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.
Marginal utility is the
A. total happiness obtained from a consumption bundle.
B. additional utility obtained by a fall in the price of a good.
C. additional utility obtained by consuming one additional unit of a good.
D. total amount spent to purchase one additional unit of a good.
Smith is given a voucher that can be spent only on textbooks. Smith has a budget
constraint with textbooks measured along the horizontal axis and everything else on the
vertical axis. Suppose everything else is comprised only of normal goods. Then
A. the voucher causes Smith to increase his spending on textbooks by more than the
amount of the voucher.
B. Smith will most likely end up spending some more money on everything else after
receiving the voucher.
C. Smith will not buy any textbooks because he can use the voucher for all other goods.
D. the voucher does not have any impact on Smith’s consumption..
Suppose you purchase a bond with a 5 percent risk-free rate that matures in three years.
The bond pays $250 at the end of each year and a principal amount of $2,000 on
maturity. The present value of the bond is <<PM: Fill in the blank?>>
A. $3,000.
B. $2,408.51.
C. $2,123.
D. $3,433.62.
In his famous Fortune magazine article, Wheat listed “what it takes” to become a great
leader. Which of the following is not on his list?
A. Stand up and be seen.
B. Be brutally optimistic.
C. Don’t let the facts get in your way.
D. Make team members feel important.
Which of the following is a possible limitation in cost estimation?
A. It is difficult to obtain data on relevant costs from accounting reports that record
historical data.
B. It is difficult to get qualified people who can obtain data on costs and can interpret
the data.
C. Critics argue that the method used for estimating cost is outdated and does not
provide accurate cost estimates.
D. Critics argue that cost estimates do not help managers make efficient decisions.
Actions that are taken to influence the beliefs or actions of rivals in favorable ways are
A. pure strategies.
B. mixed strategies.
C. strategic moves.
D. secure strategies.
In developed countries, if property rights are enforced and contracts in trade are legally
respected, it is usually assumed that:
A. output will begin to fall.
B. investment will be encouraged.
C. transaction costs will be zero.
D. government intervention will be unnecessary.
The curve that shows the relation between quality and firm value is:
A. a vertical line.
B. a flat line.
C. in the shape of an inverted U.
D. U-shaped.
Decentralizing decision rights marries authority with local knowledge. This would seem
to be a good thing, but a problem that may arise is that:
A. local management may conserve central management’s time and effort.
B. local knowledge may allow local managers to tailor prices and services to suit local
needs.
C. lack of local incentives may mean that local managers do not work to maximize firm
value.
D. local managers may have too strong a corporate identification.
Which of the following will control incentive problems in a corporation?
A. Managers checking on their employees email and other activities closely
B. Managers forcing employees to adopt higher and stringent ethical standards
C. Managers and employees adopting predefined ethical standards
D. Managers and employees adopting higher and stringent ethical standards
Marginal analysis refers to the
A. relationship between the cause and effect of an economic event.
B. study of trade relations based on absolute cost differences.
C. comparison of benefits and costs of choosing a little more or a little less of a good.
D. calculation of opportunity costs of an economic activity.
A significant feature of the price system in a market economy is that the architecture:
A. is created spontaneously.
B. is created by the government.
C. promotes skewed distribution of wealth.
D. promotes a system of controls on the employees of an organization.
Catering, trucking, copying, and mainframe computing are among frequently
outsourced services because these activities:
A. require assets that are highly firm specific.
B. are not specialized.
C. have a high level of uncertainty.
D. have a relatively low potential for holdup actions.
Most governments enforce patents, copyrights, and trademarks. While these are clear
restrictions on free trade, it is believed that inventors and investors:
A. generally oppose these restrictions as they encourage monopolistic competition.
B. favor these restrictions since they promote inventive activities.
C. prefer high tax rates to patents.
D. prefer low prices to patents.
One of the problems of transfer prices comes from the successive impact of the prices
as the product moves downstream toward the consumer. At each step, the transfer price
becomes the ______ for the next part of the company.
