Deck 4: Spontaneous Order and the Firm

Question 1

Firms cannot resemble

A)incomplete contracts.
B)democracies.
C)an organization without externalities.
D)a benevolent dictator.

Answer 1

democracies.

Question 2

If a firm is wondering whether or not it should "buy or make,"

A)it is exploring its horizontal boundaries.
B)it is exploring its vertical boundaries.
C)it is exploring the boundaries of its network.
D)it is considering a "winner-take-all" event.

Answer 2

it is exploring its vertical boundaries.

Question 3

The scope of a firm refers to its

A)vertical boundaries.
B)economies of scale.
C)horizontal boundaries.
D)all of these choices.

Answer 3

horizontal boundaries.

Question 4

The way one firm relates to another in the supply chain is referred to as being

A)upstream or downstream.
B)latitudinal or longitudinal.
C)left or right.
D)competitor or conspirator.

Question 5

It is sometime useful to view each step in the supply chain as a(n)

A)single market.
B)integrated process.
C)horizontal process.
D)vertical process.

Question 6

Assume that deciding to do internally something that was once purchased from a company upstream offers a 10 percent return.What is the cost of this decision?

A)10 percent.
B)less than 10 percent.
C)What was given up to do it internally.
D)Not enough information is provided.

Question 7

If firms were teams, then there is a need for a

A)profit monitor.
B)benevolent government.
C)boss or supervisor.
D)none of these choices.

Question 8

Ronald Coase argued that firms exist due to the presence of

A)transfer costs.
B)unions.
C)transactions costs.
D)easy market transactions.

Question 9

If firms were teams then there would be a problem of

A)free-riding.
B)spontaneous order.
C)market-based management.
D)internal externalities.

Question 10

Risk is shifted to the owners of a firm.In return they receive

A)normal wages.
B)residual income.
C)normal profit.
D)marginal profit.

Question 11

All the costs of a transaction are referred to as

A)transfer costs.
B)transactions costs.
C)marketing expenditures.
D)accounting costs.

Question 12

If a firm decides to produce a product that it once purchased from a firm upstream it has made a

A)horizontal decision.
B)make or buy decision.
C)downstream decision.
D)sell or service decision.

Question 13

The market for control of corporations serves to

A)create moral hazard.
B)address the principal-agent problem.
C)add to economies of scale.
D)address the problem of adverse selection.

Question 14

Firms exist because of

A)incomplete contracts.
B)team production.
C)the incentive to free ride.
D)all of these choices.

Question 15

Firms would not exist if

A)contracts were incomplete.
B)residual income equaled normal profit.
C)income was spontaneously earned.
D)contracts were complete.

Question 16

Without enforcement, a contract

A)is binding.
B)is lateral in form.
C)is costless to enforce.
D)not really binding.

Question 17

The CEO and stockholders are not necessarily the same people.This gives rise to

A)upstream and downstream contracts.
B)a principal-agent problem.
C)complete contracts.
D)a control over moral hazard.

Question 18

Firm governance must enhance

A)wages.
B)control by stockholders.
C)efficiency.
D)government regulation.

Question 19

The Prime Directive says look to

A)the market.
B)the government.
C)competitors.
D)all of these choices.

Question 20

Without contracts, what type of transactions would occur?

A)forward purchases.
B)lateral purchases.
C)spot transactions.
D)side bars.

Question 21

Managers can often been seen as solving property right problems.

Question 22

Firms exist because of the low cost associated with creating complete contracts

Question 23

The structure of a firm can fail in similar ways to market failure.

Question 24

A self-managed team is still headed by a boss.

Question 25

Make or buy decisions affect the degree of vertical integration.

Question 26

A narrowly diversified firm has wide economies of scope.

Question 27

The CEO and stockholders talk almost everyday.

Question 28

Principal-agent problems are not addressed in the market for corporate control.

Question 29

Organizational structure can be a strategic asset if it

A)adds value.
B)adds value and can be duplicated.
C)adds value and cannot be duplicated.
D)can be franchised.

Question 30

Supply chain is the entire vertical process of a firm.

Question 31

Firms can be governed like democracies are governed.

Question 32

Firms serve similar functions to

A)courts.
B)governments.
C)markets.
D)all of these choices.

Question 33

Stockholders have little incentive to monitor

A)managers.
B)stock markets.
C)stock prices.
D)their portfolios.

Question 34

Managers can be seen as monitoring ____ within the firm.

A)externalities.
B)property rights
C)stockholders.
D)accounting profits.

Question 35

Owners claim residual income.

Question 36

Upstream and downstream refer to the degree of horizontal integration.

Question 37

The structure of an organization is influenced by transactions costs.

Question 38

For diversification to be a successful management strategy, it must

A)generate accounting profits.
B)earn normal profits.
C)protect market share.
D)add value.

Question 39

Property rights to resource uses are assigned to owners of the firm to avoid

A)hold-up problems.
B)externalities.
C)value creation.
D)normal profits to the company as a whole.

Question 40

Teams have an incentive problem called free-riding.

Question 41

Governance of a firm is not related to transparency issues.