1. The example of Enron shows that:
A. selection of people is the key to organizational success or failure.
B. large incentives are the keys to getting people moving in a corporation.
C. business success is possible in a regulatory environment.
D. organizationalstructure is extremely important in business success.
2. Many economics texts discuss the question "Which markets should a firm enter?" This text focuses on the following question:
A. How should the firm price its products?
B. Who are the firm's competitors?
C. How should the firm be internally structured?
D. What mix of inputs – labor and capital – is most efficient?
3. 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 very corrupt.
C. incentives can create perverse effects.
D. high-tech firms are unique.
4. EconomicDarwinism is when:
A. organizational architecture is optimized.
B. competition weeds out ill-designed organizations that fail to adapt.
C. corporate mutations occur, like Enron.
D. market benchmarks are employed.
5. A risk-averse agent:
A. only cares about expected payoff.
B. cares about expected payoff, as well as the variability of a payoff.
C. only cares about the variability of a payoff.D. always prefers a certain payoff to a risky one.
6. If employees conform to the economist's view of behavior, managers will be most effective if they can:
A. influence the costs and benefits of employee actions.
B. improve employee satisfaction with the job.
C. communicate goals and objectives effectively to their employees.
D. fire bad employees.
7. Assume MACROSOFT is planning todevelop and sell a new word processor. It estimates that R&D expenses will amount to $300,000 for this new software, while it will have to invest an additional $150,000 to advertise and distribute the new product. If MACROSOFT's managers are risk-neutral, they will undertake this project if the expected revenues from the sales of the new software are:
A. at least $150,000.
B. No return isnecessary in the short term.
C. at least $300,000.
D. at least $450,000.
8. MACROSOFT decided to start developing the new word processor. After six months, the R&D phase is completed (i.e. MACROSOFT has already invested $300,000). However, after initial negotiations with its distributors, MACROSOFT revised upward marketing and distribution expenses by $150,000 (i.e. total marketing anddistribution expenses will amount to $300,000). If MACROSOFT's managers are risk-neutral, they should abandon the project if the expected revenues from sales of the new software are:
9. The absolute value of the marginal rate of substitution measures the:
A. slope of the budget constraint.
B. slope of an indifference curve.
C. relative price oftwo goods.
D. optimality of consumer consumption.
10. Sunk costs refer to:
A. costs that were incurred in the past and cannot be recovered, and thus should not affect current decisions
B. all the costs that a firm must incur in the process of production
C. comparing the benefits and costs of choosing a little more or a little less of a good
D. whatever must be given up to obtain somethingthat is desired
11. The income effect means that when the price of a good rises:
A. the buying power of your income has been reduced
B. consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price
C. your preferences also change
D. you buy more normal goods and fewer inferior goods
12. Assume the government...