Deck 12: Organizations in Concept and Practice

Question 1

A hierarchy is usually a group of people who issue orders to subordinates.

Answer 1

False

Question 2

Independent workers using specialized capital save the costs of contracting but risk:

A)generalization.
B)opportunism.
C)inefficiency.
D)over-utilization.

Answer 2

B

Question 3

In business organizations, the specialization of workers and their assignments to different tasks is called:

A)division of labor.
B)capital efficiency.
C)product differentiation.
D)labor productivity.

Answer 3

A

Question 4

In a merger, the outsider buys the shares of a target firm with debt collateralized by its other assets and sometimes by the target's assets.

Question 5

Risk-averse people prefer to hold assets whose returns are positively correlated.

Question 6

Which of the following is an advantage of having a marketing cooperative?

A)Sellers get a steady supply of raw materials for their produce.
B)Buyers get a steady supply of finished products.
C)Sellers can save resources they would have spent on marketing and instead specialize in production.
D)Buyers face lower risks of opportunism.

Question 7

If the owners of different types of resources, which are combined to produce an output, agree on organizational relationships that define their responsibilities toward one another they have formed a _____.

A)group
B)company
C)distribution network
D)team

Question 8

In a perfectly competitive market, traders bear the risk of opportunism because they are not in a position to choose from numerous potential counterparties while making a deal.

Question 9

When a single individual performs all the steps involved in the production process he/she incurs:

A)the costs of labor division.
B)the costs of being a generalist.
C)the cost of specialization.
D)the costs of over-utilization of resources.

Question 10

Partnership can function as an efficient organizational form when partners have similar backgrounds and skills, and each of their income is largely determined by individual effort.

Question 11

A residual claimant with supervisory powers resolves the difficulties independent workers have in arriving at choices that affect the entire group.

Question 12

It is possible for a team member to monitor the activities of all other team members without affecting his/her own productivity.

Question 13

Centralizing responsibility for a firm's investments in a single person resolves problems of continuity.

Question 14

Large shareholders can sometimes influence a corporation's decisions without making efforts to replace its management.

Question 15

If a market is informationally efficient, the current price of a corporation's common stock shares is the best predictor of its future performance because it incorporates all of the information currently known about its prospects.

Question 16

A sole proprietor has limited liability and cannot be forced to pay its creditors from his/her personal resources.

Question 17

The separation of corporate ownership and control removes most executive decisions from shareholder scrutiny, but offers an efficient division of labor between persons with differing skills, goals, and wealth.

Question 18

Unless the specialists involved in the different stages of production coordinate among themselves, specialization and division of labor can result in unused capacities and investment mismatches.

Question 19

We call a group a team if the total output produced by the group can be separated into individual outputs.

Question 20

A single individual performing all of the steps involved in the production of a commodity is usually less productive compared to one who performs only one task.

Question 21

The management function of a sufficiently large firm should be separated from finance and residual claimancy because of:

A)differences in skill requirements and opportunity costs.
B)differences in attitudes towards risk.
C)differences in investment choices and responsibilities.
D)differences in beliefs about a new strategy's probability of success.

Question 22

Which of the following is an advantage of having centralized ownership and responsibility for capital goods?

A)It allows firms to avoid the depreciation cost of capital equipment.
B)It increases the capital per worker ratio.
C)It spreads the investment risk associated with acquisition of capital goods.
D)It resolves the problem of continuity.

Question 23

A sole proprietorship is characterized by:

A)separation of ownership and management.
B)mutual agency.
C)existence of multiple contracts.
D)unlimited liability.

Question 24

A person acting as a supervisor as well as a residual claimant:

A)attempts to make value-maximizing investment decisions.
B)aims to maximize a firm's sales.
C)facilitates maximum investment in capital goods.
D)reduces risk of opportunism.

Question 25

_____ have no decision-making powers but can lose no more than what they have invested.

A)Limited partners in a limited partnership
B)General partners in a limited partnership
C)Senior managers in a joint venture
D)Sole proprietors

Question 26

Which of the following risks cannot be hedged by an insurance?

A)Exports damaged during shipment
B)Theft during movement of goods
C)An electrical fire at a warehouse
D)Decreased sales resulting from poor salesmanship

Question 27

Independent workers face difficulties in arriving at choices for all of the following reasons, EXCEPT:

A)difference in investment responsibilities for their equipment.
B)difference in attitudes toward risk.
C)difference of opinion regarding a new strategy's probability of success.
D)difference in their transaction costs.

Question 28

A person who performs supervisory activities will also be a _____ if she/he is financially responsible for investment and other contracted decisions.

A)residual claimant
B)director
C)shareholder
D)financial advisor

Question 29

Which of the following properties is common to a partnership business?

A)Limited liability
B)Centralized ownership and management
C)Continuity and unlimited existence of the business
D)Co-ownership of contributed assets

Question 30

In which of the following economic activities do we commonly find a proprietor acting as a supervisor, a provider of capital, and a residual claimant?

A)A multinational bank
B)An oil exploration company
C)A small medical store
D)An aircraft manufacturer

Question 31

Disagreement between the partners during operation can result in:

A)Dissolution or reorganization of the business.
B)sale of the business to a third party.
C)one partner buying the other's assets.
D)the admission of a new partner.

Question 32

A _____ requires workers to comply with orders from a boss, who need not consult them when making decisions, and to be paid for their cooperation.

A)residual claimant
B)hierarchy
C)shareholder
D)cooperative

Question 33

Any form of wealth held by a sole proprietor will be factored into the terms of the loans she receives because:

A)her liability is limited.
B)her business is inseparable from her.
C)her business is too small to bear investment risks.
D)her investment decisions depend on her total output.

