Question 1

Which one of the following is a big problem in large groups?

Accepted Answer

A) Useless group leader 
B) Adverse selection problem 
C) Free-rider problem 
D) Buyer-supplier conflicts 
A) Useless group leader 
B) Adverse selection problem 
C) Free-rider problem 
D) Buyer-supplier conflicts

Question 2

______ makes designing efficient contracts costly.

Accepted Answer

A) Signaling 
B) Self-selection 
C) Huge monitoring costs for the principal 
D) Huge monitoring costs for the agent 
A) Signaling 
B) Self-selection 
C) Huge monitoring costs for the principal 
D) Huge monitoring costs for the agent

Question 3

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 4

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 5

Which of the following is not a problem in owner-manager or 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 6

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 7

While many managers and lawyers might claim that implicit contracts "aren't worth the paper that they are not written on," most understandings between companies and their customers and employees are implicit.Why?

Accepted Answer

Repeated interactions and reputations ca

Question 8

Designing efficient contracts are costly when:

Accepted Answer

A) there is perquisite involved. 
B) there is complete information. 
C) there is asymmetric information. 
D) there is an agency relationship. 
A) there is perquisite involved. 
B) there is complete information. 
C) there is asymmetric information. 
D) there is an agency relationship.

Question 9

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 10

In most models of managerial conflict,the owner is the ______ and the manager is the ______.

Accepted Answer

A) wage earner; stockholder 
B) employee; director 
C) principal; agent 
D) resource; resource owner 
A) wage earner; stockholder 
B) employee; director 
C) principal; agent 
D) resource; resource owner

Question 11

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

Accepted Answer

A) The amount owners and the managers want to pay to the shareholders 
B) The amount owners and the managers want to receive 
C) The amount owners want to pay and the amount managers want to receive 
D) The amount owners want to receive and the amount managers want to pay 
A) The amount owners and the managers want to pay to the shareholders 
B) The amount owners and the managers want to receive 
C) The amount owners want to pay and the amount managers want to receive 
D) The amount owners want to receive and the amount managers want to pay

Question 12

A firm is a 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 13

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 14

What are some ways of reducing adverse selection in the insurance market?

Accepted Answer

Self-selection and signaling may be two

Question 15

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 were very big eaters.After a time,they increased the price of the buffet.FancyFoods suffered from the problem of:

Accepted Answer

A) excessive high costs. 
B) adverse selection. 
C) .incentives 
D) implicit contracts 
A) excessive high costs. 
B) adverse selection. 
C) .incentives 
D) implicit contracts

Question 16

Precontractual informational asymmetries that generate contracting costs can lead to

Accepted Answer

A) bargaining failures and adverse selection. 
B) implicit contracts and reputational concerns. 
C) explicit contracts and credibility issues. 
D) perquisite taking and differential risk exposure. 
A) bargaining failures and adverse selection. 
B) implicit contracts and reputational concerns. 
C) explicit contracts and credibility issues. 
D) perquisite taking and differential risk exposure.

Question 17

Mary Jo Smith is willing to work for $3,200 per month.She asks the HR manager at Plain Truth Advertising for $4,000 per month.He was willing to pay only $3,700 per month,so he rejects her application and begins to search for a new employee again.This is an example of:

Accepted Answer

A) adverse selection. 
B) value maximization. 
C) bargaining failure. 
D) agency problem. 
A) adverse selection. 
B) value maximization. 
C) bargaining failure. 
D) agency problem.

Question 18

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:

Accepted Answer

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. 
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.

Question 19

Billy Mac Tailor drives an eighteen-wheeler CG Carriers.He always stops at All Bright truck stops to buy diesel fuel.He is a preferred customer and gets a free meal and shower worth $10.00.But All Bright charges $12.00 more for a fill up than most competitors.Which of the following is true?

Accepted Answer

A) CG Carriers gets a benefit of $22.00 because Tailor is a preferred customer. 
B) CG Carriers has a wealth reduction of $2.00 even though they do not know about Tailor's actions. 
C) There is a wealth transfer to Billy Mac Tailor and CG Carriers has a wealth reduction of $12.00. 
D) Billy Mac Tailor increases his income by $10.00 and CG Carriers also benefits. 
A) CG Carriers gets a benefit of $22.00 because Tailor is a preferred customer. 
B) CG Carriers has a wealth reduction of $2.00 even though they do not know about Tailor's actions. 
C) There is a wealth transfer to Billy Mac Tailor and CG Carriers has a wealth reduction of $12.00. 
D) Billy Mac Tailor increases his income by $10.00 and CG Carriers also benefits.

Question 20

An informal understanding about the quality of product components supplied is a key to the relationship between most companies and their suppliers.This is a good example of:

Accepted Answer

A) an implicit contract. 
B) an explicit contract. 
C) a principal-agent conflict resolution. 
D) an adverse selection problem. 
A) an implicit contract. 
B) an explicit contract. 
C) a principal-agent conflict resolution. 
D) an adverse selection problem.

Exam 10: Incentive Conflicts and Contracts

Which one of the following is a big problem in large groups?

______ makes designing efficient contracts costly.

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:

Total agency costs are:

Which of the following is not a problem in owner-manager or principal-agent conflicts?

Incentive problems in contractual relationships generate:

While many managers and lawyers might claim that implicit contracts "aren't worth the paper that they are not written on," most understandings between companies and their customers and employees are implicit.Why?

Designing efficient contracts are costly when:

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

In most models of managerial conflict,the owner is the ______ and the manager is the ______.

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

A firm is a 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.

It is in the self-interest of individuals to:

What are some ways of reducing adverse selection in the insurance market?

Precontractual informational asymmetries that generate contracting costs can lead to

Mary Jo Smith is willing to work for $3,200 per month.She asks the HR manager at Plain Truth Advertising for $4,000 per month.He was willing to pay only $3,700 per month,so he rejects her application and begins to search for a new employee again.This is an example of:

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:

Billy Mac Tailor drives an eighteen-wheeler CG Carriers.He always stops at All Bright truck stops to buy diesel fuel.He is a preferred customer and gets a free meal and shower worth $10.00.But All Bright charges $12.00 more for a fill up than most competitors.Which of the following is true?

An informal understanding about the quality of product components supplied is a key to the relationship between most companies and their suppliers.This is a good example of:

Introduction

Economists View of Behavior

Exchange and Markets

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

In most models of managerial conflict,the owner is the and the manager is the .