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.
Incentives are not likely to be a problem if:
A. workers’ efforts are not contractible.
B. only some actions are observable.
C. all actions are observable.
D. actions are not observable.
Game theory between two firms with two outcomes tends to emphasize
A. noncooperative games.
B. organizational architecture.
C. intrafirm decision making.
D. purely competitive outcomes.
Which of the following is true in a regulatory environment?
A. The number of consumers is large, and their individual payoffs from successful
lobbying are also large.
B. The number of consumers is large, and their individual payoffs from successful
lobbying are small.
C. The demand for regulation is perfectly inelastic.
D. The supply of regulation is usually tied to another industry’s success.
Implementation of a pricing strategy is complicated. Which of the following is a
possible reason?
A. Optimal pricing policies can change over time.
B. Firms change the technique of production over time.
C. Companies follow the recommendations of the Robinson-Patman Act.
D. Firms often do not differentiate their products.
The demand and supply curves in the market for gasoline are illustrated in the graph
below.
Starting at the equilibrium point, if the government imposes a price ceiling of $10,
producer surplus will fall by an amount given by the area _____ <<PM: Fill in the
blank?>>
A. A.
B. B + C.
C. B + E.
D. C.
Though Nash games are noncooperative, a cooperative outcome is more likely if
A. the long-run gains are smaller than the short-run gains.
B. firms can easily monitor the outcomes from cooperation.
C. firms expect the market relationship to last only for a short time.
D. firms can easily monitor the outcomes from rivals’ defection.
The market for microcomputers (PCs) is fairly competitive and the products are
somewhat homogeneous. Over time, new firms have entered the market to make profit
on new configurations of the microcomputer, and profits
A. have risen dramatically.
B. have stayed the same for most firms.
C. have become razor thin for many producers.
D. have not influenced the decisions of the firms
Economics provides a theory to explain
A. how a successful business can be started.
B. how managers can cheat and get away with it.
C. how people make choices.
D. how businesses compete in the market.
Which of these contract terms reduce transfer pricing problems?
A. Double markups and two-part pricing
B. Quotas and double markups
C. Exclusive territories and two-part pricing
D. Two-part pricing and quotas
A budget line
A. shows all the combinations of goods that yield the same utility.
B. shows all the combinations of goods that require the same total expenditure.
C. has a slope that depends on consumers’ income.
D. usually slopes upward.
The choice between specialized and broad task assignments depends on:
A. politicking and other influencing activities carried on within an organization.
B. the principle of separation of decision management and control.
C. the principle of comparative advantage to increase the output level.
D. technological, informational, and incentive issues.
In all its corporate communications, Always Round Tire features a factory worker
looking at the camera saying, “Just keep it rolling!” The reason for this logo is that it:
A. indicates the expectations of the workers.
B. represents the company’s organizational architecture.
C. represents the image that the company wishes to present to its workers.
D. indicates that piece rates are the only wages the workers receive.
Which of the following results in the transfer of wealth from consumers to producers?
A. Provision of efficiency wages
B. Licensing of doctors and dentists
C. Provision of compensating wage differentials
D. Internalization of externalities
As GMB and VolgaBus compete, GMB selects a new and superior brake technology.
VolgaBus prefers a different brake technology, but feels trapped into selecting the same
one used by GMB. This is due to
A. adverse selection.
B. first-mover advantage.
C. secure strategy.
D. extension form.
A salesperson’s bonus for this year is based on meeting targets based on last year’s sales.
This year turns out to be an unusually good year. The salesperson is likely to:
A. meet the target easily and push forward with all potential sales.
B. fail to meet the last year’s targets because of overconfidence.
C. just be satisfied with meeting last year’s target.
D. defer some sales to the next fiscal year.
Assume that the quantity of apples is measured on the horizontal axis and the quantity
of oranges is measured on the vertical axis. If Andy likes both apples and oranges, then
his Marginal Rate of Substitution along the indifference curve indicates
A. how many oranges he is willing to give up in order to obtain one more apple.
B. how many additional oranges he wants in order to give up two apples.
C. how many oranges he is willing to give up in order to get rid of one apple.
D. how many apples he is willing to give up in order to get rid of one orange.
Shareholder voting rights should:
A. not be granted to management because of the agency problem.
B. be assigned only to small shareholders.
C. not be assigned to a founder who values control.
D. be assigned to those with residual-claim rights.
Which one of the following is a source of conflict between owners and managers?
A. Managers and owners are both highly risk-averse.
B. Managers and owners are both risk-takers.
C. Managers are more risk-averse whereas owners are not.
D. Managers are less risk-averse whereas owners are not.
A monopolist’s demand curve is P = 10 – 2Q. Thus, the MR is
A. 5 – 2Q.
B. 10 – Q.
C. 10 – 4Q.
D. 5 – Q.
The war in Iraq comes to an end. Iran and Afghanistan lay pipes to generate more oil.
The United States and Venezuela enter into an era of friendship. Which of the following
correctly captures the effect of this change on the market for gasoline?
