Question 1

Backloaded compensation encourages

Accepted Answer

A) employee turnover. 
B) employee rollover. 
C) principals to be agents. 
D) employees to stay with the firm. 
A) employee turnover. 
B) employee rollover. 
C) principals to be agents. 
D) employees to stay with the firm. D

Question 2

Free riding is a problem

Accepted Answer

A) if an individual's contribution to a team is not easily measured. 
B) if an individual's contribution is to a team is easily measured. 
C) when monitoring is costless. 
D) when team members are altruistic. 
A) if an individual's contribution to a team is not easily measured. 
B) if an individual's contribution is to a team is easily measured. 
C) when monitoring is costless. 
D) when team members are altruistic. A

Question 3

Moral hazard is associated with

Accepted Answer

A) imperfect information. 
B) perfect information. 
C) the low costs of monitoring behavior. 
D) all of these choices. 
A) imperfect information. 
B) perfect information. 
C) the low costs of monitoring behavior. 
D) all of these choices. A

Question 4

Lincoln Electric paid employees on the basis of

Accepted Answer

A) deferred compensation. 
B) backloaded wages. 
C) a piece rate. 
D) forward loaded wages. 
A) deferred compensation. 
B) backloaded wages. 
C) a piece rate. 
D) forward loaded wages.

Question 5

If I am paid a wage below my opportunity cost, I am being paid an efficiency wage.

Accepted Answer

A) True 
 B)False

Question 6

"People who have dental insurance don't floss often enough." This is an example of

Accepted Answer

A) asymmetric information. 
B) bad parenting. 
C) moral hazard. 
D) risk adverse behavior 
A) asymmetric information. 
B) bad parenting. 
C) moral hazard. 
D) risk adverse behavior

Question 7

A common way used to align the interests of managers with the interests of equity holders is

Accepted Answer

A) piecework pay. 
B) stock options. 
C) forwarded loaded pay schemes. 
D) insurance. 
A) piecework pay. 
B) stock options. 
C) forwarded loaded pay schemes. 
D) insurance.

Question 8

A problem with teams is that individuals

Accepted Answer

A) are too individualistic to work with others. 
B) prefer piecework pay schemes. 
C) tend to free ride. 
D) none of these choices. 
A) are too individualistic to work with others. 
B) prefer piecework pay schemes. 
C) tend to free ride. 
D) none of these choices.

Question 9

A difference between the efficiency wage and the opportunity cost of labor is largely determined by

Accepted Answer

A) the number of managers. 
B) the costs of monitoring employees. 
C) the use of computers. 
D) none of these choices. 
A) the number of managers. 
B) the costs of monitoring employees. 
C) the use of computers. 
D) none of these choices.

Question 10

Being paid a wage more than your opportunity costs is an example of

Accepted Answer

A) economic profit. 
B) normal profit. 
C) an accounting cost. 
D) an efficiency wage. 
A) economic profit. 
B) normal profit. 
C) an accounting cost. 
D) an efficiency wage.

Question 11

The board of directors and the CEO

Accepted Answer

A) do not have a principal/agent relationship. 
B) are agent and principal, respectively. 
C) are principal and agent, respectively. 
D) are one in the same for small corporations. 
A) do not have a principal/agent relationship. 
B) are agent and principal, respectively. 
C) are principal and agent, respectively. 
D) are one in the same for small corporations.

Question 12

Agents hire principals.

Accepted Answer

A) True 
 B)False

Question 13

By being responsible for their actions

Accepted Answer

A) moral hazard becomes asymmetric information. 
B) employees are being given a property right. 
C) employees find it easier to free ride on the performance of others. 
D) the stock market is selling the claims of agents. 
A) moral hazard becomes asymmetric information. 
B) employees are being given a property right. 
C) employees find it easier to free ride on the performance of others. 
D) the stock market is selling the claims of agents.

Question 14

A problem associated with the principal-agent relationship is

Accepted Answer

A) imperfect information. 
B) perfect information. 
C) the low costs of monitoring behavior. 
D) none of these choices. 
A) imperfect information. 
B) perfect information. 
C) the low costs of monitoring behavior. 
D) none of these choices.

Question 15

Moral hazard arises when principals find it costly to monitor agents.

Accepted Answer

A) True 
 B)False

Question 16

A flat wage profile refers to

Accepted Answer

A) wage compression. 
B) backloaded compensation. 
C) an efficiency wage. 
D) deferred compensation. 
A) wage compression. 
B) backloaded compensation. 
C) an efficiency wage. 
D) deferred compensation.

Question 17

Backloaded compensation makes the wage profile increase at a decreasing rate.

Accepted Answer

A) True 
 B)False

Question 18

If job promotion is viewed as a contest, then

Accepted Answer

A) tournament theory can be used to explain the use of poison pills. 
B) tournament theory can be used to explain the level of executive compensation. 
C) tournament theory can be used to explain the use of greenmail. 
D) tournament theory can be used to explain the use of golden parachutes. 
A) tournament theory can be used to explain the use of poison pills. 
B) tournament theory can be used to explain the level of executive compensation. 
C) tournament theory can be used to explain the use of greenmail. 
D) tournament theory can be used to explain the use of golden parachutes.

Question 19

Tournaments are used to identify the most productive person or the best player.

Accepted Answer

A) True 
 B)False

Question 20

Often managers require a payment due to their risk aversion.This payment is called

Accepted Answer

A) a golden parachute. 
B) greenmail. 
C) a poison pill. 
D) rollover compensation 
A) a golden parachute. 
B) greenmail. 
C) a poison pill. 
D) rollover compensation

Exam 6: Market Failures and Incentive Issues Inside the Firm

Backloaded compensation encourages

Free riding is a problem

Moral hazard is associated with

Lincoln Electric paid employees on the basis of

If I am paid a wage below my opportunity cost, I am being paid an efficiency wage.

"People who have dental insurance don't floss often enough." This is an example of

A common way used to align the interests of managers with the interests of equity holders is

A problem with teams is that individuals

A difference between the efficiency wage and the opportunity cost of labor is largely determined by

Being paid a wage more than your opportunity costs is an example of

The board of directors and the CEO

Agents hire principals.

By being responsible for their actions

A problem associated with the principal-agent relationship is

Moral hazard arises when principals find it costly to monitor agents.

A flat wage profile refers to

Backloaded compensation makes the wage profile increase at a decreasing rate.

If job promotion is viewed as a contest, then

Tournaments are used to identify the most productive person or the best player.

Often managers require a payment due to their risk aversion.This payment is called

Economics and Management

The Power of Markets and the Wealth of Nations

Spontaneous Order, Markets, and Market Failure

Spontaneous Order and the Firm

Organization of the Firm

When Other Firms Dont Respond

When Other Firms React

The Entrepreneur and the Market Process

Strategies With Respect to Government

What Should the Firm Do

Demand and Revenue Management

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The Mechanics of Profit Maximization

Pricing

The Knowledge Economy

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Measuring Economic Profit

The Firm in a National and a Global Setting

Strategy Myths

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