CH 6: The Organization of the Firm

| September 6, 2016

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CH 6: The Organization of the Firm

Answer and analyze the following questions in chapter 6: 2, 6, 8, and 19.

2. Discuss the optimal method for procuring a modest number of standardized inputs that are sold by many firms in the marketplace.What are the promary advantages and disadvantages of using this method to acquire inputs?Give an example that uses this method of procurement.

6. Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $125,000.When this same manager is given an annual firxed salary of $125,000 and 3 percent of the firm’s profits—amounting to $150,ooo per year—the manager chooses to work seven hours and shirks for three hours.Explain which of the compensation schemes the manager prefers.

8.. Discuss the impact of the following factors on the optimal method of procurring an input.

a. Benefits from specialization

b. Bureaucracy costs

c. Opportunism on either side of the transaction

d. Specialized investments

e. Unspecifiable events

f. Bargaining costs

19. Last year, a 10-year contract between Boeing Commercial Airplane Group (BCAG) and Thyssen Inc.—a distributor of raw aluminum—expired.The contract, valued at $300 million when intially signed, stemmed from Boeing’s desire in late 1990s to reduce production bottlenecks resulting from supply shortages.Declines in the demand for commercial aircraft during the past decade led some analysts to challenge BCAG’s wisdom in signing such a long-term contract.Do you share this view?Explain.

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