures. C. product mix and selling price only. D. input mix and product mix only. When a firm purchases […]

Assume D1 represents the current demand curve for skis. Which of the following would most likely cause D1 to shift to D2? A. An increase in the price of snowboards B. A decrease in the price snowboards C. A decrease […]

J.T. Smith’s company, Gamemaker, sells gambling equipment to gaming service companies. Since the quality of the equipment is difficult to monitor and gamblers are often the source of machine failure, Smith could cheat on the level of machine quality. However, […]

Which of the following statements is true? A. Every game has a dominant strategy. B. Not every game has a dominant strategy. C. Every game has multiple Nash equilibria. D. People never choose the strategies that result in Nash equilibrium. […]

Electric generator companies did not raise their prices when there was a huge demand for their products, due to a power shortage. The companies decided against a price rise because they were A. concerned about being sued by consumer activists. […]

Role models, company folklore, and rituals are: A. the key components of corporate culture. B. not parts of most companies’ corporate culture. C. not considered in an economic analysis of organizational architecture. D. the key components of a barter economy. […]

Markets are usually preferred by economists for efficient transactions. However, Ronald Coase noted that administrative solutions may be superior because market transactions are: A. never achieved at the equilibrium price. B. not costless. C. always result in a price that […]

FancyFoods provides a monthly bonus for servers when sales volume exceeds 120 percent of the same month last year. The size of bonus is tied to the individual server’s sales of meals in comparison to an average server’s sales. This […]

Which of the following is an important lesson to keep in mind during benchmarking? A. Benchmarked firms should be made aware of the said firm’s motivation. B. Differences in environments of the benchmarked firms should be taken into account. C. […]

Fama and Jensen suggest that “the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.” This is an example of A. market and organizational […]

ABC Corp. has a bonus plan in place for its CEO, linking her pay to annual earnings. ABC will pay her $180,000 if earnings are high, $90,000 if they are normal, and $0 if they are low. Each event is […]

George likes skiing and needs one pair of bindings for each pair of skis he owns. George’s indifference curves for skies and bindings A. are approximately L-shaped. B. are straight lines. C. slope downward. D. slope upward. The following diagram […]

Diversifying to reduce volatility is a good idea only if A. shareholders can diversify within their own investment portfolios at low cost. B. firms are willing to invest in capital formation. C. firms account for social costs of production. D. […]

In the Celtex case study, Leo Garcia, President of the synthetic chemical division, regularly fails to sell his products to and through the consumer products division. This is because: A. there is a market-based alternative to his products that are […]

In a very basic principal-agent model, output is contractible if: A. it can be observed with some positive cost. B. the employee produces many products. C. the employee works in a team. D. the employee works independently and cannot game […]

If a management innovation is going to be successful, it needs to address: A. the personal problems of its workers. B. incentive and reward systems. C. the concerns of its rivals. D. the problem of unemployment. A primary reason for […]

Which of the following is not a benefit of decentralization? A. Effective use of local knowledge B. Possibility to shirk and enjoy credits from free riding C. Conservation of management time D. Possibility to increase motivation and productivity The fast-food […]

Firms with internal labor markets have more flexibility in deciding the level and time profile of wages because A. individuals tend to base their employment decisions on their entire career earnings. B. they have to pay the wage rate that […]

As a firm moves from a competitive industry to a monopoly: A. its profits fall. B. average revenue falls and profits rise. C. marginal costs rise and profits fall. D. its profits rise. The curve showing all the combinations of […]

If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the markup would be A. $52.50. B. $20.00. C. $32.50. D. $65.00. Bundling of complements to create value strategically […]

Many firms offer substantial rebates by mail or coupons for discounts at the point of sale. The people who use the rebates or coupons have ______ than the people who don’t use them. A. greater price sensitivity B. the same […]

Johnny consumes only bread and milk. Suppose the quantity of milk is measured along the horizontal axis. If the price of milk rises, his budget constraint will A. shift outward. B. shift inward. C. rotate inward along the horizontal axis. […]

Refer to Table 5.2, which gives cost information for the production of widgets. Some values are missing, however. Which of the following is true? A. A = 45, E = 40 B. A = 45, E = 10 C. A […]

A person buys a used 1998 Honda Civic and finds that there is a problem in the drive train so that the whole set of axles must be replaced. However, the state has a law that protects the buyer from […]