ECO 550 Managerial Economics
Chapter 1: 2, 3, 6
2 Explain several dimensions of the shareholder-principal conflict with manager agents known as the principal-agent problem. To mitigate agency problems between senior executives and shareholders, should the compensation committee of the board devote more to executive salary and bonus (cash compensation) or more to long-term incentives? Why? What role does each type of pay play in motivating managers? 3. Corporate profitability declined by 20 percent from 2008 to 2009. What performance percentage would you use to trigger executive bonuses for that year? Why? What issues would arise with hiring and retaining the best managers? 6. In the context of the shareholder wealth-maximization model of a firm, what is the expected impact of each of the following events on the value of the firm? Explain why. A New foreign competitors enter the market.
B. Strict pollution control requirements are enacted
C A previously nonunion workforce votes to unionize
D. The rate of inflation increases substantially
E. A major technological breakthrough is achieved by the firm, reducing its costs of production.
Chapter 2: 1, 5, 6
1. For each of the determinants of demand in Equation 2.1, identify an example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the same for each of the determinants of supply in Equation 2.2. In each instance, would equilibrium market price increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf and Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries. 5. Two investments have the following expected returns (net present values) and standard deviation of returns: Project Expected ReturnsStandard Deviation
Which one is riskier? Why?
6. The manager of the...