Question 1

What are influence costs?
A)Costs associated with slack effort and with the administrative controls to deter it
B)The cost of activities aimed at affecting the distribution of benefits in an organization
C)Costs related to the negotiation of external contracts
D)Costs of recruiting ("buying")outside employees with a particular skill set
E)The costs of advertising to customers

Accepted Answer

Influence costs are the costs associated with activities aimed at affecting the distribution of benefits within an organization. This includes the costs of lobbying, negotiating, and bargaining to influence decisions and outcomes to one's advantage. The other options are not related to influence costs.

Question 2

What term describes features that need to relate to each other in a precise fashion otherwise they lose a significant portion of their economic value?
A)Design attributes
B)Critical components
C)Contract factors
D)Coordination factors
E)Relationship attributes

Accepted Answer

A

Question 3

Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?
A)Cost centers have no dedicated "customer"
B)Cost centers are easy to judge against market counterparts performing similar functions
C)Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization
D)Firms are always looking to cut costs when they retain an advantage insulting it from the market
E)Managers of costs centers have significant latitude to complete their jobs

Accepted Answer

C

Question 4

Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines?
A)Site specificity
B)Physical asset specificity
C)Dedicated assets
D)Human asset specificity
E)The fundamental transformation

Accepted Answer

Physical asset specificity refers to the situation where the production of a good or service requires specific and unique assets that cannot be easily redeployed or sold off. In the case of glass container production, molds and glass-making machines are specific assets that are uniquely designed to produce certain container shapes, and cannot be easily transferred to other production processes. Hence, this scenario is an example of physical asset specificity.

Question 5

Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?
A)Arm's length market transactions
B)Long-term contracts
C)Strategic alliances and joint ventures
D)Parent/subsidiary relationships
E)Perform activity internally

Accepted Answer

Vertically integrated firms on the "make" end of the make-or-buy continuum perform activities internally, rather than outsourcing or relying on outside vendors. This allows the firm to have more control over the quality, timeliness, and cost of production.

Question 6

The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?
A)Infrastructure
B)Product innovation
C)Obtaining regulatory approval
D)Customer relationship
E)Manufacturing and communications

Accepted Answer

The core function of product innovation is becoming less common among big pharma companies, which is leading to disintegration in the biotechnology industry. The other functions listed (infrastructure, obtaining regulatory approval, customer relationship, manufacturing and communications) are still primarily handled by the big pharma companies.

Question 7

What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?
A)Agency costs
B)Bounded rationality
C)Performance measurement difficulties
D)Asymmetric information
E)Contract body of law

Accepted Answer

Asymmetric information refers to a situation where one party to a contract has more information than the other, leading to a lack of transparency and equal access to information. This can prevent complete contracts from being formed.

Question 8

Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?
A)Arm's length market transactions
B)Long-term contracts
C)Strategic alliances and joint ventures
D)Parent/subsidiary relationships
E)Parent/subsidiary relationships.

Accepted Answer

Arm's length market transactions are representative of a less integrated firm on the "buy" end of the make-or-buy continuum because the firm is purchasing goods or services from outside sources without any long-term commitment or collaboration. Long-term contracts and strategic alliances/joint ventures involve more integration and collaboration between firms, and parent/subsidiary relationships involve the highest level of integration.

Question 9

What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?
A)High infrastructure costs
B)Contract disputes
C)High transaction costs
D)Overlapping distribution channels
E)Manager/worker slacking

Accepted Answer

The answer of What primary agency cost problem plagued the...

Question 10

What problem preventing complete contracts refers to the limits on the capacity of individuals to process information,deal with complexity and pursue rational aims?
A)Agency costs
B)Bounded rationality
C)Performance measurement difficulties
D)Asymmetric information
E)Contract body of law

Accepted Answer

The problem preventing complete contracts is referred to as bounded rationality which refers to the limitations on an individual's ability to process information, deal with complexity, and pursue rational aims. This can result in incomplete contracts as parties may not be able to fully comprehend or anticipate all possible scenarios and outcomes when entering into a contract.

Question 11

What do the vertical boundaries of a firm refer to?
A)The activities the firm itself performs versus purchases from independent firms
B)The level of expertise of the firm's workforce
C)The breadth of products a firm produces
D)The production output level for a firm
E)The chain of production processes from raw materials to finished good

Accepted Answer

The vertical boundaries of a firm refer to whether the firm performs all activities in the value chain itself or purchases some from independent firms. It relates to the extent of control a firm has over its value chain.

Question 12

What is a market firm?
A)Firm representing a particular industry
B)Financial firm
C)Subsidiary of the larger parent firm
D)Large scale firm
E)An independent outsourcing partner

Accepted Answer

The answer of What is a market firm?
A)Firm representing a...

Question 13

When contracts are incomplete,what must be well defined and enforceable to allow for smooth transactions to occur?
A)Contract performance measures
B)Contract roles
C)Contract costs
D)Contract triggers
E)Contract law

Accepted Answer

The answer of When contracts are incomplete,what must be well...

