Exam 19: The Theory of the Firm

In order to maximize profits the firm chooses organizational forms that allow:

In the case of low team productivity and high monitoring costs:

Team production refers to:

Which of the factors below is not related to the size of a firm:

Multiperson firms exist to reduce all of the following costs except:

when monitoring costs are high and team productivity is low the Pareto preferred organizational form is

Modern theories of the firm:

Which of the following describes best a firm in which labourers hire capitalists?

The central question the organizational structure of the firm has to answer is:

Deferred compensation is an aspect of many employment contracts. For example, workers sometimes receive a bonus for staying with the firm for some specified period of time. In which of the following situations is deferred compensation likely to be a feature of the employment contract?

An fixed wage employee who is able to shirk:

In a two- person firm where both people are equally skilled, their collective income is most likely to be:

Wage rates in many industries are positively correlated with seniority-the longer the worker has been with the firm, the higher is the worker's wage rate. Seniority based wage rates:

when monitoring costs are high and team productivity is high the Pareto preferred organizational form is

There are three types of corporations:

Sarah and Sean are furniture movers. They are interested in adopting the efficient organizational form for a moving business. Working alone, each has a production function of yi = 3ei, where yi is income in dollars and ei is effort in hours. Working together as a team, because of the advantages of team production in moving, they are able to a achieve the production function y = 4(e1 + e2), where y is now total income. Both have utility functions given by Ui = yi/(ei + 2)2. i)If both individuals set up independently as owner- managers, find the level of effort expended by each, the income received, and the utility level attained. ii)If Sarah and Sean form a partnership, sharing their total income equally, what will the effort levels, income, and utilities be? iii)What are the Pareto- optimal levels of effort, income and utility for team production by Sean and Sarah? iv)What organizational form might Sean and Sarah adopt to achieve the solution iii)? What condition is required for this to be possible?

Team production and specialization both share one important feature in common because both are potentially more productive, both may account for the existence of firms. However there are important differences; which of the following is among them?

In the publicly held firm:

In a one- person firm:

In the modern theory of the firm, an important difference between individuals and firms is that firms are: