Question 1

In the textbook,there is an example of a software firm in which the managers provided a financial incentive to get rid of software bugs.The result was that software writers added more bugs into the software.This example shows that
A)financial incentives should never be used.
B)most employees are corrupt.
C)incentives can create perverse effects.
D)high-tech firms are unique.

Accepted Answer

The example provided in the textbook shows that financial incentives can sometimes create unintended consequences, in this case leading to more bugs being inserted into the software instead of reducing them. This means that incentives can produce perverse effects, which should be taken into account when designing incentive schemes. This does not mean that financial incentives should never be used or that most employees are corrupt, and there is no evidence to suggest that this is specific to high-tech firms.

Question 2

If the market demand and the market price for a product increase,then the reaction of companies that manufacture this product
A)will be identical.
B)will be dependent on the prevailing tax system.
C)will depend on whether or not the organization is attuned to market incentives.
D)will be dependent on the government regulatory mission.

Accepted Answer

The reaction of companies that manufacture the product will depend on whether or not they are attuned to market incentives. Some companies may be quick to respond to the increase in demand and price by increasing production and expanding their market share. Others may not be as responsive due to factors such as production constraints or a lack of resources. Ultimately, the reaction of companies will depend on their ability to effectively capitalize on market opportunities.

Question 3

DHL,a successful European company,is attempting to overcome various legal problems in order to enter the U.S.market of overnight package delivery.Its two major competitors would be FedEx and UPS.As DHL looks to set up a U.S.subsidiary,it wishes to benchmark its organizational architecture.What should it do?

Accepted Answer

DHL should realize that a successful organizational architecture is more than a collection of good ideas or good parts.A successful organization should be carefully coordinated to align individuals' incentives with the firm's goals.DHL's organizational architecture has survived in a European legal and regulatory environment.In contrast,FedEx's and UPS's architectures have survived under the U.S.legal system in the market for overnight delivery.There is no single "best" organizational form for all firms in all external legal and market environments.Instead,the best organizational form for a firm depends critically on its current business environment.DHL should be aware of possible unintended side effects of changing one component of organizational architecture without considering its effects on the other parts of organizational architecture.

Question 4

"Subprime mortgages" refer to
A)interest rates that are over and above the prime rate to risky borrowers.
B)mortgages made to credit-worthy borrowers at low interest rates.
C)mortgages made to borrowers who do not usually qualify for loans.
D)mortgage brokers making huge commissions on volume.

Accepted Answer

Subprime mortgages are loans that are made to borrowers who do not qualify for conventional loans due to a poor credit history or other risk factors. These borrowers typically have lower credit scores or high levels of debt, making them a higher risk for lenders. As a result, subprime mortgages often have higher interest rates to compensate for the increased risk.

Question 5

Recent research on CEO behavior tells us that CEOs generally
A)increase their firm's R&D expenditure so as to boost earnings long before they retire.
B)reduce their firm's R&D expenditure so as to boost earnings long before they retire.
C)reduce their firm's R&D expenditure so as to boost earnings just before they retire.
D)increase their firm's R&D expenditure so as to boost earnings just before they retire.

Accepted Answer

Recent research on CEO behavior has found that CEOs tend to reduce their firm's R&D expenditure just before they retire in order to boost short-term earnings and improve their own retirement benefits. This is known as "CEO myopia" and can have negative long-term consequences for the firm's innovation and growth.

Question 6

Economic Darwinism is seen when
A)organizational architecture is optimized by employing new technology.
B)competition weeds out ill-designed organizations that fail to adapt.
C)corporate mutations occur,like Enron.
D)market benchmarks are employed.

Accepted Answer

Economic Darwinism refers to the principle of survival of the fittest in the business world, where competition weeds out ill-designed organizations that fail to adapt. Therefore, the best choice is B. Option A refers to the optimization of organizational architecture using technology, which is a separate concept. Option C refers to corporate mutations, which is not directly related to economic Darwinism. Option D refers to the use of market benchmarks, which may be a part of economic Darwinism but is not the core concept.

Question 7

Economics provides a theory to explain
A)how a successful business can be started.
B)how managers can cheat and get away with it.
C)how people make choices.
D)how businesses compete in the market.

Accepted Answer

Economics provides theories and models that help explain how individuals and societies make decisions about production, consumption, and distribution of goods and services. This includes factors such as scarcity, supply and demand, trade-offs, incentives, and opportunity costs. While economics can be applied to business and competition in the market, its primary focus is on understanding human behavior and choices. Choice A is too narrow and specific, choice B is unethical and outside the scope of economics, and choice D is only one aspect of what economics explains.

Question 8

Enron was clearly a company riddled with fraud and its conduct drove it to bankruptcy.The text argues that individual behavior was not the core of Enron's problems.What were the problems with this corporation from an organizational architecture point of view?

Accepted Answer

The answer of Enron was clearly a company riddled with...

Question 9

The example of Enron shows that
A)selection of people is the key to organizational success or failure.
B)large incentives play an important role in motivating people within a corporation.
C)the success of a business is possible in a regulatory environment.
D)organizational structure is extremely important in business success.