A. Both equilibrium quantity and price will increase.
B. Both equilibrium quantity and price will decrease.
C. Equilibrium quantity will increase, but equilibrium price will decrease.
D. Equilibrium quantity will decrease, but equilibrium price will increase.
During the 1990s, many companies shifted from:
A. the M form to functional subunits.
B. the M form to product-oriented organizations.
C. product-oriented organizations to functional subunits.
D. functional subunits toward more product-oriented organizations.
Within corporations, there are _______ systems that motivate individuals and teams to
make the most efficient decisions on products sales.
A. automatic administrative
B. automatic market-driven
C. no automatic administrative
D. no automatic market-driven
The idea that resource allocation can remain efficient, even in the presence of
externalities, as long as property rights are clearly assigned and transaction costs are
low is referred to as the:
A. law of demand.
B. Black/Schloes formula.
C. Coase Theorem.
D. law of diminishing returns.
AutoCorp is a reputed automobile manufacturer while SUVmart is an independent
distributor who buys automobiles from the former. During the current year, SUVmart
wants to buy 250 Rhinos from AutoCorp who wants to charge an upfront franchise fee.
The franchise fee charged by it:
A. can be anything below MC so as to guarantee SUVmart’s profits.
B. can be anything above MC so as to guarantee some profits for AutoCorp.
C. has to be equal to TC so that AutoCorp breaks even on the deal.
D. has to be equal to MC.
You are a manager of a small coal mining operation. Your best way to design task
would be:
A. narrow task assignment to workers and limited interest in specialized task.
B. narrow specialization among workers without any task assignment.
C. narrow task assignment and functional specialization among workers.
D. broad allocation of decision rights and empowerment via delegation.
Two key components of leadership are:
A. education and religious background.
B. social networks and gender
C. religious background and vision.
D. motivation and vision.
Refer to Figure 23.1. The additional training costs of moving from Level I to Level II
are:
A. $260.
B. $440.
C. $180.
D. zero.
A firm can reduce its expected legal costs by negotiating an advance pricing agreement
(APA) with the IRS. However, filing an APA can expose the firm to considerable risk
by giving the government access to its sensitive cost-related information. This is an
example of the _____ that arise due to regulation.:
A. information asymmetries
B. opportunity costs
C. positive externalities
D. legal costs
Monitoring costs are:
A. the costs of a failure in bargaining.
B. rarely incurred in contracts between a principal and an agent.
C. the insurance costs of guaranteeing that the principal will not incur a cost of contract
failure.
D. the costs of reviewing and overseeing the actions of an agent.
If TruLite’s factory workers receive an hourly wage, described by the equation;
Compensation = $5.00 + .10Q, where Q is the number of light switches installed per
hour, then:
A. the employee can remain completely risk-averse.
B. the employee must accept risk of production variability.
C. output becomes a subjective measure of performance.
D. there are no compensating differentials.
Economic theory implies that a mature industry without any significant technological
change will tend to have firms with similar architectural structures, similar reward
structures, and similar performance systems. Would the power of the marketplace be
important in this case?
Tasty Chicken Inc. has worked hard to develop its brand name. Its motto “Absolutely
Tasty” has become a common term used for good food. But the company finds that
grocery stores do not feature their products in high visibility areas. Further, restaurants
never tell their patrons they are eating food manufactured by Tasty Chicken. What
needs to be done?
What are some ways of reducing adverse selection in the insurance market?
What is an agency relationship? What are agency problems?
Currently, the demand equation for baseball bats is Q = 100 – 2P. The current price is
$15 per bat. Is this the best price to charge in order to maximize revenues?
DrugCo has two demand equations for its retail products (pain reliever and cancer):
Pain relief: P = 100 – 10 Q
Cancer drug: P = 200 – 15 Q
The marginal cost of production is $30. Which product should go to the retail market
and which should go to the wholesale market? What are the corresponding retail and
wholesale prices? What would happen if the sales are switched from the retail to the
wholesale and vice versa?
Under what conditions will decentralization be beneficial?
Why do many firms base incentive pay on group performance?
For many corporations, a major portion of the cost of production is fixed in the short
run. Should these very large fixed costs be ignored when the executives are making
output and pricing decisions? Why?
What is the relationship between the slope of the budget line and the notion of
opportunity cost?
Describe the three aspects of organizational architecture of a firm. Which is the most
important aspect?
Macrosoft is implementing a new research and design shop to integrate PC
manufacturers’ requirements for new computer software with Macrosoft’s operating
system. The process of integration usually requires five different kinds of software
modification tasks, plus decisions about integrating these modifications. Discuss the
problems of designing the new jobs in this research and design shop.
The goal of a performance pay system is to get an employee to meet and exceed
production quotas or goals. But an employee is always faced with events that are clearly
beyond his/her control. What measures can be taken by the management to understand
and minimize the impact of these ‘random’ elements in the production system?
What are some of the ways in which risky borrowers cheated on housing loans?
In his seminar on Organizational Economics, Professor Chang always uses study teams
for presentation of outside research materials. He has found that three students per team
tend to work well. Walking into a new class, he finds that registration has allowed 60
students to sign up. He decides to increase the team size from 3 to 8 students. What
problems can he expect to deal with during the semester?
What are the key components for creating market power in order to capture value?
Stella Ann Freeman is having a difficult time deciding whether or not to purchase a new
car. How would understanding the concept of opportunity cost help her make a
decision?
Explain why OPEC cannot always maintain a high price of oil by restricting
production?