Econ 308 Professor Chapman
Fall 2012 Office: BB 4234
Examination
Directions: Answer all questions. All students are required to sign the Academic Honesty Notice given below.
Academic Honesty Notice
The following notice is provided to you for legal reasons.
Cheating is defined as any action which is an attempt to gain information or provide information to others during an examination. It includes: looking at someone’s exam or scantron; providing access to an exam or scantron; or using any source of information other than one’s own memory. The instructor in this class will employ various methods to document any form of cheating.
The College of Business and Economics takes any occurrence of cheating very seriously. If you cheat in this class, you will receive an “F” in the course and be precluded from further class attendance. Further, the college will report the full facts to the University. The University punishments for cheating include suspension for one semester; suspension for one year; and permanent expulsion.
Please sign the form below:
I have read and understand the above Academic Honesty Notice.
Name: ______
(Print)
Signature: ______
Date: ______
Midterm Exam
True/False
Indicate whether the sentence or statement is true or false.
____ 1. An executive whose company has been experiencing productivity problems orders his local managers to “find the bad apples and fire them.” By “bad apples” he seems to mean employees that are low productivity no matter what. This is an example of the product of the environment model.
____ 2. Amasqueak runs a large multi-product web-site. Recently they haven’t sold much and customers are complaining that its hard to find the products they want on the site. This is an example of high consumer transactions cost.
____ 3. A hotel in a south pacific resort area lobbies to increase the number of airlines serving the local area. This is likely to increase hotel profit as it lowers the price of substitute products.
____ 4. In the 2 player simultaneous choice game illustrated above, Frank has 5 choices (A, B, C, D, and E) while Bob has two choices (A and B). Frank picks the columns, while Bob picks the rows. For Frank strategy is dominated by strategy D.
____ 5. The game of nuclear war described in the Dixit and Nalebuff textbook suggested that during the cold war the USSR could beat NATO in Europe in a traditional ground based war (tanks and soldiers, but no nuclear weapons). The USA and USSR had enough nuclear weapons to effectively destroy each other. The USA realized that the USSR would never believe it would use nuclear weapons in this case, leaving NATO vulnerable to attack.
A variation on the approach offered in the movie “Dr. Strangelove” suggested solving this problem for NATO by automating any attack on NATO to respond immediately with a nuclear attack on the USSR. According to Dixit and Nalebuff, this strategy would work in theory, but only if the automation was kept secret.
____ 6. According to the material presented in class a firm is more likely to pay for an MBA program than for training in firm specific human capital.
____ 7. A firm using the “efficiency wages” strategy pays more salary than other firms in their industry. This works primarily because they save on turnover and absenteeism costs.
____ 8. A common reason that firms offer health insurance as a part of their compensation package is that they can get a better price on it than their employees can.
____ 9. “The best level of effort to get from an employee is their very highest. More effort means more profit for the firm.”
____ 10. A firm that is interested primarily in “optimal risk sharing” will focus heavily on incentive pay for its manufacturing employees.
____ 11. The principle advantages of outsourcing are greatly reduced if they outsourced item is not produced in a competitive industry.
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 12. Which of the following factors does not favor incentive pay?
a. / The value of the measured output is very sensitive to employee effort.b. / The employees are very risk averse.
c. / The employees measured output is inexpensively obtained.
d. / The level of risk that is beyond the employee’s control is low.
____ 13. 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.
____ 14. Which of the following is not a method of creating value as described in the Brickley, Smith and Zimmerman (BSZ) text?
a. / Reducing the time it take consumers to identify product characteristics.b. / Reducing the costs of negotiation when purchasing your firm’s product.
c. / Improving product quality.
d. / Increasing the price of complementary products.
e. / All of the above methods are devices for a firm to create value as described in the BSZ textbook.
____ 15. Which of the following is not an advantage of internal labor markets?
a. / Employees tend to accumulate more skills that are valuable only at this firm.b. / There is less incentive for employees to say bad things about the firm to outsiders
c. / Managers often know a great deal about employees when considering promotions
d. / There is better access to employees of all skill types than is available to other types of firms.
Essay
16. Qualco writes customized software that handles payroll for large corporations. When it agrees to write software it locates several employees on the client’s corporate site so that they may become as aware as possible of all details concerning the client’s payroll. Biffco, a multinational conglomerate that produces household products such as soap, has long had a contractual arrangement with Qualco to do payroll. Biffco’s business has been steady over the last few years and has been described as “boring, but profitable.”
Your company, Nokarola, makes personal digital assistants (pdas) and cell phone. Business has been erratic, but very good when it was good. Of course, it has been very bad at times as well. Employees come and go with new product lines, and it seems like you have to reinvent Nokarola every couple of years.
You are considering hiring Qualco to write custom payroll for your company. Alternatively, you might use your own employees to do payroll using off-the-shelf software. Use concepts developed in class to discuss which approach is likely to work better. Only words written in the box below will be graded