Question 1

Designing efficient contracts are costly when:

Accepted Answer

A)  the monitoring costs are low for the agent. 
B)  the monitoring costs are low for the principal. 
C)  there are huge monitoring costs for the principal. 
D)  there are huge monitoring costs for the agent. 
A)  the monitoring costs are low for the agent. 
B)  the monitoring costs are low for the principal. 
C)  there are huge monitoring costs for the principal. 
D)  there are huge monitoring costs for the agent.

Question 2

Monitoring costs are:

Accepted Answer

A)  the costs of a failure in bargaining. 
B)  rarely incurred in contracts between a principal an agent. 
C)  the insurance costs of guaranteeing that the principal will not incur a cost of contract failure. 
D)  the costs of reviewing and overseeing the actions of an agent. 
A)  the costs of a failure in bargaining. 
B)  rarely incurred in contracts between a principal an agent. 
C)  the insurance costs of guaranteeing that the principal will not incur a cost of contract failure. 
D)  the costs of reviewing and overseeing the actions of an agent.

Question 3

Which one of the following is a source of conflict between owners and managers?

Accepted Answer

A)  Managers and owners are both highly risk-averse. 
B)  Managers and owners are both risk-takers. 
C)  Managers are more risk-averse whereas owners are not. 
D)  Managers are less risk-averse whereas owners are not. 
A)  Managers and owners are both highly risk-averse. 
B)  Managers and owners are both risk-takers. 
C)  Managers are more risk-averse whereas owners are not. 
D)  Managers are less risk-averse whereas owners are not.

Question 4

Always Round Tire hires Plain Truth Advertising to write copy for its newspaper advertisements. Always Round has a demand for advertising of MB = 400 -2S where S is the number of hours that Plain Truth delivers. If Plain Truth has a fixed supply cost: MC = $150 per hour, what are the number of hours that Always Round purchases from Plain Truth? Now, if the copy writers are slackers and only deliver 100 hours of work each week, and if the each company must spend $1,250 in monitoring and bonding costs, what is the surplus and residual loss in this environment?

Accepted Answer

If S=100 because of shirking by slackers

Question 5

Which one of the following is a source of conflict between owners and managers?

Accepted Answer

A)  Managers are often reluctant to increase the size of the firm. 
B)  Owners are reluctant to lay off the manager and want to empire-build. 
C)  Managers are reluctant to lay off their friends and want to empire-build. 
D)  Owners are reluctant to lay off their friends and want to empire-build. 
A)  Managers are often reluctant to increase the size of the firm. 
B)  Owners are reluctant to lay off the manager and want to empire-build. 
C)  Managers are reluctant to lay off their friends and want to empire-build. 
D)  Owners are reluctant to lay off their friends and want to empire-build.

Question 6

Which one of the following is a source of conflict between owners and managers?

Accepted Answer

A)  Managers and owners have a very short time horizon. 
B)  Managers and owners worry about the entire future cash flows. 
C)  Managers have very short time horizon; owners worry about the entire future cash flows. 
D)  Owners have very short time horizon; managers worry about the entire future cash flows. 
A)  Managers and owners have a very short time horizon. 
B)  Managers and owners worry about the entire future cash flows. 
C)  Managers have very short time horizon; owners worry about the entire future cash flows. 
D)  Owners have very short time horizon; managers worry about the entire future cash flows.

Question 7

Which one of the following is a source of conflict between owners and managers?

Accepted Answer

A)  Manager's effort leaves firm's value and manager's utility unchanged. 
B)  Manager's effort decreases firm's value and manager's utility. 
C)  Manager's effort increases firm's value but decreases manager's utility. 
D)  Manager's effort increases firm's value and manager's utility. 
A)  Manager's effort leaves firm's value and manager's utility unchanged. 
B)  Manager's effort decreases firm's value and manager's utility. 
C)  Manager's effort increases firm's value but decreases manager's utility. 
D)  Manager's effort increases firm's value and manager's utility.

Question 8

Which one of the following is a source of conflict between owners and managers?

Accepted Answer

A)  What the owners and the managers want to pay. 
B)  What the owners and the managers want to receive. 
C)  What the owners want to pay and what the managers want to receive. 
D)  What the owners want to receive and what the managers want to pay. 
A)  What the owners and the managers want to pay. 
B)  What the owners and the managers want to receive. 
C)  What the owners want to pay and what the managers want to receive. 
D)  What the owners want to receive and what the managers want to pay.

Question 9

FancyFoods restaurant decided to introduce an all-you-can-eat buffet on Tuesdays and Wednesdays to increase business. They found that they acquired a whole new set of customers, most of whom are very big eaters. After a time, they increased the price of buffet. FancyFoods suffered from the problem of:

Accepted Answer

A)  excessively high costs. 
B)  adverse selection. 
C)  the law of demand. 
D)  the principal agent problem. 
A)  excessively high costs. 
B)  adverse selection. 
C)  the law of demand. 
D)  the principal agent problem.

Question 10

It is in the self interest of individuals to:

Accepted Answer

A)  minimize the total contracting costs in any relationship. 
B)  maximize the total contracting costs in any relationship. 
C)  eliminate the total bargaining costs in any relationship. 
D)  reduce value through formal contracting costs. 
A)  minimize the total contracting costs in any relationship. 
B)  maximize the total contracting costs in any relationship. 
C)  eliminate the total bargaining costs in any relationship. 
D)  reduce value through formal contracting costs.

