Examen de Economia de L'empresa UPF 2012 · Setembre

Short Question 1 (6 points). Unhappiness and Asymmetric Value Function

Imagine that a year ago, an acquaintance entrusted you with €120,000 to invest on their behalf, but the entire amount has now been lost. Aware that your friend will be devastated, your goal is to minimize their distress. Assuming that your friend assesses utility according to prospect theory's asymmetric value function, should you break the news all at once (informing them that the entire €120,000 has been lost), or should you divide the blow by telling them each month over the course of a year that an additional €10,000 has been lost? Justify your recommendation.

Short Question 2 (6 points). Ex-Ante Rationality vs. Outcome Bias

A renowned football manager, universally praised for his tactical acumen and winning record, chose not to include the three players considered the team's best in a crucial match, despite all three being fully fit to play. Fans and commentators widely criticized this lineup choice as an obvious blunder. Nonetheless, the squad delivered a resounding 6–0 victory. In light of this final score, can we definitively deduce that the manager's initial decision was correct? Indicate whether this statement is True or False and substantiate your position.

True

False

Short Question 3 (6 points). Internalization in Markets and Market Failures

Which core institutional component of the market system ensures that an economic agent personally bears the consequences of the choices they make? Mention ONE specific situation or market failure in which this mechanism is absent or malfunctions.

a)

b)

Short Question 4 (6 points). Coordination and Motivation Costs: Markets vs. Firms

Consider the following assertion: "Because price signals reflect prevailing supply and demand conditions, market mechanisms always exhibit lower coordination costs than internal firm hierarchies. Hence, firms exist fundamentally to curb motivation costs compared to market interactions." Determine whether this assertion is True or False, and provide an explanation.

True

False

Short Question 5 (6 points). Technological Monitoring and Residual Loss

Suppose that new developments in information technology significantly simplify the supervision and performance tracking of employees by management. In this scenario, one would predict a reduction in the residual loss associated with post-contractual asymmetric information. Assess whether this statement is True or False, and justify your answer.

True

False

Short Question 6 (6 points). Asset Specificity, Uncertainty, and Governance Structure

A major petroleum producer intends to expand into renewable energy by contracting an external company to construct solar panels on plots of land owned by the oil firm. At the same time, future market demand for solar power remains subject to high volatility and uncertainty. To protect the transaction, the oil company ought to vertically integrate with the solar equipment supplier rather than relying on a long-term contract. Is this statement True or False ? Explain.

True

False

Short Question 7 (6 points). Food Safety: Confidence Goods vs. Experience Goods

In 1996, the scientific revelation that Bovine Spongiform Encephalopathy ("Mad Cow Disease") could be transmitted to human beings caused widespread fatalities. Deciding whether a food item is safe for consumption falls into the category of a confidence (credence) good rather than an experience good.

Is this statement True or False ? Justify your conclusion.

True

False

Short Question 8 (6 points). Brand Reputation and Price Premiums

Once a corporation has successfully built an exceptional commercial reputation among consumers, it should periodically offer its goods at a price below the level warranted by their quality in order to preserve this reputation over time. Evaluate whether this claim is True or False, and explain your reasoning.

True

False

Short Question 9 (6 points). Peer Monitoring vs. Specialized Supervision

Alternating mutual peer monitoring among team members represents a more effective remedy for free-riding (parasitism) than employing a dedicated, specialized supervisor. Is this claim True or False ? Justify your response.

True

False

Short Question 10 (6 points). Entrepreneurial Incentives with 100% vs. Shared Equity

A manager-entrepreneur directing a commercial venture has the exact same incentive to maximize enterprise profits regardless of whether they own 100% of the firm's equity or have sold a portion of the equity to minority outside shareholders. Determine whether this statement is True or False, and substantiate your position.

True

False

Practice Case: Asset Specificity and Quasi-Rents: La Vanguardia and Imprentas Maravillosas

To counteract declining circulation, the newspaper La Vanguardia adopts a new strategic initiative: becoming the only daily in Spain printed on high-grade color paper. Printing under this standard demands specialized printing presses. A supplier, Imprentas Maravillosas, S.A. (IM), has the capability to manufacture these presses at a construction cost of €200,000. Once manufactured, the maximum price any alternative buyer (other than La Vanguardia) would be willing to pay for these presses is €100,000.

a.

Identify two ways in which these new printing presses exhibit asset specificity. [5 points]

b.

Director José Antich projects that this new publishing strategy will bring in €500,000 in additional revenue, taking into account all operating expenses except for the purchase price of the presses. Is reaching an agreement between IM and La Vanguardia socially efficient? Explain why. [5 points]

c.

What is the value of the quasi-rent in the business relationship between IM and La Vanguardia after the printing presses have been manufactured? [7 points]

d.

Assume that La Vanguardia agrees to pay IM an amount $p$ for IM to print the paper using these presses. Once the presses have already been built, what is the lowest price $p$ that could sustain trade? What is the highest possible price? [5 points]

e.

Prior to the construction of the machinery, what is the minimum price $p$ necessary to induce IM to build the presses for La Vanguardia ? [5 points]

f.

Why are the minimum prices found in parts (d) and (e) different? [3 points]

g.

Now suppose that competing national newspapers, such as El País and El Mundo, also discover that shifting to high-grade color paper would boost their sales revenues. How does the emergence of these potential alternative buyers affect the specificity of IM's printing presses? [5 points]

h.

How does the existence of these alternative buyers affect the probability that La Vanguardia and IM will vertically integrate? [5 points]