As a firm moves from a competitive industry to a monopoly:
A. its profits fall.
B. average revenue falls and profits rise.
C. marginal costs rise and profits fall.
D. its profits rise.
The curve showing all the combinations of inputs that can be purchased with a given
outlay of funds is called a(n)
A. total cost curve.
B. isocost.
C. isoquant.
D. production function.
While top level executives and the board of directors have wide-ranging discretion on
leadership issues, most middle level managers recognize that they must exercise
leadership:
A. only when told to by the senior management.
B. when the company decides to sell its overseas unit.
C. within the existing architecture.
D. only when the company decides to integrate upward.
If the demand for product A displays high and positive cross-price elasticity with
respect to the price of product B, then
A. the demand for product A is likely to have a low price elasticity.
B. products A and B are substitutes.
C. products A and B are complements.
D. the demand for product B is likely to have a low price elasticity.
The value of human capital is determined by:
A. a special team of experts in each college and university.
B. a ranking system of the relative value of different types of education to society.
C. the forces of supply and demand for human capital in the market.
D. an investment board at the New York Stock Exchange.
Benchmarking means
A. blind copying from others.
B. copying from the best so as to become better.
C. looking at yourself and telling others what to do.
D. looking at yourself and telling yourself you are the greatest.
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the
market price would be
A. $85.00.
B. $52.50.
C. $130.00.
D. $32.50.
Assume that the quantity of X is measured on the horizontal axis, and the quantity of Y
is measured on the vertical axis. Assume that the price of X is $3 and the price of Y is
$6. If Amanda has $90 to spend on X and Y, then
A. she can buy, at most, 30 units of good X.
B. her budget line has a slope of –2.
C. her budget line has a slope of −3.
D. she can buy, at most, 15 units of good X.
______ makes designing efficient contracts costly.
A. Signaling
B. Self-selection
C. Huge monitoring costs for the principal
D. Huge monitoring costs for the agent
There is an increase in incomes due to a tech boom. 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.
The following diagram shows a market in equilibrium. If there was a $1.50 price
ceiling,
A. the quantity demanded would be 65 units.
B. the quantity demanded would be 80 units.
C. there would be a shortage of 30 units.
D. there would be a surplus of 30 units.
Grouping people together within a subunit is likely to:
A. lower the communication and coordination costs within the subunit.
B. increase the communication and coordination costs within the subunit.
C. lead to empowerment.
D. lead to boundary setting.
A widely held corporation is one in which:
A. none of the owners control more than 5% of the shares.
B. the dominant blockholder controls 40% of the shares.
C. each blockholder controls exactly 25% of the shares.
D. none of the owners control more than 10% of the shares.
Double markups refer to the tendency of the:
A. manufacturer and the distributor to increase the product’s price above the average
cost.
B. manufacturer to increase the product’s price by more than twice the marginal cost.
C. distributor to increase the product’s price by more than the manufacturer.
D. manufacturer and the distributor to increase the product’s price above the marginal
cost.
Granting exclusive territories to distributors:
A. encourages double markups and free-riding.
B. discourages double markups and free-riding.
C. discourages double markups and encourages free-riding.
D. discourages free-riding but generates double markups.
For some products, quality is virtually impossible to determine prior to purchase. If
sellers of such commodities are rational, they will cheat or engage in unethical behavior
only when:
A. laws allow unethical behavior.
B. the expected gains are greater than the expected costs.
C. production exhibits positive externalities.
D. the expected gains are equal to the expected costs.
Jobs have at least two important dimensions that include:
A. variety of tasks and uncertainty.
B. variety of tasks and decision authority.
C. uncertainty and decision control.
D. decision authority and decision control.
The following diagram shows a market in equilibrium. If there was a $3.00 price floor,
A. the quantity demanded would be 65 units.
B. the quantity demanded would be 30 units.
C. there would be a shortage of 30 units.
D. there would be a surplus of 30 units.
The gains from general training in human capital tend to go to the:
A. employing firm and not to the individual.
B. federal government in the form of higher taxes.
C. individual and not to the employing firm.
D. parents since they paid for the education in the first place.
The problem generally associated with public goods is:
A. self-selection.
B. adverse selection.
C. moral hazard.
D. free-riding.
Refer to Table 5.1 and determine which of the following answers is correct.
A. The missing values are MPL (L = 2) = 45, MPL (L = 3) = 29, APL (L = 2) = 35, and
APL (L = 4) = 28.
B. The missing values are MPL (L = 2) = 35, MPL (L = 3) = 33, APL (L = 2) = 35, and
APL (L = 4) = 28.
C. The missing values are MPL (L = 2) = 45, MPL (L = 3) = 29, APL (L = 2) = 45, and
APL (L = 4) = 13.
D. The missing values are MPL (L = 2) = 45, MPL (L = 3) = 29, APL (L = 2) = 35, and
APL (L = 4) = 13.
Risk-averse managers often select a secure strategy that provides the
A. lowest payoff among the best payoffs.
B. highest payoff among the best payoffs.
C. lowest payoff among the worst payoffs.
D. highest payoff among the worst payoffs.
If a firm in a competitive labor market offers less than the market wage rate, it will:
A. be able to attract a large number of employees because the marginal revenue product
is low.
