1. ECO 550 Week 9 Quiz
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week-9-quiz/
Question 1
1. The following is an organization chart depicting a single row of individuals A, B, and C.
Figure 13-1
Identify the statement which is true of the organization depicted in this figure? Answer
There is a strong linkage between the individuals represented in the chart.
It is a sole proprietorship firm.
The above organization chart depicts a U-form firm.
Team production is unimportant in this organization.
Question 2
1. In which of the following cases will centralization of decision making be appropriate?
When different departments in an organization function separately without much interrelation.
When information necessary for the decision making process originates from a variety of
sources.
When the organization expands in size and its activities become more complex.
When all the information comes from an external source.
Question 3
1. Refer to Figure 13-2. Identify the structure of Z Corp.
The following is the organization chart of Z Corp.
Figure 13-2
U-form
M-form

2. Mixed organization
Matrix organization
Question 4
1. When each box in an organization chart contains individuals who specialize in some field,
then the activities in the organization are categorized by _____.
divisionalization
functionalization
decentralization
de-integration
Question 5
1. One of the disadvantages of an organization which has a matrix structure is that:
each individual reports to one boss, causing excess flow of information to one individual.
flow of information is difficult when operations are so highly diversified.
each individual has two bosses whose interests may not be aligned.
there are limits to the information a firm’s headquarters can use effectively in making decisions.
Question 6
1. Which of the following was a consequence of the financial revolution which drastically
changed risk management in the 1970s?
Managements created separate categories for handling different types of risks.
A group of specialists were created who handled risk assessment for the entire organization and
reported only to headquarters.
Risk analysis was decentralized by concentrating on risks at the division-level.
It became easier to assess market risk with the introduction of various new tools of financial
management.
Question 7

3. 1. The late business historian Alfred Chandler blamed Britain’s competitive difficulties in the
early twentieth century on:
the structure of the firms.
the removal of trade barriers.
the lack of innovation.
inefficient transfer of information within firms.
Question 8
1. Orders can lose accuracy:
if they are too complicated.
as they are transmitted within the organization.
in organizations where decision-making is decentralized.
unless they are given to the right recipient.
Question 9
1. Joanne can choose to selectively disclose information to her superiors in an attempt to elicit
decisions in her favor if:
the information is easily available to all.
she is the only source of the information concerned.
the information is easily verifiable.
there are other sources of the same information in the firm.
Question 10
1. The information to be gathered for a decision depends on which of the following?
The current market conditions and on the expected costs and benefits of acquiring the
information.
The model that underlies a decision and on the expected costs and benefits of acquiring the
information.

4. The cost of the information and the current market conditions.
The model that underlies a decision and the amount of information that is internally available.
Question 11
1. Categorization of activities in an organization along product or geographic lines is called:
globalization.
decentralization.
functionalization.
divisionalization.
Question 12
1. Axis Group has a publishing house, operates in the sports gear market, and owns a coffee
plantation. A board of directors is responsible for the overall performance of the group. Identify
the correct statement from the following.
The board will be responsible for all decision-making process.
The board will be in the best position to solve even a minor problem at the coffee plantation.
The sports gear firm’s risk assessment team will also be responsible for assessing market risk for
the group’s other functional areas.
Decisions for the publishing house are likely to be taken by the individuals who head it, rather
than the board of directors heading the entire group.
Question 13
1. _____ is the only type of firm where it is possible for a person to hold all of the information
that matters for all types of decisions.
Corporation
A firm where decision-making is centralized
Sole proprietorship
A firm where there is separation of ownership and management
Question 14

5. 1. General Motors was able to gain advantage over Ford in the 1920s primarily because:
the latter failed to adapt its product policy and organization structure to meet the demands of the
changing market.
the former had always been an M-form and better managed organization.
the latter charged higher prices for its cars than General Motors.
the former was vertically integrated with better control over its input production than Ford.
Question 15
1. The method of payment that a principal can use to elicit effort from an agent is called:
a contract.
an order.
an incentive.
garbling.
Question 16
2. _____, uncertainty, and risk of opportunism are the three major reasons due to which U.S.
Steel prefers to own its mines, enrichment facilities, and ore carriers.
Involuntary transactions
Transaction costs
Nonspecificity of assets
Trademark and credibility
Question 17
2. If there is a low degree of uncertainty combined with a low degree of asset specificity, _____
will be efficient.
long-term contracts
short-term contracts
market transactions