Question 34

Risk-averse people cut their risks by:

A)diversifying their wealth into physical assets.
B)investing their wealth into similar kinds of assets.
C)investing their wealth only in risk-free assets.
D)diversifying their wealth into different assets.

Question 35

Which of the following can be considered an income risk?

A)Recession causing loss of pay to employees working in a particular industry
B)Fall in employee turnover affecting company profits
C)Economic growth resulting in demand-pull inflation
D)Stock market boom encouraging investment in risky assets

Question 36

Assets whose returns have a high positive correlation are considered:

A)highly risky compared with those whose returns have lower or negative correlations..
B)completely risk free.
C)less risky compared to those which have a low positive correlation.
D)partially risky.

Question 37

Which of the following is true about a hierarchy?

A)It primarily acts as a residual claimant.
B)It is a group of individuals who make decisions.
C)It is an alternative to independent specialization of individual workers.
D)It is a group of individuals who hold shares of the company and are entitled to dividends.

Question 38

Partnerships whose members have _____ can face difficult problems operating and reaching decisions.

A)diverse functions
B)specialized functions
C)multiple functions
D)limited functions

Question 39

Creditors supply loans to sole proprietors at a high rate of interest because of:

A)their low profit expectancy from this business.
B)frequent experience of loan default.
C)their inability to call in their loans or sell them to others.
D)their general risk-averse nature.

Question 40

A _____ generally has less understanding of the firm than a manager and has little knowledge that is likely to improve the quality of the manager's choices.

A)specialized residual claimant
B)diversified residual claimant
C)diversified hierarchy
D)specialized hierarchy

Question 41

_____ are legal and contractual mechanism[s] for creating and operating a business for profit, using capital from investors that will be managed on their behalf by directors and officers.

A)Sole proprietorships
B)Partnerships
C)Joint-ventures
D)Corporations

Question 42

A _____ puts the assets of two corporations under a common management.

A)acquisition
B)vertical integration
C)merger
D)proxy fight

Question 43

In a _____ the outsider buys the shares with debt collateralized by its other assets, and sometimes also by the target's assets.

A)merger
B)cash tender
C)proxy fight
D)leveraged buyout

Question 44

Which of the following is an example of an institutional investor?

A)A large pension fund
B)A person who buys stocks for his portfolio
C)A company that invests millions in a new product
D)A dealer who buys a painting expecting huge returns

Question 45

In which of the following areas are partnerships common?

A)Contract jobs won through bidding
B)A large multinational corporation
C)Small firms producing semi-finished goods
D)Professional group practices

Question 46

A corporation's shareholders are its:

A)board of directors.
B)residual claimants.
C)specialized active managers.
D)supervisors.

Question 47

What kind of problem do creditors lending funds to a sole proprietorship form of business face?

Question 48

_____ is a property which distinguishes corporations from proprietorships and partnerships.

A)Unlimited liability
B)Division of labor
C)Separation of ownership and management
D)Centralized management and control

Question 49

Directors can make opportunistic choices to advance their personal interest when:

A)they plan to sell off the corporation stocks at inflated prices.
B)they hold majority of the stocks in the corporation.
C)they are aware that the cost of forming a new board of directors is high.
D)their personal returns from the well being of the corporation is high.

Question 50

An outside organization trying to gain control of a corporation offers a _____ by announcing its intent to purchase up to a certain number of the target's shares at a premium over their market price.

A)proxy fight
B)cash tender
C)junk bond
D)leveraged buyout

Question 51

How does a residual claimant help to resolve the problems faced by independent specialized workers?

Question 52

State one implication of the principle of division of labor.

Question 53

Which of the following could a corporation use to raise its initial operating capital?

A)Government loans with low interest rates
B)Mortgages from banks
C)Public offering of stock
D)Loans from the informal market at a high rate of interest

Question 54

Which of the following is true of a corporation's stock?

A)Stocks are highly illiquid assets.
B)Stocks can be easily transferred from one person to another.
C)Dividends declared on stocks are not subject to personal income tax.
D)Dividend declared on stocks assure a steady income to the stockholders.

Question 55

Which of the following "shareholder rights" plan when implemented provides all shareholders other than outsiders the right to purchase additional shares at a discount?

A)A flip-in poison pill
B)A "crown jewels" defense
C)A "white knight" bid
D)A de-conglomeration

Question 56

Why is it necessary to separate the management function in an organization from those of finance and residual claimancy?

Question 57

How does supervision benefit team production?

Question 58

The owner of each share of a corporation's stock:

A)has the right to cast one vote for electing its board of directors.
B)is entitled to 1 percent of the total profit earned by the firm.
C)has the right to participate in its overall supervision.
D)is liable for 1 percent of the total loss incurred by the company.

Question 59

A corporation's _____ can sometimes influence its decisions without making efforts to replace its management.

A)hierarchy
B)specialized workforce
C)small shareholders
D)block holders

Question 60

When a large shareholder or a group solicits vote for a slate of directors that it has proposed as an alternative to candidates endorsed by the current board, a(n) _____ takes place.

A)acquisition
B)proxy fight
C)merger
D)leveraged buyout

Question 61

Explain the reasons for separating ownership and management in all large organizations.

Question 62

What is a hierarchy?

Question 63

Mention some areas where partnerships are common.Give reason for your answer.

Question 64

When can proxy fights take place in a corporation?

Question 65

Mention some of the defenses put up by the management of a firm to prevent transfer of control of the corporate assets.

Question 66

What are junk bonds?

Question 67

Explain the principal/agent problem encountered by corporations.