Refer to Table 5.2, which gives cost information for the production of widgets. Some
values are missing, however. Which of the following is true?
A. A = 45, E = 40
B. A = 45, E = 10
C. A = 75, E = 40
D. A = 75, E = 10
Successful invention and innovation in the marketplace
A. can create value and are easy to capture.
B. cannot create value and are difficult to capture.
C. can create value but are often difficult to capture.
D. are not important to most company strategies.
Corporate takeovers have:
A. increased the wealth of shareholders by billions of dollars.
B. led to increased competition in the product market.
C. decreased the wealth of shareholders by billions of dollars.
D. led to stronger corporate cultures.
Value maximization leads to predictable resource misallocation when the firm:
A. operates in a competitive market.
B. buys inputs from a monopsonist.
C. has monopoly power in the market.
D. sets price below long-run marginal cost.
Assume Joseph spends his entire income on X and Y, and his indifference curves have
the usual convex shape. If Joseph maximizes his utility, then
A. he spends his entire available income.
B. there are other bundles that are preferred at the current price ratio.
C. the slope of his indifference curve is greater than the slope of his budget line.
D. the slope of his indifference curve is smaller than the slope of his budget line.
If TruLite’s factory workers receive an hourly wage, described by the equation;
Employee compensation = $5.00 + 0.10Q, where Q is the number of light switches
installed per hour, then:
A. $5.00 is the basic incentive to produce.
B. Q is entirely dependent on random elements in the production system.
C. $0.10 is the incentive to increase effort.
D. effort is unimportant in the performance evaluation system of the firm.
Which of the following is a limitation of demand estimation through price
experimentation?
A. Consumers have incentives to be less truthful in their reaction to price changes,
which will provide flawed data.
B. Direct market tests like price experimentation are controlled experiments and will
not reflect the effects of other changes in the market.
C. This approach is comparatively <<AU: Change OK?>>more expensive than the
other approaches of demand estimation.
D. There is no uniform result as the demand will differ, depending on whether
customers anticipate that a price change is permanent or temporary.
Objective measures included in an evaluation and incentive system might include:
A. improved quality of communications with subordinates.
B. meeting or exceeding sales goals.
C. reorganizing a department for improved human relations.
D. recognition for finding and solving problems.
The rate at which an employer provides an incentive for an employee to perform (to
increase effort) is the:
A. informativeness quotient.
B. incentive coefficient.
C. risk-sharing premium.
D. efficient bargaining solution.
A closely held corporation is one that:
A. has all of its stock trade on the New York Stock Exchange.
B. uses bonds to raise most of its capital.
C. is free of all federal taxes and regulations.
D. is owned by a small group of investors that has limited or no publicly traded stock.
The minimum wage is a
A. cost ceiling.
B. positive externality.
C. price floor.
D. price ceiling.
Kaneshi Hartfield is a sales representative with Plain Truth Advertising. She is an
excellent sales representative, but corporate management feels that she is too
independent. But they are afraid to act, since Kaneshi maintains her own list of key
contacts. This is an example of:
A. an asymmetric information problem.
B. different time horizons of the sales representative and management.
C. the free rider problem.
D. the failure of bargaining.
Under which market structure is a firm’s MR curve horizontal?
A. Perfect Competition
B. Monopoly
C. Monopolistic Competition
D. Oligopoly
Which of the following is a rare occurrence in case of poor performance by a company?
A. Firing a few managers from the senior management
B. Firing the lower level management
C. Firing the middle management
D. Firing the CEO
Public goods:
A. are goods for a few, by a few, and of a few.
B. are goods whose consumption imposes a deadweight loss on the entire society.
C. are goods whose consumption by one reduces the amount available to others.
D. are goods whose consumption by one does not diminish the amount available to
others.
In the textbook, there is an example of a software firm in which the managers provided
a financial incentive to get rid of software bugs. The result was that software writers
added more bugs into the software. This example shows that
A. financial incentives should never be used.
B. most employees are corrupt.
C. incentives can create perverse effects.
D. high-tech firms are unique.
One important lesson to keep in mind during benchmarking is that:
A. benchmarking is always a value adding strategy.
B. different architectures are appropriate for different environments.
C. differences in organizational structures do not matter.
D. benchmarking is possible only if all environments for the firms under consideration
match.
