1. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Allen-Edmonds Shoe Company manufactures expensive shoes. For many years it paid workers using a piece rate system, but in 1990 it switched to a system of fixed hourly wages. Use concepts developed in class to discuss the likely benefits and costs to Edmonds coming from this change over. Make a recommendation for or against switching to hourly wages based on class concepts.

2. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004.  During the 1980’s Xerox diversified into financial services. The company had gained experience in finance through the leasing of its copy machines, and management believed that by acquiring firms in the financial sector, it could leverage this experience. In late 1982, Xerox purchased a property/casualty insurance company, Crum and Foster, for $1.6 billion. This acquisition was followed by other acquisitions in life insurance, real estate, and investment banking.”*  When two firms merge, sometimes the stock value of the merged company is larger than the separate stock values of the original companies added up. According to economists, when is this likely to happen? Evaluate the merger described above using the economists approach. Is it likely that Xerox shares after the acquisition were more valuable than the sum of the shares of all the component companies prior to the merger.

3. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Bob and Carol are playing a non-cooperative, simultaneous choice, game that is described in the table below. Bob picks the columns, and Carol picks the rows. What outcome is predicted by the material discussed in class? a.Carol picks D and Bob picks B. b.Carol picks D and Bob picks C. c.Carol picks E and Bob picks A. d.Carol picks E and Bob picks B. e.Carol picks E and Bob picks C.

4. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Which of the following is not a reason for some employers to pay with fringe benefits rather than money according to the models discussed in class? a.Employers can sometimes obtain the fringe benefits at a lower cost than the employees can. b.Fringe benefits are sometimes have un taxed by the government. c.Fringe benefit packages can make your firm more attractive to particular types of employees. d.All of the above are reasons for compensating employees rather than fringe benefits in some circumstances.

5. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “Firms with internal labor markets have no incentive to keep older employees since their marginal revenue product of labor is greater than the wage paid late in their careers.” Statement 2: “Workers in firms with internal labor markets often spend a lot of time lobbying for promotions.” a.Statement 1 is true, but 2 is false. b.Statement 2 is true, but 1 is false. c.Both statements are true. d.Both statements are false.

6. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “Investment in human capital refers to the sum total of all of a person’s learning activities to date.” Statement 2: “Firms often find it easier to pay for firm specific human capital investment than for general human capital investment.” a.Statement 1 is true, but 2 is not. b.Statement 2 is true, but 1 is not. c.Both statements are false. d.Both statements are true.

7. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “In the basic competitive labor market model, the last employee hired is paid their marginal revenue product of labor.” Statement 2: “The marginal revenue product of labor is the amount of extra product produced when labor is increased a small amount.” a.Statement 1 is correct, but 2 is not. b.Statement 2 is correct, but 1 is not. c.Both statements are correct. d.Neither statement is correct.

8. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Which of the following is not an advantage of incentive pay based on team production? a.Frequently the output of a team is easier to measure than the output of an individual. b.Team incentive pay encourages cooperation and teamwork. c.Team incentive pay encourages employees to monitor one another. d.Team incentive pay encourages everyone to work harder.

9. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “The most profitable level of effort to get from an employee is typically not the highest level of effort. Instead, profitable effort levels are the result of a tradeoff between the contribution of effort to the firm’s revenue and the size of the compensating differential that must be paid to the employee to keep them working at our firm.” Statement 2: “Negative compensating differentials are often a reality in jobs that have very pleasant non-monetary aspects.” a.Both statements are correct. b.Both statements are false. c.Statement 1 is correct, but 2 is false. d.Statement 2 is correct, but 1 is false.

10. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Jane and Randy are playing a sequential game. Jane moves first (picking either strategy A or B) and Randy moves second (choosing among D, E, and F if Jane picked A and G, H and I if Jane picked B. According to the material discussed in class, what is the likely outcome for this game? a.Jane will pick B and Randy will pick I b.Jane will pick B and Randy will pick G c.Jane will pick A and Randy will pick F d.Jane will pick A and Randy will pick E e.The outcome of the game is not listed in the choices above.

11. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Which of the following statements best describe the situation in the simultaneous choice game depicted above? a.Strategy F is a dominated strategy for Edna, while strategy A is a dominated strategy for Bob. b.Strategy E is a dominated strategy for Edna, while strategy A is dominated strategy for Bob. c.There are no dominated strategies in this game. d.Strategy F is a dominated strategy for Edna, while strategy c is a dominated strategy for Bob.

12. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “A person applying the Economist’s view of behavior as discussed in chapter 2 of our textbook always expects a person receiving more money to work harder.” Statement 2: “A person using the good citizen model generally believes that workplace problems derive from problems workers experienced when growing up.” a.Statement 1 is true, but 2 is false. b.Statement 2 is true, but 1 is false. c.Both statements are true. d.Both statements are false.

13. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Ed and Bob are playing an un-repeated, simultaneous-move game with payoffs described in the table below. Which of the following answers best describes the likely outcome, based on the material in the text by Dixit and Nalebuff? a.Bob will pick “E” and Ed will pick “A” b.Bob will pick “F” and Ed will pick “A” c.Bob will pick “E” and Ed will pick “C” d.Bob will pick “F” and Ed will pick “C” e.There are two equally likely outcomes. Either Bob picks “F” and Ed “A” or Bob picks “E” and Ed “C”

14. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “Employees are most productive when they receive pay based on statistical measures of their performance. For this reason, pay based on statistical performance is sometimes referred to as paying ‘efficiency wages’.” Statement 2: “Firms with internal labor markets often face problems with older employees wanting to stay in their jobs much longer than in other firms.” a.Both statements are true b.Both statements are false c.Statement 1 is true, but 2 is false d.Statement 2 it true, but 1 is false

15. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “People prefer to get paid money, rather than fringe benefits, since they can choose how they spend it. As a general rule, if the firm can’t get a better price for the benefit than the employees can, a profit-maximizing firm will pay employees money rather than benefits.” Statement 2: “Since employees have different tastes in fringe benefits, it is generally profitable to give employees lots of choice among different benefits packages.” a.Both statements are true b.Both statements are false c.Statement 1 is true, but 2 is false d.Statement 2 is true, but 1 is false

16. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “As a general rule, economic analysis supports the notion that a profit-maximizing manager wants his employees to work as hard as they can during their time at work.” Statement 2: “Since incentive pay can create better employee motivation, economic theory suggests that it should always be used. As a general rule, greater emphasis on incentive pay will make the firm more profitable.” a.Both statements are true b.Both statements are false c.Statement 1 is true, but 2 is false d.Statement 2 is true, but 1 is false

17. This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley Zimmerman & Smith, McGraw-Hill, 2004. Statement 1: “When a firm’s workers are unproductive, most economists suggest that eliminating sources of worker unhappiness is the best place to start solving these problems.” Statement 2: “Suppose that the average cost of flying an airplane from Los Angeles to New York is $45,000, while the marginal cost of tonight’s trip is $20,000. If tonight’s plane has sold tickets that generated only $22,000 then profits will typically be higher if the flight is cancelled.” a.Both statements are true b.Both statements are false c.Statement 1 is true, but 2 is false d.Statement 2 is true, but 1 is false