Which of the following is not a benefit of decentralization?
A. Effective use of local knowledge
B. Possibility to shirk and enjoy credits from free riding
C. Conservation of management time
D. Possibility to increase motivation and productivity
The fast-food industry, from Back Yard Burgers to KFC, promises good food delivered
quickly. The value of the consumer’s time
A. is less important than production costs.
B. is a key component in creating value for the firm and the consumer.
C. is usually so low that fast food is unimportant in the marketplace.
D. must be discounted to make sure it is negative.
For any company operating in a marketplace, the firm attempts to maximize the value
of the company’s worth by setting the output where
A. costs are lowest.
B. P < AVC.
C. MR = MC.
D. AR = MC.
Board members act in the best interests of the firm:
A. because they are legally required to do so.
B. when they do not own stock in the firm.
C. when they take an extremely cautious approach to ratifying decisions.
D. because they wish to maintain a good reputation in order to be offered other board
positions.
A company can translate its assets into value if it effectively uses them in the
marketplace. The three types of assets are tangible assets, intangible assets, and
A. preliminary assets.
B. current assets.
C. human assets.
D. fictitious assets.
Consider the salary of Mary Sue Nelson, a sales agent for Plain Truth Advertising. She
has an effort cost of C = e2 and a reservation wage of $1,500 so that her compensation
package is W = 1,500 + 0.2 Q, where the CEO sets the incentive at 0.2 and Q = 200 e.
Here effort is known only by the employee. There is a random shock to output each
period whose mean is zero.
(a) What is the optimal effort for Mary Sue Nelson?
(b) On average, what total wage or salary will she earn each month?
(c) On average, what is the output of sales contracts that she makes?
(d) On average, what kind of profit will the CEO earn off of Nelson’s work?
Organizational architecture varies from firm to firm. The three important external
determinants of a firm’s administrative structure are:
A. decision rights, rewards, and technology.
B. government regulation, technology, and decision rights.
C. government regulation, technology, and markets.
D. decision rights, rewards, and evaluation systems.
Boundary setting refers to:
A. managers requesting permission to ratify every decision made by an empowered
worker.
B. managers preratifying certain decisions made by empowered workers within a
certain range, while still maintaining supervisory control.
C. employees seeking approval for every decision from managers.
D. workers setting up rules of empowerment that might influence their decision-making
authority.
A disadvantage associated with grouping jobs on the basis of functional specialty is
that:
A. managers rely on implicit understanding and informal relationships.
B. managers tend to ignore the interdependencies among units that might lower a firm’s
value.
C. employees concentrate more on achieving departmental goals rather than customer
satisfaction.
D. employees have to seek ratification from managers for initiation and implementation
of decisions.
Which of the following is not a type of an organization?
A. The U form
B. The M form
C. Mixed design
D. Trade-off free bundled mixed design
The Robinson-Patman Act limits the ability of the firms to
A. charge different prices to retailers.
B. produce certain products.
C. discriminate in terms of prices.
D. use capital-intensive means of production.
An independent trucker has to choose one of the four possible combinations of inputs
listed below. The two inputs are drivers and machinery. If he buys expensive machinery,
then he can hire fewer drivers to deliver the same output. The input combinations are
Method 1: 20 drivers, 10 machines;
Method 2: 50 drivers, 2 machines;
Method 3: 100 drivers, 0 machines;
Method 4: 10 drivers, 12 machines.
Hiring a driver costs $10. Each machine costs $100. Which method should he use?
A. Method 1
B. Method 2
C. Method 3
D. Method 4
Which of the following is not an external determinant of organizational architecture?
A. Technology
B. Markets
C. Administrative control systems
D. Government regulations
The lateral decision-right assignment is carried out on the basis of:
A. the distribution of knowledge and the coordination and control costs.
B. technological advances that allow firms to flatten their management structures.
C. the degree of vertical integration of firms.
D. the strength of the team of the local managers.
Refer to Figure 17.1 What output matches MR = MC?
A. 5 units
B. 6 units
C. 7 units
D. 8 units
A household-products manufacturing firm was required to examine its organizational
architecture in order to survive in the market. The three aspects of its organization that
it looked into are
A. decision rights, rewards, and technology.
B. government regulation, technology, and decision rights.
C. government regulation, technology, and markets.
D. decision rights, rewards, and evaluation systems.
To design a value-increasing architectural system we need:
A. top management to assign decision rights, middle management to evaluate
performance, and an external agency to sanction unethical behavior.
