4 points QUESTION 8 As a result of moving more decision making from the center t
ID: 1220033 • Letter: 4
Question
4 points
QUESTION 8
As a result of moving more decision making from the center toward the periphery of the organization, typically
a.
the reporting of information that is required to make the decision can be relaxed
b.
the flow of relevant information to the decision maker should be enhanced
c.
the incentives to make good decisions can be weakened
d.
the flow of relevant information from the decision maker should be enhanced
4 points
QUESTION 9
If a principle is reducing agency costs by gathering information about the agent’s actions, he is most likely trying to solve the problem
a.
Adverse selection
b.
Moral hazard
c.
Both of the above
.
None of the above
QUESTION 15
Consider an apple orchard owner deciding how to incentivize his fruit pickers. He pays per pound harvested but adjusts the compensation rate higher during poor harvest seasons. As a consequence
a.
The compensation rate should be fixed at all times
b.
The pickers might try to game the system by discouraging others from harvesting too much
c.
The pickers would claim good harvests in order to be paid higher piece rates even during poor harvest seasons
d.
None of the above
QUESTION 21
The manager of Fatty Foods is thinking about retiring. He has two options: to leave his stores as a company stores, to be managed by a salaried manager, or to sell some of them as franchises. The franchisor however is offering a really low franchisor fee for the store. What would be his best bet?
a.
Never retire
b.
Let the stores stay company stores
c.
Sell them off as franchises
d.
Shut down the business completely
4 points
QUESTION 22
To ensure that decision makers have enough information to make god decisions
a.
Move information to those making the decisions
b.
Move decision making to those with the information
c.
All of the above
d.
None of the above
4 points
QUESTION 23
To incentivize a salaried manager at a company store to work harder, the management should
a.
Offer the manager the franchise
b.
Offer the manager a raise
c.
Centralize all decision-making
d.
None of the above
a.
the reporting of information that is required to make the decision can be relaxed
b.
the flow of relevant information to the decision maker should be enhanced
c.
the incentives to make good decisions can be weakened
d.
the flow of relevant information from the decision maker should be enhanced
Explanation / Answer
8. c) the incentives to make good decisions can be weakened
Centralisation leads to delay in decision making and does not lead to the benefit which firm can earn by decentralization of authority.
9. b) Moral hazard
Moral hazard refers to situation where one side of market cannot observe the action of the other. For this reason, it is sometimes called hidden action problem. So, agent incur cost to reduce the moral hazard problem.
15. a) The compensation rate should be fixed at all times
21. c) Sell them off as franchises because leaving business with a salaried manager is more expensive that receiving some benefit.
22. c) All of the above
Both are the solutions to take a good decision either move information to those making the decisions or move decision making to those with the information.
23. b) Offer the manager a raise
Increase in salary will force manager to work hard because of its high opportunity cost if person is fired due to some fault work.
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