Ch 6

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Often owners of firms who hire managers must install incentive or bonus plans to ensure that the:
B. manager will work hard.
Which of the following forms of payment is NOT an incentive plan?
B. Flat salary for a plant manager
Which of the following is NOT an incentive scheme to ensure that workers do a good job?
D. Straight hourly wages for dock workers
Which of the following is NOT a means of avoiding opportunism?
B. Spot exchange
Long-term contracts become longer:
A. when specialized investment becomes more important.
A relationship-specific exchange occurs when:
B. specialized investments are important.
When relationship-specific exchange occurs in complex contractual environments, the best way to purchase inputs is through:
B. vertical integration.
A firm might choose to produce its own inputs if:
B. long-term contracts are costly to write.
An agent hired by the owner of productive resources to control the production process is:
D. a firm manager.
Spot exchange can be inefficient in the presence of:
A. opportunism.
A negative side of long-term contracts is:
B. a loss of flexibility.
Spot markets are an efficient way for the firm to purchase inputs if:
A. opportunism is not a problem.
The disadvantage of vertical integration is that:
D. firms no longer specialize in what they do best.
In the absence of worker incentives:
B. there is a natural tendency for workers to not give their maximum effort.
A person who monitors the production process and evaluates the productivity of workers is:
A. a manager.
A drawback of separating ownership from control by creating a firm is:
C. the principal-agent problem.
Shirking can take the form of:
D. All of the statements associated with this question are correct.
Which of the following payment plans does NOT give an incentive to a manager to stop shirking?
C. Flat salary regardless of firm profits
The most likely effect of reducing performance-based rewards for the CEOs of corporations would be:
C. a drop in profits.
Suppose compensation is given by W = 512,000 + 217π + 10.08S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. How much will this CEO be compensated?
C. $559,432
Suppose compensation is given by W = 512,000 + 217π + 10.08S, where W = total compensation of the CEO, π = company profits (in millions) = $200, and S = sales (in millions) = $400. What percentage of the CEO's total earnings are tied to profits of the firm?
C. 7.8 percent
An incentive for managers to maximize profits is:
D. All of the statements associated with this question are correct.
A manager who tries to enhance worker effort by tying workers' compensation to the profitability of the firm is using:
C. profit sharing.
A payment plan that induces better worker effort by linking compensation to revenues of the firm is known as:
A. revenue sharing.
An example of a job that usually involves a revenue-sharing plan would be:
D. All of the statements associated with this question are correct.
A negative side of a revenue-sharing plan is that it:
C. gives no incentive for workers to minimize costs.
Which of the following is NOT an example of a piece-rate compensation method?
C. Paying a carpenter to install a new back porch
A potential problem with piece-rate plans is that
D. workers may stress quantity instead of quality.
When a manager enters the workplace from time to time to monitor workers, he is using:
B. spot checks.
In order for spot checks to be effective, they must be:
A. random in nature.
Which type of compensation mechanism works by threats?
B. Spot check
Which type of compensation method works by performance bonus
D. All of the statements associated with this question are correct.
The most commonly used negative incentive used by firms is:
B. dismissal.
The LEAST risky payment plan from the viewpoint of the worker is:
D. hourly wage.
To ensure quality, piece-rate plans must usually be accompanied by:
A. quality control mechanisms.
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