Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits
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Teletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits
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- The owner of a thriving business wants to open a new office in a distant city. If he can hire someone who will manage the new office honestly, he can afford to pay that person a weekly salary of $2,000 ($1,000 more than the manager would be able to earn elsewhere) and still earn an economic profit of $800. The owner's concern is that he will not be able to monitor the manager's behavior and that the manager would therefore be in a position to embezzle money from the business. The owner knows that if the remote office is managed dishonestly, the manager can earn $4,500, which results in an economic loss of $600 per week. (Hint. Construct a decision tree to help you answer the questions below.) a. If the owner believes that all managers are narrowly self-interested income maximizers, will he open the new office? Yes No b. Suppose the owner knows that a managerial candidate condemns dishonest behavior, and who would be willing to pay up to $7,000 to avoid the guilt she would feel if she…Your local fast-food chain with two dozen stores uses the company's internal corporate marketing department to produce signage, print ads, in-store displays, and so forth. When placing an order, store managers are assessed a chargeback (transfer price) of $80 per order that reduces store profitability but increases marketing department profitability. Lately, the store managers have been ordering more and more marketing services; the marketing department is swamped, and it cannot afford to hire more staff. Which of the following dollar figures is a possible value for the marginal cost per order of the marketing department? In other words, which marginal cost per order for the marketing department would be consistent with this situation? Check all that apply. $104.00 $96.00 $72.00 $108.00Consider a firm that has two types of employees in their marketing department with the following compensation structures. i. Sales staff that make "cold calls" to businesses to try and generate work for the firm. They are paid flat hourly wages and spend most of their time driving around to businesses to develop and curate those relationships. ii. A marketing manager that earns an annual salary, whose responsibilities are to manage the sales staff and develop a strategic marketing plan, while at the same time they make commission on the work that they bring in for the firm themselves. Based upon this description, for each type of employee identify a problem with the incenctives provided by the compensation schemes and the nature of their responsibilities. Then provide a potential solution for each, based upon our discussions of incentive design and moral hazard.
- Adriana Caselotti's company developed a new product ten years ago. Ever since, Adriana has managed production of the product with minimal worker turnover. Over that time, the average cost to the firm has decreased by 30%. This is due to improvements in production methods leading to greater efficiency. Rival firms have not achieved such reduced costs. The cost advantage enjoyed by Adriana's company is called achieved through marginal cost reduction; long-term production a key input price reduction; unique cost advantages a unique cost advantage; learning by doing mass production; key input price reductionFrom the 1990’s to now, the market has changed considerably, with DeBeer having to adapt to new challenges. The first is the introduction of direct competitors. Russia’s state-owned diamond company ALROSA now produces more diamonds than DeBeers itself. Some new firms even bought mines from DeBeers when the company was trying to support their balance sheet. Another change is the introduction of substitutes, with synthetic diamonds becoming more appealing to price-conscious young shoppers. Advances on the production of these products are fairly recent, notably, in 2015 New Diamond Technology displayed the potential of synthetics by creating a ten-carat polished diamond. This means the market is changing from monopoly to monopolistic competition. We know that entry of other firms will cause the monopolists demand curve to shift. 4. From the 1990s to now, the market is changing from monopoly to monopolistic competition. Explain reasons for this change.Suppose you are hired as an economic consultant for Promax Consulting Company. Your job is to advise the company’s clients on the appropriate action to take in the short-run in order to maximize the profits (or minimize the losses) for each firm. The firms you are about to analyze produce different products, and each operates independently in a different perfectly competitive market. You may assume that each is currently operating at an output level where marginal cost is increasing. Fill in the missing information, and make your suggestions about the appropriate action for each firm by placing one of the following symbols in the last row of the table of information that follows: C = currently operating at the correct level of output I = increase the level of output D = decrease the level of output SD = shutdown the plant Firm A…
- You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule: Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not. Single line text.You are the manager of a small U.S. firm that sells nails in a competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundreds of other firms). You are concerned about two events you recently learned about through trade publications: (1) the overall market supply of nails will decrease by 2 percent, due to exit by foreign competitors, and (2) due to a growing U.S. economy, the overall market demand for nails will increase by 2 percent. Based on this information, should you plan to increase or decrease your production of nails? Explain.Profit is the incentive that drives our market economy. Firms make production, pricing, and hiring decisions based on their quest for profit. But what happens when a firm discovers that it can make dramatically higher profits by stopping production altogether? In December 2000, due to wild swings in the market for electricity, Kaiser Aluminium faced just such a decision. Kaiser Aluminium had contracted with Bonneville power for all of its electricity needs and found itself in the unique position of being an electricity consumer and, potentially, an electricity reseller. By December 2000, Kaiser faced a difficult decision of continuing its current aluminium production and profit levels, or closing the plant to dramatically increase its profit by simply reselling its electricity. When making production decisions, firms must consider both their costs and revenues. One important concern for many firms is utility costs. In 1996, Kaiser Aluminium Corporation in Spokane, Washington, entered…
- You have just taken over the job of senior product manager for a line of Consumer Home Routers at Cisco. On your first day at work, your new boss walks into your office and informs you that your product line will be discontinued and replaced by a revolutionary new product line on October 1 of the same year. She also tells you that she wants you to raise prices on your existing product line by 20% in order to protect profitability during the transition. After a moment of reflection, you tell her that you need a day to gather some information and will respond to her at that time. You go to a number of sources including field sales VPs, market research, other product managers, and an external consulting firm, and ask them how responsive customers have been to changes in prices in the past. They tell you that a 10% increase in price always leads to a 5% decrease in sales volume. The next day you walk into your boss’s office. What is your recommendation and what is your reasoning?After graduating, you start work as a management consultant. You are paid $210 per hour. One morning before work, you decide to buy a new car. You know the exact model you want, and you know that in your area the price ranges from $39,000 to $41,000, with the average price you can expect to pay being $40,000. You can choose among hundreds of dealers, but you don't know which dealer will give you the best price. Time is literally money, since every hour you spend searching is an hour you don't get paid. Each visit to a dealer takes an hour. Your expected marginal benefit of another search is the difference between the current dealer's offer and the average price. The first dealer you go to asks $40,500 for the car. Should you accept the price or keep searching? (Keep in mind that each visit to a dealer takes an hour.) Keep searching. Accept the price. Suppose you kept searching, and the next dealer you go to asks $40,150. Do you think you should accept this price or keep searching? O…A dominant or price setting firm and several smaller price takers serve a market where total market demand is Qd = 560 – 2P and the combined supply from all the smaller firms is Qs = - 60 + 2P. State the demand (Qdf=) and inverse demand (Pdf=) function for the dominant firm (df).