Question 11

J.T. Smith runs Gamemaker, an equipment producer for gaming service corporations. As CEO, Smith is seemingly worth $2.5 million per year in the marketplace. The directors are attempting to decide how to divide his compensation package between cash salary and perquisites. Using budget constraints and indifference curves, illustrate the potential outcomes for the Board of Directors.

Accepted Answer

The answer of J.T. Smith runs Gamemaker, an equipment producer...

Question 12

The firm or corporation is the focal point for a set:

Accepted Answer

A)  explicit contracts. 
B)  informal contracts. 
C)  implicit contracts. 
D)  All of the above. 
A)  explicit contracts. 
B)  informal contracts. 
C)  implicit contracts. 
D)  All of the above.

Question 13

A firm is focal point for a set of contracts. Explain the problems that (1) agency relationships, (2) asymmetric information, and (3) adverse selection can introduce to building a successful contract between two people.

Accepted Answer

Agency relationships can be exploited wh

Question 14

Joan Petty, a human resource manager, offers Billy Self $2,750 per month as an inventory manager. She is willing to offer $750 more per month, but Billy does not have that information and walks away from the job offer. This is an example of a:

Accepted Answer

A)  market at work. 
B)  bargaining success. 
C)  bargaining failure. 
D)  market in transition. 
A)  market at work. 
B)  bargaining success. 
C)  bargaining failure. 
D)  market in transition.

Question 15

Incentive problems in contractual relationships generate:

Accepted Answer

A)  revenues that increase value. 
B)  revenues that decrease value. 
C)  costs that increase value. 
D)  costs that decrease value. 
A)  revenues that increase value. 
B)  revenues that decrease value. 
C)  costs that increase value. 
D)  costs that decrease value.

Question 16

Total agency costs are:

Accepted Answer

A)  the monitoring costs plus residual loss. 
B)  the monitoring costs plus out of pocket costs. 
C)  out of pocket costs plus residual loss. 
D)  out of pocket costs minus residual loss. 
A)  the monitoring costs plus residual loss. 
B)  the monitoring costs plus out of pocket costs. 
C)  out of pocket costs plus residual loss. 
D)  out of pocket costs minus residual loss.

Question 17

Which of the following is not a problem in owner/manager (principal/agent) conflicts?

Accepted Answer

A)  Choice of effort. 
B)  Perquisite taking. 
C)  Identical time horizons. 
D)  Differential risk exposure. 
A)  Choice of effort. 
B)  Perquisite taking. 
C)  Identical time horizons. 
D)  Differential risk exposure.

Question 18

Often people in business work in teams, each using specialized knowledge to get the tasks done. If one member of the team does no work, this is called:

Accepted Answer

A)  the reward system. 
B)  adverse selection. 
C)  free riding. 
D)  performance evaluation. 
A)  the reward system. 
B)  adverse selection. 
C)  free riding. 
D)  performance evaluation.

Question 19

Incentive problems can be overcome, then it is in the interest of all parties to develop efficient solutions to agency problems. Through ______ , there will be more wealth to be shared among contracting parties.

Accepted Answer

A)  adverse selection 
B)  value maximization 
C)  contracting until marginal benefit (M
B)  equals zero 
D)  asymmetric information 
A)  adverse selection 
B)  value maximization 
C)  contracting until marginal benefit (M
B)  equals zero 
D)  asymmetric information

Designing efficient contracts are costly when:

Monitoring costs are:

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

It is in the self interest of individuals to:

The firm or corporation is the focal point for a set:

A firm is focal point for a set of contracts. Explain the problems that (1) agency relationships, (2) asymmetric information, and (3) adverse selection can introduce to building a successful contract between two people.

Joan Petty, a human resource manager, offers Billy Self $2,750 per month as an inventory manager. She is willing to offer $750 more per month, but Billy does not have that information and walks away from the job offer. This is an example of a:

Incentive problems in contractual relationships generate:

Total agency costs are:

Which of the following is not a problem in owner/manager (principal/agent) conflicts?

Often people in business work in teams, each using specialized knowledge to get the tasks done. If one member of the team does no work, this is called:

Incentive problems can be overcome, then it is in the interest of all parties to develop efficient solutions to agency problems. Through ______ , there will be more wealth to be shared among contracting parties.

Introduction

Economists View of Behavior

Markets, Organizations, and the Role of Knowledge

Demand

Production and Cost

Market Structure

Pricing With Market Power

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Organizational Architecture

Decision Rights: The Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: The Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters

Exam 10: Incentive Conflicts and Contracts

Designing efficient contracts are costly when:

Monitoring costs are:

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

Which one of the following is a source of conflict between owners and managers?

It is in the self interest of individuals to:

The firm or corporation is the focal point for a set:

A firm is focal point for a set of contracts. Explain the problems that (1) agency relationships, (2) asymmetric information, and (3) adverse selection can introduce to building a successful contract between two people.

Joan Petty, a human resource manager, offers Billy Self $2,750 per month as an inventory manager. She is willing to offer $750 more per month, but Billy does not have that information and walks away from the job offer. This is an example of a:

Incentive problems in contractual relationships generate:

Total agency costs are:

Which of the following is not a problem in owner/manager (principal/agent) conflicts?

Often people in business work in teams, each using specialized knowledge to get the tasks done. If one member of the team does no work, this is called:

Incentive problems can be overcome, then it is in the interest of all parties to develop efficient solutions to agency problems. Through ______ , there will be more wealth to be shared among contracting parties.

Introduction

Economists View of Behavior

Markets, Organizations, and the Role of Knowledge

Demand

Production and Cost

Market Structure

Pricing With Market Power

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Organizational Architecture

Decision Rights: The Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: The Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters