Exam (elaborations)
Managerial Economics (Froeb)
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Managerial Economics (Froeb)
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UMANAGERIAL ECONOMICS (FROEB)100% SOLVED QUESTIONS AND
ANSWERS
Two steps to problem solving - 1) figure out why mistakes are being made
2) figure out how to prevent future mistakes
rational-actor paradigm - assumption that people act rationally, optimally and self-interestedly
To change behavior, what should you change? - incentives
What is a good workplace incentive? - rewarding good performance
What three questions should you ask to analyze a problem? - 1) Who is making the bad decision?
2) Does the decision maker have enough information to make a good decision?
3) Does the decision maker have the incentive to make a good decision?
Why might performance compensation caps be bad? - -Different pay rates promote dissent
-Compensation caps can discourage employees from being productive after the cap
What is a possible consequence of a performance compensation reward scheme? - It creates harmful
incentives
Why might it be bad for hotels to not charge higher prices when rooms are higher in demand? - -
Arbitrageurs might establish a black market by reserving rooms and then selling the reservations to
customers
-Rooms may be rationed
, -Without the profit form these high demand times, hotels would have less of an incentive to build or
expand, making the long-run scarcity problem even worse
The rational-actor paradigms assumes that people do NOT... - use rules of thumb
The problem-solving principles analyze firm problems from whose point of view? - The organization's
and the manager's
Why might welfare for low-income households reduce the propensity to work? - It reduces the incentive
to work
Why might a bonus cap for executives be a bad policy for the company? - It would encourage laziness
after the executives reached the cap
What might happen if a car dealership is awarded a bonus by the manufacturer for selling a certain
number of its cars monthly, but the dealership is just short of that quota near the end of the month? - It
may sell cars at a huge discount to hit the quota
Why might a supermarket advertise low prices on certain high-profile items and sell them at a loss? - The
store will sell other groceries to the same customers, often at a markup
How is wealth created by voluntary transactions? - By moving assets from lower- to higher-valued uses.
What destroys wealth? - Anything that impedes the movement of assets to higher-valued uses, such as:
1. taxes
2. subsidies
3. price controls
A company can be thought of as a series of______________? - transactions.
What does a well-designed organization reward employees for? - Identifying and consummating
profitable transactions and/or stopping unprofitable transactions.
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