The transaction costs of writing and enforcing contracts are higher in:
A. countries with poorly enforced property rights.
B. countries with stringent trade restrictions.
C. all countries with good court systems.
D. countries without political risks of property confiscation.
Many college basketball programs require alumni to join a booster club before they can
buy season tickets. This is an example of
A. a two-part tariff.
B. first-degree price discrimination.
C. block pricing.
D. cost-plus pricing
When a firm decides to move away from ownership of a vertically integrated
production process and begins to purchase supplies or other services from other
businesses, it is said to be:
A. integrating downstream.
B. integrating upstream.
C. franchising.
D. outsourcing.
Some of the activities of Chase Manhattan are organized by product, some by
geography, and some by customer. Therefore, Chase Manhattan is said to have a(n):
A. U form of business organization.
B. M form of business organization.
C. network organization.
D. mixed design.
When rates of pay and job assignments are determined by administrative rules and
implicit promises of management, then a firm is operating in a(n):
A. internal labor market.
B. competitive labor market.
C. human capital market.
D. risk-sharing market.
Which one of the following is implicit in applying “Economic Darwinism”?
A. Because X has been here, X may be the worst, but it should not be replaced by
something else.
B. Because X has been here, X may be the best, but it should be replaced by something
else.
C. Because X has been here, X is the worst, and it should replaced by something else.
D. Because X has been here, X is the best, else it would have been replaced by
something else.
If output Q = 8.5e (e = units of effort) and Wage, W = $6.70 + 0.25Q, then 20 units of
effort are worth ______ to the firm.
A. $170.00
B. $0.425
C. $49.20
D. $35.80
Special interest groups, in the theory of regulation, may be defined as:
A. public-spirited individuals who will benefit from regulation.
B. self-interested individuals who benefit from regulation.
C. self-interested individuals who will suffer from regulation.
D. public-spirited individuals who will suffer from regulation.
One of the benefits of decentralization is that:
A. it lowers the opportunity cost of the time of the higher management.
B. local managers have a strong incentive to maximize a firm’s value.
C. there are economies of scale if local managers take pricing decisions.
D. full use can be made of the central manager’s knowledge and expertise.
If a company has significant economies of scale in the long run—assuming a large
market —the company will tend to
A. grow larger and have a declining average cost curve.
B. become smaller and have a declining average cost curve.
C. grow larger and have a rising average cost curve.
D. become smaller and have a rising average cost curve.
Which of these groups is an external monitor in a publicly traded company?
A. Board of directors
B. Shareholders
C. Independent auditors
D. Top managers
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the
current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5,
which of the following statements is true?
A. Pyrotex will surely increase its profits by decreasing the price of fireworks.
B. Pyrotex will surely increase its profits by increasing the price of fireworks.
C. Pyrotex cannot increase its profits by changing the price of fireworks.
D. Not enough information is provided to determine whether Pyrotex is currently
maximizing its profits.
We say that a firm is vertically integrated if:
A. it develops differentiated products that command price premiums.
B. it makes some of its own inputs.
C. it centralizes all its output decisions but decentralizes its pricing decisions.
D. it decentralizes all its input purchases but centralizes its decisions on output.
“Inelastic demand” means that
A. quantity demanded is very sensitive to price.
B. quantity demanded is not very sensitive to price.
C. price is very sensitive to quantity demanded.
D. price is not very sensitive to quantity demanded.
Economic analysis on empowerment has shown that most firms have:
A. increased profits by delegating decision-making rights to lower-level employees.
B. used benchmarking to arrive at erroneous conclusions.
C. failed to delegate decision-making rights to lower-level employees.
D. failed to use corporate culture to enhance communication and build employee
expectations.
“Subprime mortgages” refer to
A. interest rates that are over and above the prime rate to risky borrowers.
B. mortgages made to credit-worthy borrowers at low interest rates.
C. mortgages made to borrowers who do not usually qualify for loans.
D. mortgage brokers making huge commissions on volume.
Human capital is a term that characterizes:
A. the number of workers in a company who are productive.
B. firms that sell their products to customers directly.
C. individuals who buy skills from the companies they work for.
D. individuals with a set of skills that they rent to employers.
The identification problem in using regression analysis to estimate a demand curve
emerges when
A. factors affecting the demand for the product are highly correlated.
B. the demand for the product has not been stable over time.
C. the demand for the product has been relatively stable over time.
D. the supply of the product has been relatively unstable over time.