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, Smith has a strong quality assurance program. A primary reason for that may
be:
A. cost containment.
B. company reputation.
C. the need for reinforcement.
D. the asymmetric information Smith holds on quality.
______ is an important element of corporate culture.
A. Establishing dress code and political correctness in the work place
B. Ensuring proper coordination among employees
C. Establishing expectations of employees
D. Establishing female participation in decisions-making process
In the Humana Hospital case study, the hospital, before reorganization, devoted only
_____ of each health care dollar spent on direct patient care.
A. $0.5
B. $0.16
C. $0.35
D. $0.6
The cumulative voting system used by firms in the election of directors allows:
A. the prospective candidates for the board of directors to manipulate the federal laws
and regulation.
B. the blockholders to elect some directors even though they are barred from
participating in the internal decision making.
C. a large minority shareholder to elect some directors even if their election is opposed
by the majority of shareholders.
D. large shareholders to nominate board members through the normal proxy process
without any legal binding.
Identify the correct statement regarding business ethics.
A. Business ethics seeks to proscribe those behaviors that maximize an organization’s
profit.
B. Business ethics and organizational architecture are independent of each other.
C. Business ethics and organizational architecture are interdependent.
D. Business ethics seeks to proscribe those behaviors that maximize an employee’s
productivity.
Competitive markets usually promote the efficient use of resources. This is because:
A. resource owners bear the wealth effects of their decisions.
B. managers always have the proper incentives to make decisions.
C. consumers price makers
D. markets usually make equitable choices first.
If costs rise more quickly than quality, then firm value will:
A. be maximized before total quality is achieved.
B. be minimized before total quality is achieved.
C. be maximized after total quality is achieved.
D. always decline.
Human resources, as a source of creating value in a modern company, are also referred
to as
A. hardware.
B. software.
C. wetware.
D. dryware.
Alternative Dispute Resolution (ADR) is used by many companies to:
A. eliminate the need for a court system.
B. solve problems associated with the distribution of public goods.
C. reduce government intervention in international trade.
D. reduce the high cost of commercial litigation.
Fred Powell, the CEO of TruLite, is in a quandary. He wants to bring a new lamp to the
market that is based on fuel technology. He just does not understand the technology
involved, but he has several engineers who have spent a lot of time investigating the
issue. Powell needs to:
A. decentralize decision making to people with specific knowledge.
B. hire outside experts to question his engineers about fuel cells.
C. just make a decision so he can beat the competition in the market.
D. retire and replace himself with an engineer.
Symbols used by the leaders in an organization are unlikely to be effective in
motivating employees to take particular actions unless reinforced by:
A. the reward system.
B. the shareholders.
C. the government.
D. the board of directors.
In an internal labor market, employees often spend too much time lobbying for
promotions or preferred job assignments. These are referred to as:
A. administrative costs.
B. market costs.
C. influence costs.
D. human capital costs.
Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to
locals and out-of-state visitors. The demand for day passes to the water park for each
market segment is independent of the other market segment. The marginal cost of
providing service to each visitor is $5 per day. Suppose the daily demand curves for the
two market segments are
.
(a) If Wet-n-Wild Indoor Water Park charges one price to all visitors, what is the profit
maximizing price? How many day passes will be sold per day?
(b) If Wet-n-Wild Indoor Water Park charges one price to locals, what is the profit
maximizing price for locals? How many day passes will be sold per day to locals?
(c) If Wet-n-Wild Indoor Water Park charges one price to out-of-towners, what is the
profit maximizing price for out-of-town guests? How many day passes will be sold per
day to out-of-town guests?
(d) Compare the prices from uniform pricing to the prices from price discrimination.
A key factor in TQM is the:
A. reduction of defects.
B. reliance on unskilled workers.
C. reduction in the prices of supplies.
D. reliance on simple production techniques.
An informal understanding about the quality of product components supplied is a key to
the relationship between most companies and their suppliers. This is a good example of:
A. an implicit contract.
B. an explicit contract.
C. a principal-agent conflict resolution.
D. an adverse selection problem.
The example of Enron shows that
A. selection of people is the key to organizational success or failure.
B. large incentives play an important role in motivating people within a corporation.
C. the success of a business is possible in a regulatory environment.
D. organizational structure is extremely important in business success.
Assume Pollutex Inc. produces paper in its plant located on Lake Ontario, half a mile
away from CleanAir Camping. Pollutex employs an obsolete production process,
dumping pollutants in the lake. The camp has experienced a steady decline in the
number of attendees since Pollutex moved nearby. In particular, the owners forecast that
CleanAir Camping will generate a profit of only $50,000 a year in the future, which is
$150,000 less than the one generated before Pollutex moved nearby. A cleaner
production process is available, which would not require dumping the pollutants in the
lake. However, converting the plant would increase yearly costs by $100,000. Is the
current situation Pareto efficient?