Accepted Answer

The example of Enron highlights the importance of organizational structure in determining the success or failure of a business. Enron had a complex organizational structure with many subsidiaries and off-balance-sheet transactions, which ultimately contributed to their downfall. Their unethical practices also highlight the importance of having a strong ethical culture within the organization. While selection of people and incentives are important, they are not the main lessons to be learned from the Enron case.

Question 10

Is there a relationship between a CEO's retirement and the R&D expenses in a firm?

Accepted Answer

The answer of Is there a relationship between a CEO's...

Question 11

Bloomberg Business sums up the failure of Enron to
A)September 11,2001.
B)flawed organizational design.
C)too much debt.
D)risky projects in India and the oil price hikes.

Accepted Answer

Bloomberg Business cites Enron's flawed organizational design as the reason for its failure. Specifically, they highlight the company's emphasis on short-term gains and its lack of transparency, which ultimately led to fraudulent accounting practices and deception of investors. While factors such as too much debt and risky projects may have also contributed to Enron's downfall, Bloomberg Business points to the company's flawed organizational structure as the primary cause.

Question 12

The authors argue that successful corporations assign decision rights in ways that
A)effectively link decision-making authority with good information.
B)structure moneymaking tools for all employees.
C)completely eliminate the potential for fraud.
D)rely on monitoring and evaluation for all creativity.

Accepted Answer

The authors argue that successful corporations assign decision rights in ways that effectively link decision-making authority with good information. This means that decision-making authority is given to those who have access to and can effectively use good information to make informed decisions. This helps ensure that decisions are made in the best interest of the company and its stakeholders.

Question 13

What are the three critical aspects of corporate organization? Which of the three components is most important for the success of a firm?

Accepted Answer

The answer of What are the three critical aspects of...

Question 14

Explain why the top executives of Société Générale are more likely to be blamed than Jérôme Kerviel.

Accepted Answer

The answer of Explain why the top executives of Société...

Question 15

According to the text,successful firms tend to set up
A)an organizational architecture that is complex and decisions are "top-down."
B)an organizational architecture that is least expensive and decisions are "top-down."
C)an organizational architecture that links decision making with decision rights.
D)an organizational architecture that keeps decision rights reserved for the senior management.

Accepted Answer

The text states that successful firms tend to set up an organizational architecture that links decision making with decision rights. This means that decision making is distributed to those who have the authority to make decisions, rather than just the senior management. This approach allows for quicker decision making and a more efficient organization. Option A is incorrect because complexity is not necessarily an indicator of success, and top-down decision making can lead to slower decision making and less innovation. Option B is also incorrect because while cost is important, it is not the only factor in creating a successful organizational architecture. Option D is incorrect because keeping decision rights reserved for the senior management can lead to bottlenecks and a lack of agility in decision making.

Question 16

Which of the following is true of standard economic analysis?
A)It characterizes a firm as a black box that transforms inputs to outputs.
B)It focuses on the internal architecture of a firm.
C)It applies basic economic tools to examine the effects of managerial decisions.
D)It characterizes a firm as an organization that generates economic growth.

Accepted Answer

Standard economic analysis often simplifies the firm as a "black box" that transforms inputs into outputs, focusing on the production process rather than the internal workings or architecture of the firm.

Question 17

How can good management practices be useful in a global economy?

Accepted Answer

The answer of How can good management practices be useful...

Question 18

Identify a critical aspect of corporate organization.
A)the assignment of decision rights within a company
B)the cost structure of the firm
C)the pricing strategies of the rival firms
D)the capita to labor ratio

Accepted Answer

The assignment of decision rights within a company is a critical aspect of corporate organization because it affects how decisions are made, who makes them, and how they are implemented. It determines the authority structure within the company and can have a significant impact on its performance and strategic direction.

Question 19

What was the main reason for "liar loans" to proliferate?

Accepted Answer

The answer of What was the main reason for "liar...

Question 20

What are some of the ways in which risky borrowers cheated on housing loans?

Accepted Answer

The answer of What are some of the ways in...

Quiz 1: Introduction

In the textbook,there is an example of a software firm in which the managers provided a financial incentive to get rid of software bugs.The result was that software writers added more bugs into the software.This example shows that

If the market demand and the market price for a product increase,then the reaction of companies that manufacture this product

"Subprime mortgages" refer to

Recent research on CEO behavior tells us that CEOs generally

Economic Darwinism is seen when

Economics provides a theory to explain

Enron was clearly a company riddled with fraud and its conduct drove it to bankruptcy.The text argues that individual behavior was not the core of Enron's problems.What were the problems with this corporation from an organizational architecture point of view?

The example of Enron shows that

Is there a relationship between a CEO's retirement and the R&D expenses in a firm?

Bloomberg Business sums up the failure of Enron to

The authors argue that successful corporations assign decision rights in ways that

What are the three critical aspects of corporate organization? Which of the three components is most important for the success of a firm?

Explain why the top executives of Société Générale are more likely to be blamed than Jérôme Kerviel.

According to the text,successful firms tend to set up

Which of the following is true of standard economic analysis?

How can good management practices be useful in a global economy?

Identify a critical aspect of corporate organization.

What was the main reason for "liar loans" to proliferate?

What are some of the ways in which risky borrowers cheated on housing loans?