Examen de Economia de L'empresa UPF 2016 · Final Exam - Business Economics (December 2016)

Questions 1-8: Specific assets, hold-up risks, and contractual safeguards

Select the single correct answer for each of the following multiple-choice questions:

Questions 1-8: Specific assets, hold-up risks, and contractual safeguards

Select the single correct answer for each of the following multiple-choice questions:

a.

After Joan accepted an employment position located 4 hours away from home, the employer extended a job offer to Joan's partner, who encounters severe difficulties securing work elsewhere. Which analysis is correct?

b.

Ex-ante competition indicates that markets function under perfect competition conditions, ensuring that no complications linked to asset specificity will arise. Is this statement true or false, and why?

c.

INSIGHT, a well-known consulting practice, has delivered advisory services for years to a major automotive producer. Through time, INSIGHT has acquired substantial insight into the manufacturer's operational procedures and distinctive needs. Which class of asset specificity defines this business relationship?

d.

Continuing with the case of INSIGHT and the automobile manufacturer, what friction tied to specific assets could emerge after contracting the consultants?

e.

A research laboratory develops 3 pharmaceutical formulations to be manufactured and marketed by an established pharmaceutical firm. Under what circumstance would the laboratory benefit from assuming direct control of manufacturing the new formulations?

f.

The most productive location for an automotive parts supplier is adjacent to the vehicle assembly plant. Nevertheless, the supplier chooses to build its facilities elsewhere. How can this outcome be interpreted?

g.

A household seeks a custom cupboard because standard market models do not fit their apartment. Following negotiations with a carpenter, the parties agree on a price of 5000 EUR. The total production costs for the carpenter (raw materials, labor, machinery) equal 1000 EUR. If the carpenter instead liquidates the tailored cupboard in the open market, the highest obtainable price is 400 EUR. What is the total quasi-rent?

Questions 1-8: Specific assets, hold-up risks, and contractual safeguards

Select the single correct answer for each of the following multiple-choice questions:

h. A credence good introduces substantial contracting challenges. Which mechanism provides an effective contractual safeguard against this problem?

2 Questions 9-16: Experience goods, advertising quasi-rents, and rational decision-making

Select the single correct answer for each of the following multiple-choice questions:

a. In markets characterized by experience goods, quality cannot be verified before purchase. Under what conditions does advertising genuinely signal quality to consumers?

b. Advertising expenditures generate quasi-rents that serve as a quality safeguard. Is this statement true or false, and why?

c. Which of the following statements regarding repeated transactions is correct?

2 Questions 9-16: Experience goods, advertising quasi-rents, and rational decision-making

Select the single correct answer for each of the following multiple-choice questions:

d.

In flat or 'bossless' organizations, peer reviews determine remuneration and workers structure their own schedules. What constitutes a distinct disadvantage of this organizational structure?

.

e.

Gathering the information required to compensate individual performance requires allocating resources. Which statement is correct?

.

2 Questions 9-16: Experience goods, advertising quasi-rents, and rational decision-making

Select the single correct answer for each of the following multiple-choice questions:

f.

Social psychologists ran an experiment in an all-you-can-eat buffet. After paying the standard flat entrance fee, a randomly selected group received an unexpected partial refund, while the control group received no refund. According to standard rational economic cost-benefit analysis:

g.

A consumer intends to purchase a television and visits an electronics retailer. During the time spent browsing, the consumer foregoes an opportunity to perform freelance work providing 50 units of net utility, or going to a park providing 20 units of net utility. If the consumer chooses to spend the time searching for the television, this search activity:

h.

A rational economic agent:

3. Questions 17-24: Value functions, specialization, and market coordination mechanisms

Select the single correct answer for each of the following multiple-choice questions:

a.

Consider the following piecewise value function over monetary gain/loss $g$, with positive constants $a$ and $b$:

$$V(g) = \begin{cases} a\sqrt{g} & \text{when } g \ge 0 \\ -b\sqrt{-g} & \text{when } g < 0 \end{cases}$$

Under what condition does $V(g)$ reflect the asymmetry characteristic of loss aversion as established in prospect theory?

b.

According to standard economic models of rational behavior:

c.

Persisting with an unprofitable business project simply because significant funds have already been committed is a widespread management bias. This practice:

3. Questions 17-24: Value functions, specialization, and market coordination mechanisms

Select the single correct answer for each of the following multiple-choice questions:

d.

The division of labor and specialization enhances productive efficiency because:

e.

Which of the following propositions regarding specialization is true?

f.

According to economic analyses, several American corporations have repatriated production from developing nations back to the United States (reshoring). What explains this managerial decision?

g.

Which of the following statements is true?

h.

Economists generally consider market coordination more efficient than state planning because:

4. Questions 25-32: Agency theory, adverse selection, and moral hazard

Select the single correct answer for each of the following multiple-choice questions:

a.

Pepa hires Pepe to assist her in designing corporate web pages requiring meticulous attention to client specifications. Pepa experiences motivation costs because:

.

b.

How should an organization optimally address an agency problem under moral hazard?

.

g.

Which scenario represents an example of moral hazard?

.

h.

Which policy measure effectively reduces moral hazard problems in the banking industry?

.

4. Questions 25-32: Agency theory, adverse selection, and moral hazard

Select the single correct answer for each of the following multiple-choice questions:

c.

Offering group insurance plans (e.g., to corporate employees or institutional members) rather than individual policies helps mitigate adverse selection because:

.

d.

A university degree enhances worker competence but also assists companies in hiring high-productivity applicants because:

.

e.

In a home appliance market with manufacturers A and B, both producers know that A's quality is superior to B's. Prospective buyers cannot tell the quality of the two brands apart at the point of sale. What market friction threatens manufacturer A?

.

f.

Which of the following interventions serve to mitigate the adverse selection problem?

.

5 Open Question 1 (4 points): Team production concept and synergies

Which economic concept explains why working together in teams produces a higher output than the sum of output of people working as individuals? Explain briefly. (4 points)

Open Question 2 [8 points]: Free-riding in teams, governance solutions, and group size

What is a key problem with teams? What are organizational solutions to cope with this problem and how does team size influence the efficiency of these solutions? (8 points)

Open Question 3 [8 points]: Institutional voids, transaction costs, and vertical integration

Three features of emerging markets are an absence of strong contract law, limited transportation networks, and limited information and communication technology (ICT) networks. Because of these features, firms in emerging markets have an incentive to vertically integrate. True or false? Explain briefly. (8 points)

True

False