Question 1

Explain why people in the following occupations are compensated as they are.
a.Insurance agents
b.Football players
c.Authors
d.CEOs of major corporations
e.Food servers

Accepted Answer

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Question 2

Which of the following transactions are likely to result in relationship-specific exchange?
A)Purchasing gasoline for the company car
B)Hiring an employee to operate a machine that only your company uses
C)Buying napkins for the company snack bar
D)Purchasing coal for the factory furnace
E)Buying electricity

Accepted Answer

The answer of Which of the following transactions are likely...

Question 3

As a manager of the WeDoWell Corporation,you have negotiated with several vendors and are on the verge of signing an eight-year contract with Bolts Enterprises.Under the contract,they would ship to you 2,000 titanium bolts per month at a price of $1,000 per bolt.Your assistant has just brought you an article from a trade publication that indicates another company has developed a new technology that reduces the cost of producing the titanium bolts.How would this information affect the optimal length of your contract with Bolts Enterprises?

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Question 4

You are the manager of Door-to-Door Vacuum Cleaners,Inc.Each salesperson is paid a base salary plus a percentage of the revenues she or he generates.In addition,each salesperson drives his or her car to and from each sales call and is reimbursed $0.40 per mile driven.On average,each salesperson drives about 150 miles per day and 240 days per year.As manager of Door-to-Door,how might you restructure the compensation of your sales force to enhance your profits?
 Are there any potential disadvantages of your plan?

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Question 5

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.

Accepted Answer

The answer of Jiffyburger,a fast-food outlet,sells approximately 8,000 quarter-pound hamburgers...

Question 6

At the recent shareholders' meeting,the CEO of a small bank proposed a plan to offer each of its employees 250 incentive options for Class A common stock.The key provisions of the plan are that employees must exercise the options between January 2014 and December 2019,and if an employee terminates his or her employment with the bank (or is terminated),the options are no longer exercisable.One shareholder feverishly objected to the plan,claiming that such a move would dilute the value of the outstanding shares.As CEO,how would you defend the stock option plan to the shareholders?

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Question 7

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?

Accepted Answer

The answer of College Retirement Equities Fund (CREF)is a pension...

Question 8

Dallas-based Southwest Airlines recently announced a 10-year contract that gives pilots a greater opportunity to share in the profits of the airline.According to the terms of the contract,the pilots will receive options to buy 14 million shares of the firm's stock over the next 10 years.What impact do you think this new contract will have on Southwest Airlines?

Accepted Answer

The answer of Dallas-based Southwest Airlines recently announced a 10-year...

Question 9

A manager derives satisfaction from income and leisure on the job (shirking).
a.If the manager is paid a fixed salary of $100,000,how much leisure will she consume on the job during an eight-hour day?
 
b.When the manager is given a salary of $100,000 plus 10 percent of the firm's profits,she chooses to spend six hours managing and two hours consuming leisure.Salary and bonus total $120,000.Does the manager necessarily prefer this situation to the situation in part (a)?

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The answer of A manager derives satisfaction from income and...

Question 10

Art-R-Us makes hand-painted art reproductions.The owner-manager wishes to hire another artist,and is considering paying a fixed wage plus either (1)a share of the profits from each painting sold or (2)a fixed payment for each piece produced.Which plan would you choose if you were the owner?

Accepted Answer

The answer of Art-R-Us makes hand-painted art reproductions.The owner-manager wishes...

Question 11

Explain how each of the following affects the optimal method of acquiring an input.
a.A complex contracting environment
b.A specialized investment
c.Opportunism
d.Bargaining costs
e.The costs of bureaucracy
f.Gains from specialization

Accepted Answer

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Question 12

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

Accepted Answer

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Question 13

Suppose a principal knew with certainty the level of profits that would result if an agent put forth maximum effort.
a.Would there be a principal-agent problem?
b.Devise two incentive contracts that would induce the manager to put forth maximum effort in this instance.

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The answer of Suppose a principal knew with certainty the...

Question 14

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.?

Accepted Answer

The answer of In a 1998 press release,Boeing Commercial Airplane...

Question 15

Discuss the benefits and costs of the following methods of monitoring worker performance:
a.Hidden video cameras in the workplace.
b.Time clocks.
c.Paying workers based on the output they produce.

Accepted Answer

The answer of Discuss the benefits and costs of the...

Question 16

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?

Accepted Answer

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Question 17

In general,automobile manufacturers produce their own engines but purchase tires from independent suppliers.Why?

Accepted Answer

The answer of In general,automobile manufacturers produce their own engines...

Quiz 6: The Organization of the Firm

Explain why people in the following occupations are compensated as they are. a.Insurance agents b.Football players c.Authors d.CEOs of major corporations e.Food servers

Art-R-Us makes hand-painted art reproductions.The owner-manager wishes to hire another artist,and is considering paying a fixed wage plus either (1)a share of the profits from each painting sold or (2)a fixed payment for each piece produced.Which plan would you choose if you were the owner?

Explain how each of the following affects the optimal method of acquiring an input. a.A complex contracting environment b.A specialized investment c.Opportunism d.Bargaining costs e.The costs of bureaucracy f.Gains from specialization

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

Suppose a principal knew with certainty the level of profits that would result if an agent put forth maximum effort. a.Would there be a principal-agent problem? b.Devise two incentive contracts that would induce the manager to put forth maximum effort in this instance.

Discuss the benefits and costs of the following methods of monitoring worker performance: a.Hidden video cameras in the workplace. b.Time clocks. c.Paying workers based on the output they produce.

In general,automobile manufacturers produce their own engines but purchase tires from independent suppliers.Why?