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| 1 | |
Suppose compensation is given by W = 690,000 + 634∏ + 11.05S, where W = total compensation of the CEO, ∏ = company profits (in millions) = $1,000, and S = Sales (in millions) = $2,000.
Suppose compensation is given by W = 690,000 + 634∏ + 11.05S, where W = total compensation of the CEO, ∏ = company profits (in millions) = $1,000, and S = Sales (in millions) = $2,000. How much will this CEO be compensated? |
| | A) | $117,000. |
| | B) | $1,324,000. |
| | C) | $690,000. |
| | D) | $1,346,100. |
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| 2 | |
Suppose compensation is given by W = 690,000 + 634∏ + 11.05S, where W = total compensation of the CEO, ∏ = company profits (in millions) = $1,000, and S = Sales (in millions) = $2,000. What percentage of the CEO's total earnings is tied to profits of the firm? |
| | A) | 91.8%. |
| | B) | 47.1%. |
| | C) | 16.9%. |
| | D) | 0.9%. |
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| 3 | |
Suppose compensation is given by W = 690,000 + 634∏ + 11.05S, where W = total compensation of the CEO, ∏ = company profits (in millions) = $1,000, and S = Sales (in millions) = $2,000. What percentage of the CEO's total earnings is tied to the sales of the firm? |
| | A) | 10.8%. |
| | B) | 0.6%. |
| | C) | 16.9%. |
| | D) | 1.6%. |
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| 4 | |
Suppose that the TGIF's restaurant franchise uses a profit-sharing compensation scheme for its managers, while local company-owned restaurants use flat annual salaries. Which of the following are we most likely to expect? |
| | A) | Lower profits among TGIF restaurants. |
| | B) | TGIF restaurants exiting the market. |
| | C) | Equal profits among TGFI and company-owned restaurants. |
| | D) | Lower profits among company-owned restaurants. |
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| 5 | |
Which of the following is not an outside incentive that forces managers to put forth maximal effort? |
| | A) | Threat of takeover. |
| | B) | Performance bonuses. |
| | C) | Managerial reputation. |
| | D) | Increased job mobility. |
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| 6 | |
Which of the following forms of payment is not an incentive plan? |
| | A) | Paying an assembly line worker a base wage plus a per-unit produced wage. |
| | B) | Allowing pizza delivery drivers to collect tips. |
| | C) | Straight hourly wages for construction workers. |
| | D) | Paying a salesperson a commission. |
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| 7 | |
In general, vertical integration is advantageous because it |
| | A) | permits a firm to control the quality of its inputs. |
| | B) | reduces the possibility of opportunism. |
| | C) | mitigates transaction costs. |
| | D) | All of the responses are correct. |
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| 8 | |
The activity known as shirking is most likely to occur when |
| | A) | workers are monitored through spot checks. |
| | B) | all workers are paid the same wage rate. |
| | C) | firm ownership is separated from the managerial control. |
| | D) | all workers are paid the same wage rate and B and firm ownership is separated from |
| | E) | the managerial control. |
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| 9 | |
Consider a manager with the following compensation scheme: base salary of $60,000 and a 2% profit-sharing plan. How much will his/her income be if revenues are $100 million and profits are $35 million? |
| | A) | $76,000. |
| | B) | $206,000. |
| | C) | $760,000. |
| | D) | $206,000,000. |
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| 10 | |
Often when workers are monitored with time clocks, managers tend to |
| | A) | inaccurately monitor effort. |
| | B) | accurately monitor effort. |
| | C) | accurately monitor quality. |
| | D) | invest too much time monitoring employees. |
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| 11 | |
Generally, revenue-based incentive schemes do not |
| | A) | provide incentives to minimize costs. |
| | B) | provide incentive to produce high-quality products. |
| | C) | increase worker productivity. |
| | D) | decrease the occurrence of shirking. |
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| 12 | |
Which type of compensation mechanism is considered a reward pay system? |
| | A) | Piece rate. |
| | B) | Profit sharing. |
| | C) | Revenue sharing. |
| | D) | All of the responses are correct. |
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| 13 | |
Specialized investments tend to |
| | A) | increase transaction costs because of costly bargaining. |
| | B) | decrease transaction costs because of opportunism. |
| | C) | decrease transaction costs associated with costly bargaining. |
| | D) | provide managers with external incentives to maximize profit. |
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| 14 | |
As firms expand market share, they tend to experience |
| | A) | a decrease in the need for managers. |
| | B) | a decrease in opportunity costs. |
| | C) | an increase in transaction costs. |
| | D) | None of the responses are correct. |
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| 15 | |
Which of the following is a transaction cost associated with using inputs? |
| | A) | When Fischer Auto Body locates its production facility close to GM. |
| | B) | When a ski binding manufacturer purchases equipment to test that binding are properly functioning. |
| | C) | When an individual invests in acquiring a specific set of skills for a particular employer. |
| | D) | The cost of negotiating the price of an input. |
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