B. find that it has broken a federal wage law.
C. attract too few employees.
D. find that the supply is greater than the demand.
Which of these is an important determinant of contract duration as suggested by the
economic models on franchise contracts?
A. Asset ownership
B. Market power
C. Residual rights
D. Recontracting costs
Incentive compensation schemes are more likely to be value enhancing if:
A. they are designed to minimize the principal’s average cost.
B. they can accurately account for the dysfunctional behavior of the principal.
C. they are designed to limit the agent’s gaming behavior.
D. they can minimize the administrative cost borne by the agent.
Incentive problems in contractual relationships generate:
A. revenues that increase value.
B. revenues that decrease value.
C. costs that increase value.
D. costs that decrease value.
In the basic competitive model of labor markets we assume that:
A. firms have discretion over the wages they pay to their employees.
B. market wage rates are not costlessly observable.
C. all compensation is monetary and there are some fringe benefits included.
D. all compensation is monetary and there are no fringe benefits.
Which of the following is true of warranties?
A. They are not important costs in the business world.
B. They leave contracting costs unchanged in the business world.
C. They increase contracting costs in the business world.
D. They reduce contracting costs in the business world.
Benchmarking may be a problem if
A. the current architecture is relatively unstable and proposed changes add huge
benefits.
B. the current architecture is relatively stable and proposed changes add huge benefits.
C. the current architecture is relatively unstable and proposed changes add little
benefits.
D. the current architecture is relatively stable and proposed changes add little benefits.
Identity the correct statement regarding corporate culture and corporate ethics.
A. Corporate culture and corporate ethics are well understood.
B. Corporate ethics can be well articulated, but not corporate culture.
C. Corporate culture can be well articulated, but not corporate ethics.
D. Corporate culture and corporate ethics are elusive.
Wanda Weeks is tired of running her small machine tool company. She wishes to sell it
in order to use her time and money elsewhere. She is currently earning a salary of
$85,000 per year and a 10 percent return on her capital investment. She wants to take a
job in a bank and invest her capital in a mutual fund. What issues should she look at
before making the decision to change careers?
Evidence suggests that many businesses may waste millions of dollars a year on
quality-improvement strategies that don’t improve their performance and may even
hamper it. Based on this, evaluate the practice of management innovation in
architecture critically.
DHL, a successful European company, is attempting to overcome various legal
problems in order to enter the U.S. market of overnight package delivery. Its two major
competitors would be FedEx and UPS. As DHL looks to set up a U.S. subsidiary, it
wishes to benchmark its organizational architecture. What should it do?
What is a matrix organization?
What do we mean by the M form?
The DuPont case is a good example of an incentive package gone awry. In review, it
placed a portion of employee’s pay into an “at-risk pool.” If the division had exceeded
expectations, the employees would have received a bonus from the pool. How would a
“relative performance contract” have saved the DuPont bonus system?
What is outsourcing and what forms does it take?
Historically, many businesses have preferred specialized task assignment for employees
over broad task assignments. Why has this been the case?
What are the three issues related to proposal design?
The Wall Street Journal (“Boards Tie CEO Pay More Tightly to Performance,” 2/21/06,
p. A1) reports an increase in the number of major U.S. corporations that tie the CEO’s
stock options to performance targets. Comment on the wisdom of this trend, given the
separation of ownership and control in U.S. corporations.
Missy Knowles is in charge of all technical developments at Gumby Polymer Rubber.
She makes all the choices concerning product innovations in the company. She finds
that she is overworked and that several of her research chemists seem to be spending
work hours playing golf. What managerial advice would you provide to Gumby
Polymer Rubber (GPR)? Clearly explain your reasoning.
During the period 2001–2003, airlines in the U.S. had a difficult time earning a positive
net income. Terrorism, war, disease, and a weak economy all combined to reduce both
business and tourist travel. In addition, the major airlines faced competition from rivals
who could lower ticket prices. Most airlines began a change in organizational
architecture. All major jobs in airlines are unionized. What major leadership issues
needed to be addressed as these companies reorganized?
Incentives are an important aspect to determine whether multiple tasks should be
combined into one job or not. How can monetary incentives help and/or hinder the
process of getting a job done, particularly if it is made up of several tasks?
Why would precommitment contracts, licenses, learning curve effects, and brand
advantages protect an established corporation from new competitors?
Always Round Tire has service stores in many parts of the United States. The stores in
Tennessee have petitioned for independent local store managers. The managers claim
that since Memphis, Nashville, and Knoxville are hundreds of miles apart, each
manager is really in a separate market and needs to deal with local marketing, sales, and
pricing issues independently. What issues would need to be considered before giving
these local managers the authority that they are requesting?
What is the role of the “informativeness principle” in designing a compensation
package for an individual in a corporate environment?
What are the shareholder incentives within a corporation?
Becca Lynn Stanton is a product manager whose compensation is 100% variable pay
and based on the profits earned by her product line. Since she is risk-averse, she tends
to favor production proposals that increase her income and status, but she is leery of
production proposals that are likely to increase profits if implemented successfully and
are equally likely to decrease profits if these are not implemented properly. What would
it take to get her to consider a new production system?