Many firms offer substantial rebates by mail or coupons for discounts at the point of
sale. The people who use the rebates or coupons have ______ than the people who don’t
use them.
A. greater price sensitivity
B. the same price sensitivity
C. lesser price sensitivity
D. inverted price sensitivity
Assume Barbara likes driving fast, but hates getting injured. If Congress passes a law
for mandatory airbags, Barbara is likely to experience an increased number of
accidents. Why?
A. The benefits of driving fast increase.
B. The expected cost of an accident at any given speed decreases.
C. Barbara will defy the law and not have airbags, since she thinks no one is going to
enforce installing airbags in cars.
D. Barbara is confident that she can drive flawlessly since others will have airbags.
Economists tend to focus on one structural aspect of market organization that is more
important than the others. It is
A. the number of buyers and sellers.
B. product homogeneity or differentiation.
C. the quality of market information.
D. the entry and exit conditions.
A disadvantage associated with decentralizing the decision-making process in an
organization is that:
A. the CEO is likely to make suboptimal decisions.
B. the cost of transferring information between the CEO and other decision makers can
be high.
C. it makes the three legs of the architectural stool of an organization inconsistent with
each other.
D. it prevents firms from benchmarking other firms to determine value-enhancing
policies.
ABC:
A. has been very successful in recent years and is adopted widely.
B. has been very successful in recent years but is not adopted widely.
C. has been very unsuccessful but is still adopted because of legal requirements.
D. has been very unsuccessful and has been replaced with traditional methods.
Value-maximizing managers will undertake quality improvements only if:
A. the management overestimates the cost of enhancement.
B. the incentive and reward systems are well defined and functional.
C. the incremental benefits fall below the incremental costs of enhancement.
D. the incremental benefits exceed the incremental costs of enhancement.
If Tiger Toys faces a demand curve of P = 85 − 0.25Q and a MC = ATC = 20, then the
output would be
A. 65.0 units.
B. 85.0 units.
C. 130.0 units.
D. 32.5 units.
If D represents the level of decentralization of corporate decision making, and A and C
are positive constants, then Benefits = B D and Costs = A D + C D2. The optimal level
of decentralization occurs where:
A. benefits equal costs.
B. costs are equal to zero.
C. D = BD – AD – CD2
D. D = (B – A) / 2C
The 1890 Sherman Act was legislated by the:
A. Securities and Exchange Board (SEC).
B. Environment Protection Agency (EPA).
C. Food and Drug Administration (FDA).
D. Federal Trade Commission (FTC).
Precontractual informational asymmetries that generate contracting costs can lead to
A. bargaining failures and adverse selection.
B. implicit contracts and reputational concerns.
C. explicit contracts and credibility issues.
D. perquisite taking and differential risk exposure.
Ali inherits $10,000 from his great-great aunt in 2008. His great-great aunt’s will
requires that Ali spend the money before December 31, 2009. He has two spending
options: He can either spend the amount in 2008 or in 2009. Suppose this is Ali’s only
source of income and the interest rate on loans or savings is 10 percent.
(a) How much could Ali spend in 2008 if he only consumes in 2008? How much could
Ali spend in 2009 if he only consumes in 2009?
(b) What is the opportunity cost of consuming $1.00 in 2008 in terms of forgone
consumption in 2009? Draw Ali’s budget constraint and optimal consumption bundle,
considering that the spending in 2008 is measured along the horizontal axis.
(c) Ali decides to spend $6,000 in 2008 and $4,400 in 2009. Show this optimal
consumption bundle using a budget constraint and indifference curve diagram.
Which of the following is a possible problem faced by potential management
innovators?
A. Property rights in management innovations are ill-defined.
B. Companies implementing managerial innovations need to pay higher corporate
taxes.
C. Implementation of managerial innovations leads to the entry of new firms in the
industry.
D. The supply of skilled workers decreases after the implementation of innovations.
There are several assumptions that are the basis of the operation of the benchmark
competitive labor market. Which of the following is not one of these assumptions?
A. Wage rates are costlessly observable.
B. All jobs are identical.
C. There are no long-term contracts.
D. Compensation is made up of wages and benefits.
To qualify as incentive pay, a performance-based compensation program:
A. must use monetary rewards.
B. must use only non-monetary rewards.
C. may use either monetary or non-monetary rewards.
D. may only use piece rates and commissions.
Which of the following is not a benefit of decentralization of corporate decision
making?
A. Incentive problems
B. More effective use of local knowledge
C. Conservation of the time of senior management
D. Training and motivation for local managers
The authors argue that successful corporations assign decision rights in ways that
A. effectively link decision-making authority with good information.
B. structure moneymaking tools for all employees.
C. completely eliminate the potential for fraud.
D. rely on monitoring and evaluation for all creativity.
Sunk costs refer to
A. costs that were incurred in the past and cannot be recovered and thus should not
affect current decisions.