6. vertical integration
Question 18
2. Which of the following exemplifies an opportunistic behavior by a franchisor arising out of
incompleteness or ambiguity in a contract?
Providing inferior service in an attempt to cut operating costs.
Terminating a well-operated franchisee and converting the establishment into a profitable
company-owned outlet.
Fixing exorbitant prices for products having relatively elastic demand.
Terminating a franchisee who had been using the company brand name to endorse products that
the agreement says it cannot.
Question 19
2. Firms generally prefer not to outsource product design and manufacturing because:
these activities are common and standardized.
these operations are more or less static.
these operations involve a low investment.
these operations require investment in highly specific assets.
Question 20
2. _____ increases with the variability of outcomes and the underlying degree of randomness in
the environment that can affect a business relationship.
The problem of double marginalization
Asset specificity
Uncertainty
Volumetric interdependence
Question 21
2. The invention of the Bessemer converter in 1856:

7. increased the cost of continuous and coordinated operations of a steel industry.
motivated downstream integration of the steel industry into coal mining.
increased the efficient scale of steel production.
increased volumetric interdependence between different stages of steel production.
Question 22
2. _____ improves exchangeability, and reduces the cost of obtaining information about a good
and about the parties involved in the transaction.
De-integration
Outsourcing
Vertical integration
Standardization
Question 23
2. During the peak season, when demand for pipeline transport of natural gas at the maximum
legally allowable price exceeds the available capacity:
buy-sell transactions take place.
pipeline owners vertically integrate into gas production.
price discrimination becomes prominent.
pipeline owners use discretionary powers to ration capacity to shippers.
Question 24
2. Which of the following is an advantage of mini-mills over vertically integrated giant mills?
The small size of mini-mills ensures economies of scale in steel production.
The small furnaces used in mini-mills depend less on coal and more on electricity.
The mini-mills do not require integration of casting and milling activities.
The small furnaces used by mini-mills can be operated as per the producer’s will.

8. Question 25
2. Identify the reason why U.S. Steel prefers to own iron ore mines.
It helps them to coordinate iron ore transport and furnace operations.
It reduces the company’s raw material costs.
It helps them to inspect the quality of the ore.
It reduces the competition the company faces in the world steel market.
Question 26
2. Which of the following transactions can be categorized as outsourcing?
A U.S. furniture manufacturer buying a lumber facility.
A U.S. firm transferring some of its operations to its new subsidiary in India.
Nike selling its sportswear to customers through its franchisees across the world.
A U.S. cosmetics firm using an advertising agency to market its products.
Question 27
2. In order to lessen the monitoring problems and opportunistic behavior of a franchisor and a
franchisee, franchise contracts:
create provisions for high liquidated damages.
are complete in all respect.
have similar fixed charge and royalty arrangements.
include certain flexible clauses.
Question 28
2. The arrival of inexpensive information technology, such as personal computers and
inexpensive telecommunications:
discouraged de-integration.
increased the optimal size of firms.

9. shifted the long-run average cost (LRAC) curve of firms downward.
shifted the marginal cost of firms upward.
Question 29
2. Although U.S. Steel is integrated into iron ore mining, it currently does not own any of the
mines that supply its coking coal because:
the company has a high requirement of coking coal which cannot be supplied by a single mine.
the coal prices are highly unpredictable and volatile.
there are a limited number of coal suppliers.
futures and options markets are available for coal.
Question 30
2. Which of the following exemplifies a vertical restraint imposed by a franchisor in a contract?
A clause prohibiting a franchisee from using the company trademark to support a political
candidate.
A clause prohibiting a franchisee from announcing special offers during Christmas to attract
customers.
A clause prohibiting a franchisee from bundling two products of the same company.
A clause stating the target sales to be achieved by the company during an accounting year.