Exam 6: The Organization of the Firm

Jiffyburger,a fast-food outlet,sells approximately 8,000 quarter-pound hamburgers in a given week.To meet that demand,Jiffyburger needs 2,000 pounds of ground beef delivered to its premises every Monday morning by 8: 00 A.M. sharp. If you were the manager of a Jiffyburger franchise, how would you acquire the ground beef? Explain.

The principal-agent problem happens because the owner cannot:

Generally,revenue-based incentive schemes:

High transaction costs:

In a 1998 press release,Boeing Commercial Airplane Group (BCAG)announced that it was signing a 10-year contract with distributor Thyssen Inc.,a distributor of raw aluminum,valued at approximately $300 million.The contract reflected Boeing's effort to reduce costs and production bottlenecks resulting from supply shortages.The contract specified prices and guaranteed quantities of raw aluminum to be delivered to BCAG's suppliers.If you were the production manager at BCAG,how would you justify the long-term nature of the contact with Thyssen Inc.?

Which of the following is NOT a solution to the manager-worker principal-agent problem?

An increase in the likelihood of a dismissal:

The principal-agent problem refers to the fact that the agent's goals:

In order for spot checks to work:

Is it necessarily in the best interests of shareholders for management to ensure that there is absolutely no shirking in the workplace?

Suppose compensation is given by W = 500,000 + 200  + 17S,where W = total compensation of the CEO, = company profits (in millions)= $300,and S = sales (in millions)= $500.What percentage of the CEO's total earnings is tied to profits of the firm?

College Retirement Equities Fund (CREF)is a pension fund that has billions of dollars invested in the stock market.Fund participants recently voted on a proposal that would have placed strict limits on the amount of compensation paid to CREF executives.Why do you think 75 percent of the participants voted against the proposal?

Suppose compensation is given by W = 512,000 + 217π + 10.08S,where W = total compensation of the CEO,π = company profits (in millions)= $200,and S = sales (in millions)= $400.What percentage of the CEO's total earnings are tied to profits of the firm?

A profit-sharing pay scheme:

According to Industry Week,a shoe manufacturer recently had a production run that resulted in 100,000 pairs of defective shoes.Workers on the production line knew the shoes were defective as they were being produced,but did nothing to fix the problem.Do you think a profit-sharing plan for workers would mitigate future problems?

Relationship-specific investments include:

In the absence of worker incentives:

Managerial reputation is an _____ incentive that helps to mitigate the _______ principal-agent problem.

Which of the following is NOT a transaction cost associated with using inputs?

The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal-agent problem.