Question 14

Which of the following is not a result of the holdup problem?
A)More difficult contract negotiations and more frequent renegotiations
B)Investments to improve ex post bargaining positions
C)Reduction in the transaction costs of arm's length market exchanges
D)Distrust
E)Reduced investment in relationship-specific investments

Accepted Answer

The holdup problem leads to more difficult contract negotiations and more frequent renegotiations (A), investments to improve ex post bargaining positions (B), distrust (D), and reduced investment in relationship-specific investments (E). However, it does not lead to a reduction in the transaction costs of arm's length market exchanges (C).

Question 15

Which of the following has a downstream relationship with a Toyota Motor Corporation?
A)Steel manufacturers
B)Tire companies
C)Dealerships
D)Paint producer
E)Car parts manufacturer

Accepted Answer

Dealerships have a downstream relationship with Toyota Motor Corporation as they receive the finished cars from the manufacturer and sell them to end customers. Steel manufacturers, tire companies, paint producers, and car parts manufacturers have an upstream relationship with Toyota Motor Corporation as they provide raw materials or components for the manufacturing process.

Question 16

Which of the following is not a characteristic of a complete contract?
A)The contract allows for a party to exploit weaknesses in another party's position as the transaction unfolds
B)Elimination of opportunistic behaviors
C)Stipulation of each party's responsibilities and rights
D)Binding instruction for each party on courses of action as the transaction unfolds
E)Must be enforceable

Accepted Answer

Allowing a party to exploit weaknesses in another party's position goes against the idea of eliminating opportunistic behaviors, which is a characteristic of a complete contract. The other options (B, C, D, E) are all characteristics of a complete contract.

Question 17

Which of the following is a true argument regarding the make-or-buy decision process?
A)Firms should make an asset, rather than buy it, if that asset is a source of competitive advantage for the firm
B)Firms should buy, rather than make, to avoid the costs of making the product
C)Firms should make, rather than buy, to avoid paying a profit margin to independent firms
D)Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive
E)Firms should make, rather than buy, because a vertically integrated producer will be able to avoid paying high market prices for the input during periods of peak demand or scarce supply

Accepted Answer

The answer of Which of the following is a true...

Question 18

What is a reason that companies might want to "buy" instead of "make" talent from the market when looking to acquire employees with a particular skill set?
A)External training methods are better than internal ones
B)Companies are always willing to pay more for external employees
C)External training is more advanced (up-to-date)than internal
D)Scale economies can result in fixed education costs while in house education methods may be more expensive
E)Externally trained employees are more likely to become better business leaders

Accepted Answer

Buying talent from the market can result in lower fixed education costs due to scale economies, as opposed to in-house education methods which may require more resources and be more expensive in the long run.

Question 19

What are agency costs?
A)Costs of the sales force
B)Costs associated with slack effort and with the administrative controls to deter it
C)Costs related to general and administrative expenses
D)Costs associated with outsourcing of firm functions
E)Costs attributed to the use of professional service firms

Accepted Answer

Agency costs refer to costs associated with the principal-agent relationship in which the agent (such as a manager) may act in their own self-interest rather than in the interest of the principal (such as the shareholders). These costs may include slack effort and administrative controls to deter it.

Question 20

Which of the following types of fit (used to aide in coordination along all dimensions of production)explains a situation where the steps of a particular process must occur in a particular order?
A)Timing fit
B)Size fit
C)Color fit
D)Sequence fit
E)Price fit

Accepted Answer

Sequence fit refers to the coordination of the steps in a process to occur in a specific order, in order to optimize production. Timing fit refers to the coordination of the timing of different processes, size fit refers to the coordination of the size of different components in a process, color fit is not a type of fit commonly used in production operations, and price fit refers to the coordination of the pricing of different products or components in a process.

Quiz 5: The Vertical Boundaries of the Firm

What are influence costs?

What term describes features that need to relate to each other in a precise fashion otherwise they lose a significant portion of their economic value?

Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?

Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines?

Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?

The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?

What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?

Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?

What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?

What problem preventing complete contracts refers to the limits on the capacity of individuals to process information,deal with complexity and pursue rational aims?

What do the vertical boundaries of a firm refer to?

What is a market firm?

When contracts are incomplete,what must be well defined and enforceable to allow for smooth transactions to occur?

Which of the following is not a result of the holdup problem?

Which of the following has a downstream relationship with a Toyota Motor Corporation?

Which of the following is not a characteristic of a complete contract?

Which of the following is a true argument regarding the make-or-buy decision process?

What is a reason that companies might want to "buy" instead of "make" talent from the market when looking to acquire employees with a particular skill set?

What are agency costs?

Which of the following types of fit (used to aide in coordination along all dimensions of production) explains a situation where the steps of a particular process must occur in a particular order?