Managerial Economics & Business by Strategy Michael Baye 9th Edition-Text Bank

Managerial Economics & Business by Strategy Michael Baye 9th Edition-Text Bank

Chapter 06
The Organization of the Firm

Multiple Choice Questions

1. Often owners of firms who hire managers must install incentive or bonus plans to ensure that the:
A. company is financially secure.
B. manager will work hard.
C. manager will maintain employee morale.
D. company will have positive economic profits.

Answer: B
Learning Objective: 06-04
Topic: Managerial Compensation and the Principal–Agent Problem
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium

2. Which of the following forms of payment is NOT an incentive plan?
A. Commission plans for salesmen
B. Flat salary for a plant manager
C. Bonuses for managers that increase as profits increase
D. None of the statements is correct.

Answer: B
Learning Objective: 06-05
Topic: Managerial Compensation and the Principal–Agent Problem
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium

3. Which of the following is NOT an incentive scheme to ensure that workers do a good job?
A. Paying waitresses low wages, but allowing them to collect tips
B. Profit-sharing plans in large companies
C. Commission pay schedules for salesmen
D. Straight hourly wages for dock workers

Answer: D
Learning Objective: 06-06
Topic: The Manager-Worker Principal–Agent Problem
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium

4. Which of the following is NOT a means of avoiding opportunism?
A. Contracts
B. Spot exchange
C. Vertical integration
D. Long-term contracts

Answer: B
Learning Objective: 06-03
Topic: Optimal Input Procurement
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium

5. Long-term contracts become longer:
A. when specialized investment becomes more important.
B. when the exchange environment is more complex.
C. when spot markets work well.
D. when marginal costs are declining.

Answer: A
Learning Objective: 06-03
Topic: Optimal Input Procurement
Blooms: Analyze
AACSB: Analytical Thinking
Difficulty: 03 Hard

6. A relationship-specific exchange occurs when:
A. a partnership is dissolved.
B. specialized investments are important.
C. a partnership is initiated.
D. shareholders receive dividends.

Answer: B
Learning Objective: 06-03
Topic: Optimal Input Procurement
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy

7. When relationship-specific exchange occurs in complex contractual environments, the best way to purchase inputs is through:
A. spot markets.
B. vertical integration.
C. short-term agency agreements.
D. long-term contracts.

Answer: B
Learning Objective: 06-03
Topic: Optimal Input Procurement
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy

8. A firm might choose to produce its own inputs if:
A. specialized investment is not important.
B. long-term contracts are costly to write.
C. the exchange environment is not complex.
D. spot markets for the input exist.

Answer: B
Learning Objective: 06-03
Topic: Optimal Input Procurement
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium

9. An agent hired by the owner of productive resources to control the production process is:
A. a laborer.
B. a self-proprietor.
C. an assembly worker.
D. a firm manager.

Answer: D
Learning Objective: 06-04
Topic: Managerial Compensation and the Principal–Agent Problem
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy

10. Spot exchange can be inefficient in the presence of:
A. opportunism.
B. a complex contracting environment.
C. spot checks.
D. None of the statements is correct.

Answer: A
Learning Objective: 06-01
Topic: Methods of Procuring Inputs
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium