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 system attempts to
introduce a(n):
A. risk-sharing contract.
B. relative performance contract.
C. absolute performance contract.
D. group performance contract.
The principle “survival of the fittest” tells us that
A. only the most innovative and adaptive firms are likely to survive competition.
B. only the most innovative and adaptive firms are likely to attract more competition.
C. only the least innovative and adaptive firms are likely to survive competition.
D. only the most innovative and adaptive firms are likely to migrate to other products.
Which of the following is a potential cost of diversification?
A. Firms become bureaucratic and more expensive to manage as they grow.
B. The cost of production increases, thereby reducing profits earned by a firm.
C. The supply of labor reduces, thereby reducing the level of production.
D. Shareholders find it expensive and risky to hold a diversified portfolio.
The ______ represents the additional revenue that comes from using one more unit of
input.
A. marginal revenue product
B. economic profit
C. learning curve
D. average revenue product
Walmart, like many companies in the new economy, uses a hub-and-spoke distribution
system to
A. increase costs of stocking and inventory.
B. change consumer attitudes toward warehouse shopping.
C. decrease consumer demand.
D. decrease costs of stocking and inventory.
JIT stands for:
A. juried information technology systems.
B. just improved transportation systems.
C. just-in-time production or inventory control systems.
D. justice, integrity, and transcendence in management ethics.
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units
in response to a price decrease from $7 to $5 by its main competitor. Assuming that
everything else is being held constant, we can infer that
A. the cross-price ARC-elasticity (midpoints formula) between the two products is -2.
B. the cross-price ARC-elasticity (midpoints formula) between the two products is -.
C. the cross-price ARC-elasticity (midpoints formula) between the two products is .
D. the cross-price ARC-elasticity (midpoints formula) between the two products is 2.
Monetary and non-monetary incentives are:
A. basically the same.
B. perfect substitutes.
C. mutually exclusive.
D. not mutually exclusive.
In general, which of the following implies that a marginal cost curve will eventually
increase as a firm produces more output?
A. Profit maximizing behavior by the firm
B. A production function displaying increasing returns to scale
C. The law of diminishing returns
D. The law of equimarginal returns
MACROSOFT’s top management is contemplating the development and marketing of
three new software products (a word processor, a spreadsheet application, and a web
browser). However, it needs to decide whether to launch them separately or as a
package. The CEO proposes to delegate the decision to a team formed with
representatives from each department. Why does this proposal make economic sense?
A. Ultimately, they are the ones who have to implement whatever decision is made, so
one might as well ask their opinion.
B. They are likely to make a more informed decision.
C. Their differences are likely to prove to be advantageous to the management.
D. If the project fails, the management will have someone to blame.
Compensating differentials for employees can be seen as one measure of adjusting for:
A. high rates of inflation.
B. problems of ethical conflict.
C. surplus labor in the unorganized sector.
D. corporate tax evasion.
The larger the number tasks and the greater the authority required in a job, then the
evaluation of the person in the job will move from ______ to ______.
A. subjective; objective
B. subjective; risk based
C. objective; subjective
D. objective; risk based
One of the problems with making all the decisions at the top of a business organization
is the costliness of:
A. specific information.
B. general information.
C. advanced technology.
D. market power.
A firm that produces widgets must pay a fixed cost of $150. It costs an additional $30
for every widget that they produce. If the market price is $40, how many widgets does
the firm have to sell so that it does not incur a loss?
A. 1
B. 5
C. 10
D. 15
Which of these is an external control mechanism faced by corporate boards and
executives?
A. The market for lemons
B. The managerial labor market
C. The foreign exchange market
D. The stock market
A monopolist sets prices above the competitive price and output below the competitive
output level. Some customers are willing to pay more than marginal cost, yet do not
receive the product. Thus:
A. not all gains from trade are exhausted.
B. all gains from trade are exhausted.
C. it is clear that monopolists do not maximize profits.
D. it is clear that monopolists experience decreasing returns to scale.
Using the linear approximation system to estimate the profit maximizing price requires
that managers have information on the cost of production
A. and the nature of the production function.
B. the total population and the percentage of people in labor force.
C. the current price, the current quantity sold, and changes in price and quantity.
D. and the decision-making process of the marketplace.
Ethics is about making good decisions. Sometimes it is hard to see what economics has
to do with ethics until you remember that economics is often defined as the:
A. science of choice.
B. key branch of theology.
C. study of market failures.
D. study of production techniques.
Under monopoly, there are
A. unexploited gains from trade.
B. many competitors.
C. advantages of heterogeneous products.
D. problems of easy entry.
Network organizations depend upon:
A. formal lines of authority.
B. intersecting lines of authority.
C. decentralization of operating decisions to the business-unit level.
D. work groups and specific projects without any formal lines of authority.
The principle of Economic Darwinism implies that:
A. publicly traded corporations have evolved unsuccessfully through the competitive
process and are not here to stay and flourish.
B. publicly traded corporations have evolved successfully through the competitive
process but they are not here to stay and flourish.
C. publicly traded corporations have evolved unsuccessfully through the competitive
process but will be here to stay and flourish.
D. publicly traded corporations have evolved successfully through the competitive
process and are here to stay and flourish.
Isoquants from fixed-proportion production functions are
A. downward sloping.
B. shaped as right angles.
C. upward sloping.
D. shaped as horizontal lines.
If a firm with monopoly pricing power in the market faces a demand curve of P = 2,000
– 2Q and marginal cost of MC = 1,100 + 2Q, then the firm will produce at a price of
A. $16.
B. $1,400.
C. $1,700.
D. $1,600.
Frequent alterations in organizational architecture are likely to:
A. boost long-run investment efforts.
B. affect all the employees of a company positively.
C. increase the incentives of employees to learn more about their current job
assignments.