A. market price
B. total cost
C. marginal cost
D. negotiated price
During the 1990s, Xerox had a problem with quality. CEO Kearns found that to solve
the problem, he needed to:
A. lobby the government for tax concessions.
B. change the performance-evaluation and incentive system.
C. invest heavily in research and innovation.
D. hire executives who understood the quality concerns.
Assume MACROSOFT is planning to develop and sell a new word processor. It
estimates that R&D expenses will amount to $300,000 for this new software, and it will
have to invest an additional $150,000 to advertise and distribute the new product. If
MACROSOFT’s managers are risk-neutral, they will undertake this project if the
expected revenues from the sales of the new software are
A. at least $150,000.
B. at least $100,000.
C. at least $300,000.
D. at least $450,000.
If a company has a cost curve of TC = 300 + 2Q + Q2 and it produces 300 units per day,
then its average (total) cost is
A. $1.
B. $303.
C. $300.
D. $602.
Assume the demand curve for skirts in Europe is P = 100 – QE (or Qe = 100 – P), while
the U.S. demand is P = 100 – QUS. (or Qus = 400 – 4P). Over the range of prices, which
demand is more price elastic?
A. Demand in the United States is more elastic.
B. Demand in Europe is more elastic.
C. It depends on the price level.
D. Demand in the United States and Europe has the same elasticity for any price level.
Holmstrom and Tirole note “The economist’s first instinct is to set transfer price equal
to marginal cost.” However, a distinct plurality of companies uses the full-cost method.
That is because:
A. most companies do not employ economists.
B. it is simple and has a low cost of implementation.
C. it is identical to using a marginal cost approach to transfer prices.
D. the results are much better in the field with full-cost method.
The substitution effect
A. reduces the quantity demanded of a good when its price increases.
B. is equal to the income effect for a normal good.
C. is always greater than the income effect.
D. is always smaller than the income effect.
The simple case of pricing with market power assumes that (a) all consumers are
charged the same price, (b) the firm sells one product, (c) demand exists in one time
period, and (d) competitors do not pursue pricing games. Economists insist on
reviewing what happens as each assumption is relaxed one at a time. But it is clear that
in the real world all four are relaxed simultaneously. Why does economic analysis insist
on such an unrealistic analysis?
A minor, but important reason, for using non-market transactions is that:
A. it avoids sharing proprietary information with other firms.
B. it makes sure there is proper motivation of production efficiency.
C. buying in the market is just too complicated.
D. all inputs are available in adequate supply in the market.
Price controls on gasoline
A. increase consumer surplus.
B. create a shortage of gasoline.
C. create a surplus of gasoline.
D. increase producer surplus for all producers.
Nonmarket transactions refer to:
A. purchases in the spot market.
B. horizontal integration.
C. long-term contracts.
D. purchases in the international market.
Economies of scope are said to exist when
A. one firm produces many products rather than separate firms for each.
B. many firms produce many products rather than one firm producing all.
C. many firms produce a single product rather than one firm.
D. one firm can produce multiple products at a lower cost than separate firms producing
each.
Firms grant decision rights to teams of employees for all of the following reasons
except to:
A. manage activities.
B. make products.
C. make basic investment decisions.
D. recommend actions.
Sometimes a person has a number of successes and people tend to think that this
manager always presents good new proposals for ratification. If the same manager does
not work hard at proposal design or marketing, it implies that she is:
A. trying to make allies within the company.
B. relying on reputation.
C. working hard to lay the groundwork for proposal.
D. going to change the architecture during the monitoring phase.
Which of the following is not a problem with subjective performance evaluations?
A. Shirking among supervisors
B. Forced distributions of results by upper management
C. Ability to rank employees on a standard rating scale
D. Use of influence to bias outcomes
If a firm charges a price equal to the marginal cost—the competitive solution—then the
gains from trade are
A. all in the form of producer surplus.
B. split between producer and consumer surplus.
C. all in the form of consumer surplus.
D. split between shareholders and producers.
When a corporation participates in more than one successive stage in a multi-stage
production process, it is said to be:
A. vertically integrated.
B. completely outsourced.
C. engaged in preliminary contracts.
D. functionally organized.