B. a clear partition between assigning decision rights and evaluating performance from
sanctioning unethical behavior.
C. internal consistency between assigning decision rights and evaluating performance
while sanctioning unethical behavior must be left to top management.
D. internal consistency between assigning decision rights, evaluating performance, and
sanctioning unethical behavior.
Which of the following is an example of positive externalities?
A. Your neighbor’s garden is always well taken care of.
B. Your neighbor’s barbecue smoke comes through your window.
C. Your neighbor always listens to music at an unbearable volume.
D. You allow weeds to grow on your yard.
If the price of movie tickets doubles, then
A. the demand for DVDs is likely to increase.
B. the price of DVDs is likely to decrease.
C. the quantity of movie tickets sold is likely to increase.
D. the quantity of popcorn sold at the movies is likely to increase.
Refer to Figure 23.1. If the company moves from Level II to Level III, then the
additional costs are:
A. $250.
B. $135.
C. $115.
D. $845.
Assume the demand curve for T-shirts is Q = 180 – 15P or P = 12 – 0.0667Q. When are
total revenues maximized?
A. When the price is $3.00
B. When the price is $6.00
C. When the price is $8.00
D. When the price is $6.66
While CEO of General Electric, Jack Welch was a very successful corporate manager,
he also loaded up his retirement program with numerous unusual benefits such as rented
apartments, free airplanes, and numerous club memberships. The owners (stockholders)
were generally unaware of these benefits. The source of conflict between owners and
managers in this case was:
A. the choice of effort of Mr. Welch while he was CEO.
B. perquisite taking on the part of Mr. Welch.
C. differential risk exposure between Mr. Welch and the typical stockholder.
D. overinvestment in company offices by Mr. Welch.
Which of the following management techniques that were popular during the 1990s can
be applied to all three components of an organization’s architecture?
A. Benchmarking
B. TQM
C. Economic Value Added
D. Just-In-Time Production and Inventory Control
One possible solution to an incentive problem arising under unobservable actions is:
A. to pay more and make the worker efficient.
B. to be the boss and fire the inefficient worker and send a signal to others.
C. to buy the agent’s right to his total output.
D. to sell the agent the right to the total production.
When a firm focuses on hiring only for entry-level jobs and tends to promote from
within the firm, then the firm is said to:
A. use the benchmark competitive labor market.
B. have an internal labor market.
C. hire based on human capital.
D. use compensating differentials.
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 that they cannot be traded. 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 supply of pollution rights has declined.
A compensation program that includes all performance indicators that influence an
employee’s effort is called the:
A. informativeness principle.
B. incentive coefficient.
C. risk-sharing premium.
D. efficient bargaining solution.
Elmer’s Glue has captured the market for school glue. It is preferred by both students
and parents alike. It takes very little capitalization to enter the market, but nobody
succeeds in doing so. The glue clearly needs no patents or secret formulas. This type of
market is called a(n)
A. pure or perfect competition.
B. oligopoly.
C. monopolistic competition.
D. monopoly.
Refer to Figure 6.1. The monopolist earns a profit equal to
A. $330.
B. $550.
C. $300.
D. $220.
Let Qd = 10 – 2P and Qs = 3P be the demand and supply curves for Beer. The
equilibrium combination (P* and Q*) in the market is ______.
A. P* = 2; Q* = 5
B. P* = 5; Q* = 0
C. P* = 2; Q* = 6
D. P* = 6; Q* = 2
Season tickets for sporting events are an example of
A. bundling.
B. two-part tariff.
C. price discrimination.
D. block pricing.
The importance of the marginal cost curve of a company is that it is also the
A. supply curve for its product.
B. demand curve for its product.
C. average cost curve for its product.
D. marginal revenue curve for its product.
The corporate ethics problem is basically a problem of controlling:
A. CEO salaries.
B. shirking by the managers.
C. opportunism.
D. incentives.
For decision-making purposes, fixed costs incurred by a firm with market power are
A. the same as variable costs.
B. not taken into consideration.
C. the same as marginal costs.
D. the same as opportunity costs of production.
If managers at a firm were rewarded for meeting production quota, then:
A. some managers would rebel and not meet the necessary quota.
B. all managers would exceed the quota.
C. all managers would just meet the quota.
D. some managers would just barely exceed the quota.