A. Yes, since there is no alternative that would make CleanAir better off without hurting
Pollutex, and vice versa.
B. No, as Pollutex could convert its plant and make CleanAir better off by $200,000.
C. No. In fact, CleanAir owners could pay Pollutex a sum between $100,000 and
$150,000 a year to convert its plant and increase profits between $0 and $50,000.
D. No. In fact, Pollutex owners could pay CleanAir a sum between $0 and $150,000 to
move to a different location.
Refer to Figure 7.2. If Happy Times Theater charges one price to day customers and a
different price to night customers, then the profit will be
A. $374.25.
B. $62.50.
C. $562.50.
D. $150.00.
It is better to pool risks because you can:
A. increase your income.
B. reduce your expected income but increase its standard deviation.
C. reduce the variability of expected income.
D. increase your expected income.
The nonmarket transactions refer to:
A. purchases made in the spot market.
B. vertical integration.
C. short term contracts.
D. market power.
AutoCorp is a dealership that has a contract that prevents the main company from
opening another dealership within a 30-mile radius. This is an example of:
A. a local monopoly.
B. branding.
C. an exclusive territory right.
D. a double markup.
A firm with market power in pricing faces a
A. flat demand curve.
B. supply curve parallel to the horizontal axis.
C. downward-sloping supply curve.
D. downward-sloping demand curve.
Refer to Figure 6.2. The Nash equilibrium for the market is
A. Fly Air—full service, Hi Air—full service
B. Fly Air—no frills, Hi Air—no frills
C. Fly Air—full service, Hi Air—no frills
D. Fly Air—no frills, Hi Air—full service
In some industries, pollution rights are sold from one company that does not need them
to another that does. In recent years, conservation groups have purchased pollution
rights so they cannot be exercised. Companies in need of pollution rights will find that:
A. the supply of pollution rights has increased.
B. the prices of pollution rights have fallen.
C. the relative costs of pollution control equipment have gone up.
D. the relative costs of pollution control equipment have fallen.
The term Darwinism is important because it indicates
A. the randomness of existing companies.
B. that the surviving companies are the best in the absolute sense.
C. the capability to transform as the external environment changes.
D. the existence of a higher intelligence that promotes success.
Which of the following is true of a production function?
A. It specifies the maximum feasible output that can be produced for given amounts of
inputs.
B. It specifies the maximum revenue that a firm can generate by selling its output.
C. It specifies the amount of goods that can be purchased in a market at a given price.
D. It specifies the expenses a firm can incur as a result of a production process.
Refer to Figure 7.2. If Happy Times Theater charges one price to day customers and
another price to night customers, then the day price will be
A. $7.50.
B. $5.50.
C. $6.25.
D. $10.00.
Economic Value Added:
A. is used to reduce inventory expenditure.
B. is used to reward the small shareholders fairly.
C. can backfire if top-level managers do not add any value.
D. can backfire if it fails to take into account the limited decision rights of lower-level
employees.
If a manager has the right to fire, promote, and compensate an employee, the employee
obviously has an economic incentive to comply with the manager’s wishes. Which of
the following potential sources of power is described by this statement?
A. Having friends and allies
B. Control of information
C. Control of budgets and resources
D. Formal authority
Using piece rates for employees in an assembly line usually increases ________, but it
may reduce ________.
A. output; quality
B. costs; revenue
C. quality; output
D. revenue; costs
If there exists an external market for an intermediate good produced by a company, then
an easy way to set a transfer price would be to use a:
A. market-based transfer price.
B. marginal-cost transfer price.
C. full-cost transfer price.
D. monopoly transfer price.
According to the theory of economic Darwinism, in the absence of barriers to entry,
firms that survive in the long run are those that:
A. follow the most ethical practices.
B. provide productivity-based incentives to the employees.
C. deliver products consumers want at the lowest cost.
D. do not compete with other firms in the industry on quality.
The performance-evaluation system under which an employee enumerates his/her
accomplishments, points out strengths, and discusses weaknesses with the higher
management is commonly referred to as:
A. output evaluation.
B. productivity evaluation.
C. self-evaluation.
D. reneging.
Refer to Figure 7.2. If Happy Times Theater charges one price to all customers, then
that price will be
A. $6.25.
B. $7.50.
C. $10.00.
D. Not enough information available.