Solutions Manual
to accompany
Managerial Economics and Organizational
Architecture, 6e
Answers to “Analyzing Managerial Decisions” Discussion Questions
By Jim Brickley, Cliff Smith, and Jerry Zimmerman
Chapter 1: Introduction
ORGANIZING XEROX SERVICE CENTER
Discussion Question Answer:
The individuals who answer the 800 number have the incentives to answer many telephone calls
but not to spend time on any given call. Thus, they have incentives to limit the discussion with
the customer and to dispatch a service representative even if a longer discussion would address
SOCIETE GENERALE
Discussion Question Answers:
1. It is true that the Societe Generale employee traded on behalf of the bank and that any of the
direct gains and losses from the transactions would go to the bank not the employee. This does
not, however, necessarily imply that the trader was acting “irrationally” in placing the bets. It is
likely that at least part of his bonus was either directly or indirectly tied to his performance as a
2. The example raises managerial questions about whether it is wise to move an employee with
detailed knowledge of the internal controls into a trading position without additional monitoring
or better controls. While the details of the fraud at Societe Generale were still being investigated,
3. Annual bonuses and the prospects for promotion provided important incentives in banks and
many other organizations. As an executive, you should carefully consider the incentives that are
created by your bank’s compensation and promotion policies. Even well designed incentive plans
can motivate a certain amount of unproductive and even illegal behavior. Reasonable controls