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 clears the market.
D. hindered by technological change.
Which one of the following is a source of organizational power?
A. Vision setting
B. Work experience
C. Risk appetite
D. Control of budgets and resources
Starting from the 1990s there was a significant shift toward:
A. granting employees broader decision authority and more specialized functions.
B. granting employees narrower decision authority and more specialized functions.
C. granting employees narrower decision authority and less specialized functions.
D. granting employees broader decision authority and less specialized functions.
In the BankInc case, the change in assignment for caseworkers was made practical by:
A. centralized functional management systems.
B. computerization of task input for managerial oversight.
C. elimination of cross-training among credit tasks.
D. integrating credit checking with pricing, but maintaining document preparation in a
separate department.
An empowered employee has:
A. explicit rights to initiate but not implement any decision.
B. explicit rights to initiate and implement any decision, subject to the manager’s
ratification and monitoring.
C. explicit rights to initiate and implement any decision, without the manager’s
ratification and monitoring.
D. explicit rights to implement but not initiate any decision.
Total agency costs are:
A. the monitoring costs plus residual loss.
B. the monitoring costs plus out of pocket costs.
C. out of pocket costs plus residual loss.
D. out of pocket costs minus residual loss.
The production and distribution of goods and services in an economy is said to be
Pareto-efficient if
A. there exists no alternative that keeps all individuals at least as well off but makes
even one person better off.
B. there is no alternative that reduces the cost of transportation and distribution of
goods in a market.
C. the revenue generated from the sale of goods and services is more than the cost of
production.
D. the quantity of goods demanded in an economy is more than the quantity supplied.
Assume that several firms compete in the market for cellular phones and that the price
elasticity for this industry is equal to 0.75. Based on this information, would you advise
a firm in this industry to increase its price? If so, what is the percentage loss in total
sales this firm should expect to experience?
A. Definitely yes. Total revenues would increase as sales would decrease by only .75
percent for each 1 percent increase in price.
B. Not enough information is provided to make a sound decision. For the same reason,
it is not possible to predict what the loss in sales for one firm would be.
C. Definitely no. Each 1 percent increase in price would result in 7.5 percent reduction
in total sales, negatively affecting total revenues.
D. Definitely no. Each 1 percent increase in price would result in 7.5 percent reduction
in total sales, affecting total revenues positively.
Agri-Tech makes machinery for chicken slaughterhouses. Agri-Tech has developed a
de-boning technique specifically for Tasty Chicken. It is likely that Agri-Tech will
desire:
A. a detailed long-term contract with Tasty Chicken.
B. an open market arrangement with Tasty Chicken.
C. a patent that excludes use by Tasty Chicken.
D. a contract without any price guarantees.
For a politician or a regulator of an industry, there is a clear trade-off between:
A. inflation and investment.
B. profits and costs of the regulated company.
C. prices charged to consumers and profits earned by producers.
D. resource utilization and the generation of externalities.
Paul Romer argues that “what underlies this process [economic success] . . . are
instructions, formulas, recipes, and methods of doing things.” He is referring to
A. hardware or tangible assets.
B. software or intangible assets.
C. wetware.
D. hardware or human resources.
Under what market structure do we have products like toothpaste, airlines, fast food,
and shampoos?
A. Perfect competition
B. Monopoly
C. Monopolistic competition
D. Oligopoly
One of the mechanisms to replace poor management is to:
A. fire the low-level workers who are inefficient.
B. fire the union leaders who create an environment of mistrust.
C. tender offers and mergers.
D. pay more to the senior management.
For an employee (agent) with formal leadership assignments or title, specific
knowledge can be:
A. a problem and a potential reason for loss of employment.
B. something that evolves into general knowledge.
C. a significant source of power in ratification of proposals.
D. the result of an intuitive translation.
The typical salary–fringe benefit mix for full-time workers in the U.S. businesses is:
A. 90 percent salary and 10 percent benefits.
B. 75 percent salary and 25 percent benefits.
C. 55percent salary and 45percent benefits.
D. 100 percent salary and benefits are illegal.
Suppose canned soup is an inferior good. This means that
A. when income rises, more cans of soup will be bought.
B. when income rises, fewer cans of soup will be bought.
C. when income falls, fewer cans of soup will be bought.
D. you will never consume canned soup because of its low quality.
Martha Stewart seems to have made a bad decision concerning the use of insider
information in selling ImClone stock. The resulting negative publicity on the issue
caused the value of her corporation, Martha Stewart Living, to fall by almost half. This
example is supposed to show that:
A. insider trading can pay off in certain circumstances.
B. ethics and wealth creation are not linked in any way.
C. stock markets are fickle stewards of wealth.
D. ethics and wealth creation are closely linked.
In the Cournot equilibrium, the price that each firm accepts is
A. slightly higher than the monopoly price, but lower than the competitive price.
B. the same as the monopoly price.
C. lower than the monopoly price, but higher than the competitive price.
D. the same as the competitive price.
Which of these is true of blockholders?
A. They participate more than small shareholders in the governance process because
they internalize more of the benefits.
B. They add value to the corporation when they extract private benefits.
C. They are superior to institutional investors in their ability to reduce agency costs.
D. They should not be managers of the firm.
If a manager maintains flexibility while designing a proposal, she may risk:
A. being seen as uncommitted to the proposal.
B. being the first employee to present the proposal.
C. losing her place in the internal labor market.
D. increasing the benefits beyond the costs of the proposal.
Three difficulties that limit the usefulness of ownership in resolving incentive problems
are:
A. wealth constraints, free-riding, and bundling.
B. risk aversion, free-riding, and conflict of interests.
C. wealth constraints, risk aversion, and bundling.
D. wealth constraints, risk aversion, and free-riding.
Walmart built the base of its retailing market power in small cities and towns. In most
of those towns, the size of the marketplace is so small that only one large retailer can
successfully exist. This resulted in
A. adverse selection.
B. first-mover advantage.
C. secure strategy.
D. extension form.
A market where a few firms produce most of the output is called a(n)
A. oligopolistic market.
B. monopolistically competitive market.
C. perfectly competitive market.
D. monopolistic market.
A logroll refers to a(n):
A. bunch of individuals who are indifferent about one single proposal, but agree to
support it, so each can get what she wants.
B. individual who is indifferent about others’ proposals, but agrees to support all the
requests, so he can get what she wants.
C. bunch of individuals who care about others’ proposals, and agree to support each
other.
D. bunch of individuals who are indifferent about others’ proposals, but agree to support
all the requests, so each can get what she wants.
One of the benefits associated with employee buy-in is that:
A. there are stronger incentives on the part of the employees to implement decisions
recommended by themselves.
B. greater use can be made of specific dispersed knowledge.
C. employees do not have to take accountability for a decision.
D. upper-level management can enforce their decisions unilaterally.
Goods and services for which network concerns are important have ______ demand.
A. relatively inelastic
B. relatively elastic
C. perfectly inelastic
D. unitary elastic
Refer to Figure 9.4. The payoffs to each firm (in billions of dollars) and an extensive
form game between BP and Shell are shown in the figure. BP has 20 percent of the U.S.
gasoline market share and Shell has 16 percent market share. BP and Shell are
attempting to determine whether to send geologists to explore Oil Track 20.
(a) Is there a dominant strategy for Shell? What is the dominant strategy, if any, for
Shell?
(b) What is the Nash equilibrium or equilibria in this game?
(c) What is a first-mover advantage? Does BP have a first-mover advantage in this
game?
(d) Use the above information to advise BP on whether they should pursue a merger
with Shell.
If a firm operating in a fairly competitive market earns a large economic profit, then,
over time,
A. old firms will exit and prices will rise.
B. old firms will exit and prices will fall.
C. new firms will enter and prices will rise.
D. new firms will enter and prices will fall.
Incentive problems in a business can lead to:
A. wealth maximization.
B. full employment of resources.
C. risk reduction.
D. ethical problems.
Many codes of ethics attempt to alter or reinforce standards of behavior. An economist
wouldn’t argue with the codes but would probably note that:
A. the codes need to be universally accepted in order to be effective.
B. codes will never help under any circumstance.
C. designing an organizational architecture with proper incentives is more important.
D. the laws of supply and demand usually require that codes of ethical behavior are
tertiary artifacts.
ABC:
A. has been very successful because the interests of those who undertake it and those
who are being evaluated are aligned.
B. has been very successful because the use of this technique has no opportunity cost.
C. has been very unsuccessful because it lays too much emphasis on quality
management..
D. has been very unsuccessful because those who undertake it are those who are being
evaluated.