1)The specificity of the asset (or investment) leads to the possibility of Multiple Choice prisoner's dilemma. zero sunk costs. opportunism. collusion.

2)High transaction costs Multiple Choice may be a result of buyer opportunism. occur when specialized investment is not important. may be the result of downward-sloping demand. make spot exchange an efficient way to obtain inputs.

3)Suppose that the marginal benefit of writing a contract is $1,500 and the marginal cost of that contract is $2,000. Based on this information, the optimal contract length should be Multiple Choice increased by half. held constant at the contract length where MB = 1500 and MC = 2000. increased by two-thirds. decreased.

4)Suppose a firm manager has a base salary of $85,000 and earns 0.5 percent of all sales. Determine the manager's income if revenues are $2,000,000 and profits are $500,000. Multiple Choice $95,000 $170,000 $87,500 $50,000

5)Shirking can take the form of all of the following except Multiple Choice long lunch hours. working overtime without additional pay. reading the newspaper while at work. surfing the internet while at work.

6)Which of the following is not an incentive scheme to ensure that workers do a good job? Multiple Choice paying waitresses low wages, but allowing them to collect tips commission pay schedules for salesmen straight hourly wages for dock workers profit-sharing plans in large companies

7)Which of the following is not a solution to the manager-worker principal-agent problem? Multiple Choice time clocks and spot checks profit sharing the threat of a takeover revenue sharing