B. all the costs that a firm must incur in the process of production.
C. the costs that change proportionately with a change in the output.
D. the quantities of a good that are given up to obtain one unit of another good.
Assume the market for pencils is competitive and originally in equilibrium. As a result
of an increase in the price of graphite, the supply of pencils decreases. What is true of
the new equilibrium?
A. The price is higher while the quantity exchanged decreases.
B. The price is higher and the quantity exchanged increases.
C. The price is lower and the quantity exchanged decreases.
D. The price is lower while the quantity exchanged increases.
You have $64 to spend on fish (F) and chips (C). Suppose the price per unit of fish (Pf)
is $8 and the price of chips (Pc) is $2. Your utility function for fish and chips is given as
such that
and
are the marginal utilities of F and C. How many units of C and F should you buy to
exhaust all income and to maximize utility?
Which of the following is not a cost of decentralization of corporate decision making?
A. Incentive problems
B. Coordination costs and failures
C. Less effective use of central information
D. More effective use of local knowledge
Consider a particular division that earns an after-tax profit of $40 million and has total
assets worth $120 million. The residual income of the division is ______ if its required
cost of capital is 20%.
A. $16 million
B. $40 million
C. $24 million
D. $8 million
“Corporate governance” refers to aspects of the corporation like:
A. the corporate tax rate.
B. compensation given to the top management.
C. decentralization of decision rights to union workers.
D. government regulation of corporate health and safety.
Assume the demand function for scooters is given by QD = 20,000 – 10P + 0.2I, where
P = price of a scooter, and I = average income of consumers. Also, assume the supply
function of scooters is given by QS = 20P. If the market for scooters is perfectly
competitive, and the average income of consumers is $20,000, what are the equilibrium
price and quantity in this market?
A. The equilibrium price is $16,000, and 800 scooters are traded.
B. The equilibrium price is $1,600, and 32,000 scooters are traded.
C. The equilibrium price is $800, and 16,000 scooters are traded.
D. The equilibrium price is $800, and 32,000 scooters are traded.
Measuring the success of a divisional Investment Center is closely tied to understanding
whether or not the division meets profit expectations. To understand profits, two
alternatives are proposed for tracking profitability: ROA and EVA. From the point of
view of an economist, why is EVA usually preferred?
Patrick consumes only two goods: Celtic Music concerts and Celtic Springs Water.
Patrick earns $100 per month at his part-time job in the library. The price of Celtic
concerts is $10. The price of Celtic Springs Water is $2. Patrick currently goes to 5
Celtic concerts and consumes 25 bottles of Celtic Spring Water in a month.
(a) Draw Patrick’s budget constraint and optimal consumption bundle such that Celtic
concerts are measured on the horizontal axis.
(b) In April, Patrick receives a 5 percent pay increase. Inflation raises the price of
concerts to $10.50 and the price of Celtic Springs Water to $2.10. Draw Patrick’s new
budget constraint and optimal consumption bundle, considering that the number of
Celtic concerts is measured along the horizontal axis. How many Celtic concerts does
he attend in April? How many bottles of water does he drink in April?
One of the benefits of the Hay System is that it can be used to:
A. determine the optimal mix of salary and fringe benefits.
B. determine the level of compensating wage differentials in risky jobs.
C. assign a position to each job within a firm’s hierarchy.
D. assign a task to each employee on the basis of seniority.
Which of the following describes the difference between the demand faced by a firm
and the demand faced by an industry?
A. The demand facing individual firms tend to be more price-elastic than those for the
entire industry.
B. The elasticity of demand for a firm and for an industry is the same.
C. The demand facing individual firms tend to be less price-elastic than those for the
entire industry.
D. The income elasticity of demand faced by a firm is higher than the income elasticity
of demand faced by an industry.
We have two players A and B, where A can go L or R, and B can go T, B, or R. The
payoffs are decided after this. Which of the following is a characteristic of such games?
A. Dominant strategies
B. Simultaneous moves
C. Sequential moves
D. Backward induction
Price discrimination is usually defined as selling a product to different customers at
A. the same price even though costs of service are different.
B. different prices as costs of service are different.
C. the same price as costs of service are the same.
D. different prices even though costs of service are the same.
Consider the salary of Mary Sue Nelson, a sales agent for Plain Truth Advertising. Her
weekly compensation package is , where Q is her dollar volume of
sales. Her productivity is , where e denotes her hours of effort and , is a
random variable with mean 0. If Mary Sue works an additional hour, the expected value
of her wages rises by:
A. $0.00.
B. $80.00.
C. $200.00.
D. $1,000.00.
In general, the use of accounting-based performance analysis is more effective in:
A. decision management.
B. decision control.
C. audit review of failed enterprises.
D. residual income.
Explain how Coase’s theorem is implemented by the Environmental Protection Agency
(EPA).
It is in the interest of all parties to develop efficient solutions to agency problems
through ______ so that more wealth can be shared among the contracting parties.
A. adverse selection
B. value maximization
C. contracting until marginal benefit (MB) equals zero
D. implicit contracts