Exercise Questions
1.) Why do firms exist? Why is there not just one large firm?
2.) Are their private property rights within a firm? Who owns what? What is not owned? Can trade and exchange occur within the firm without the existence of private property rights?
3.) Why did the evolution of large firms lead to a principal-agent problem? How can the principal-agent problem between owners and managers be minimized?
4.) If corporate governance is lax, then how might the interests of managers and owners be made to coincide?
5.) What is meant by "supply chain"? Explain when a firm should bring its supply chain in house. Explain when a firm should let its supply chain remain external.
6.) In Chapter 1, it was noted that economics examines issues "at the margin." Explain how this would apply to the decision to make or buy.
7.) Is there a relationship between corporate culture and performance? EXPLAIN.
8.) Explain why a firm might select the U-form rather than M-form of organizational structure.
9.) Describe the efficiencies and the inefficiencies that occur with a top-down (hierarchical) management structure.
10.) When leading a business thinker Gary Hamel analyzes the central problems with the modern hierarchical organization, one problem he sees us that too few voices are heard. His suggested fix: Encourage people to write critical in-house blog posting generates and then require senior executives to respond to those that garnered the most feedback. Evaluate the problem and Hamel's "fix".
11.) The fashion for flattening hierarchies has had the paradoxical effect of multiplying meaningless job titles. Workers crave important-sounding titles to give them the illusion of ascending the ranks. Everybody, from the executive suite downward, wants to fluff up their resume as a hedge against being sacked. Is this a good "strategy" to avoid being sacked? EXPLAIN.
12.) It is said that the current generation of workers will have a very small probability of being employed by the same firm throughout their work life. In previous generations it was common for people to have just one employer. Is a more rapid turnover beneficial to the firm? To the employee? EXPLAIN.
13.) Many firms who use operators to assist customers evaluate the operators on the basis of how many customers they service. Explain the results of such an evaluation system. What would you do differently? Consider the benefits and costs of any change you recommend.
14.) A recent study found that workers who were laid off generally received lower wages once they found new jobs. The study noted that white-collar workers suffered relatively large declines compared to blue-collar workers. How would you explain this development?
15.) What type of compensation policy would you expect to observe in an industry with rapidly changing technology? Explain.
16.) What type of compensation policy would you expect to observe in an industry where technology changes are few and far between?
17.) Explain why you tend to find more shirking, more corruption, and more inefficiency in large firms than you do in small firms. Explain why you tend to find more shirking, more corruption, and more inefficiency in government than you do in large firms?