D. promote actions that focus on short-run payoffs.
Marginal-cost transfer-pricing creates incentives for manufacturing to distort MC:
A. upward and then downward.
B. downward and then upward.
C. downward.
D. upward.
The three issues related to proposal design are:
A. commitment, distribution, and marketing.
B. flexibility, marketing, and distribution.
C. flexibility, commitment, and marketing.
D. flexibility, commitment, and distribution.
The three legs of the organizational stool are reward systems, performance-evaluation
systems, and:
A. sunk costs.
B. communication.
C. decision rights.
D. market structure.
Under block pricing, a company might
A. charge a customer different prices per unit, depending on the customer’s loyalty.
B. charge a customer different prices per unit, depending on the number of units
purchased.
C. provide a customer different units, depending on the price the consumer bids.
D. charge a customer different prices per unit, depending on the price the consumer
bids.
A dominant strategy is one where one firm picks
A. a strategy only after seeing the other firm’s decision.
B. a strategy that must be repeated.
C. a strategy no matter what the rival does.
D. the same strategy as the rival.
If all issues of effort, output, and pay are fully observable and contactable between an
owner and an employee, then:
A. incentive conflicts can be eliminated.
B. incentive conflicts remain intractable.
C. the utility of the employee is unimportant to the outcome.
D. revenues of the firm are independent of employee effort.
Decision control is made up of:
A. initiation and ratification of projects.
B. implementation and monitoring of projects.
C. ratification and monitoring of projects.
D. initiation and implementation of projects.
In the case of completely unorganized and ill-informed consumers, the political support
function:
A. becomes horizontal.
B. bends forward.
C. becomes vertical.
D. bends backward.
Adolph Berle and Gardiner Means argued that widely held corporations will be run
inefficiently by professional managers. Their argument is based on:
A. inefficient product market structures.
B. an inefficient market for CEOs.
C. blockholders’ control.
D. incentive conflicts between shareholders and managers.
The issue with centralized versus decentralized decision making is that:
A. centralization is always better because one person controls all information.
B. it is difficult to find out whether one is better than the other in the hierarchy.
C. decentralization is always better because many people can split the tasks.
D. it is always easy to find out which is better, but not all may agree.
The problem of the cartel points out that
A. the interests of consumers and duopolists are the same.
B. the interests of consumers and duopolists conflict.
C. the interests of consumers and duopolists are the same in pricing, but conflict in
output management.
D. the interests of consumers and duopolists are the same in output management, but
conflict in pricing.
Recently American Airlines started charging $15 for each checked baggage. Why did
the company not charge $15 to $20 more per ticket and quietly avoid this publicity?
What limits the entire economy from being served by one gigantic firm that produces
everything?
Is there a relationship between a CEO’s retirement and the R&D expenses in a firm?
Phillip Crosby asserts that quality is free. Is he right?
Markets can give a buyer everything a buyer needs to know about a product even
though the buyer does not have the training to understand the specific knowledge
needed to build or distribute the product. Explain.
Can a production function with two factors exhibit increasing returns to scale while at
the same time have diminishing returns to each factor?
Agri-Tech supplies is a patented sweetener to various food processors. It has noticed
that the value of the sweetener varies dramatically from one buyer to another,
depending on the end-use demand. But its experiments with charging higher prices to
some buyers have failed. The demand for the juices is highly price elastic while the
demand for sweetened medicine is relatively less elastic. Can Agri-Tech find a way to
successfully price discriminate?
A typical university football program requires alumni to join one of several booster
clubs (each club gets seats in different parts of the stadium) before the person can buy
season tickets. What has this got to do with consumer surplus?
Why aren’t all economic transactions conducted through markets?
What are the goals of an economic system? What is the criterion to measure the
effectiveness of a system?
In the 1980s, “voluntary restrictions” on automobile imports raised the prices of
Japanese cars by $1,000, of European cars by $2,000, and of American cars by $500.
During the period following these restrictions, both Japanese and European automakers
opened parts and assembly plants in the US. Why did this happen? How is it related to
regulation?
Fred Powell of TruLite makes a verbal pledge to every new employee that he will not
lay off employees after they have worked for TruLite for two years and that TruLite will
make all promotions internally. Why would Powell make such a pledge? Why is the
pledge oral?
Always Round Tire hires Plain Truth Advertising to write copy for its newspaper
advertisements. Always Round has a demand for advertising of MB = 400 − 2S where S
is the number of hours that Plain Truth works. If Plain Truth has a fixed supply cost
given by MC = $150 per hour, what are the number of hours that Always Round
purchases from Plain Truth? Now, if the copy writers are slackers and only deliver 100
hours of work each week, and if the each company must spend $1,250 in monitoring
and bonding costs, what is the surplus and residual loss in this environment?
The manager of Viking Sports finds that the price elasticity of baseball bats is −0.77. He
wants to hold a sale to get rid of his inventory. What will you advise him?
What are efficiency wages and why are they important in internal labor markets?
Provide an economic critique of the statement “U.S. corporate governance is overly
focused on shareholders at the expense of employees and other corporate stakeholders.”
The accounting department had a plumbing problem and they called the maintenance
department to fix this. After the job was done, the maintenance department sent the
accounting department a bill for services rendered. Does this make sense? After all they
are all a part of the same company?
The old saying is “Be careful what you pay for, because you may get it.” Discuss
commission based salaries and gaming in light of the saying.