Question

Question 1

Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in:

		an increase in the marginal cost and a longer optimal contract.
		an increase in the marginal cost and a shorter optimal contract.
		a decrease in the marginal cost and a longer optimal contract.
		a decrease in the marginal cost and a shorter optimal contract.

Question 2

Which of the following is NOT a benefit associated with producing inputs within a firm?

		reduction in transaction costs.
		gains of specializing.
		reductions in opportunism.
		mitigation of hold-up problem.

Question 3

By making managerial compensation depend on the performance of the firm's profits, the firm owner's profits:

		rise.
		fall.
		remain constant.
		initially fall, then rise.

Question 4

Which of the following occurs as firm size grows?

		A decrease in the number of managers needed.
		A decrease in transaction costs.
		A loss of opportunity cost.
		Administrative and bureaucratic costs rise at an increasing rate.

Question 5

Solving the principal-agent problem ensures that the firm is operating:

		on the production function.
		above the production function.
		below the production function.
		above the isoquant curve.

Question 6

A decrease in the marginal cost arising from a less complex specialized investment environment will cause the optimal contract length to:

		increase.
		decrease.
		remain constant.
		either increase or decrease.

Question 7

Suppose a firm manager has a base salary of $175,000 and earns 0.5 percent of all profits. Determine the manager's income if revenues are $10,000,000 and profits are $5,000,000.

		$150,000
		$200,000
		$225,000
		$300,000

Question 8

An increase in the likelihood of a dismissal:

		raises productivity at an increasing rate.
		raises productivity at a decreasing rate.
		decreases productivity at a decreasing rate.
		decreases productivity at an increasing rate.

Question 9

The agent is an individual:

		who acts independently of the principal.
		who can direct the principal to achieve goals.
		hired by the principal to achieve goals.
		hired by the principal to consult with him.

Question 10

A potential problem with piece-rate plans is that:

		workers will produce a large quantity.
		workers have no incentive to work hard.
		it is difficult for managers to control.
		workers may stress quantity instead of quality.

Answer 1

2):-B is right option

Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in an increase in the marginal cost and a shorter optimal contract.

contract is defined as an agreement made between two or more parties to establish, alter, change or terminate civil powers, rights and duties

2):- B is right option gains of specializing.

Specialization is refers to the people, companies or countries focusing on providing a single good or service. This is so they can increase their efficiency and profit

3) :--A is right option

making managerial compensation depend on the performance of the firm's profits, the firm owner's profits rise.

Compensation is defined as any tangible equivalent or reward for services rendered or for the performance of a task.

4) :--D is right option

Administrative and bureaucratic costs rise at an increasing rate.

Administrative Costs is costs that incurred for the general administration of the organization

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