Choose the correct answer:

1.Economies of scope must exist when...

...producing more output is more efficient than producing less output

...producing two or more goods jointly is more efficient than producing each good separately

...producing less output is more efficient than producing more output

...producing two or more goods jointly is less efficient than producing each good separately

...one firm purchases another firm

2.Firms suffer from an agency problem when...

...they must hire talented executives at a below-market rate

...their executives have large salaries, but are still underpaid

...the company is a sole proprietorship

...the stock price of the firm falls even as the stock market rises

...the incentives of the executives do not reflect the incentives of the owners

None of the above

3.Which of the following are true about giving stock options to managers?

(Select each correct answer.)

It is initially cheaper than giving stocks

It incentivizes the manager to increase the stock price

It is initially more expensive than giving stocks

It incentivizes the board of directors to be more vigilant

It may lead to excessive risk-taking

4.Given the potential problem of back-dating stock options for executives, it's important that the board of directors...

...represent the interests of the owners of the firm, and not be too friendly with the managers

...represent the interests of the managers of the firm, and not be too friendly with the owners

...be neutral and independent from both the owners and managers

None of the above

5.Which of the following are possible solutions discussed in lecture to the problems associated with stock options?

(Select each correct answer.)

Fire current executives and find more talented executives

Decrease the base salary of the manager

Make the stock options longer-term

Create clawback provisions

Eliminate severance packages for managers

6.Which of the following statements about education in the United States are true?

(Select each correct answer.)

The United States spends more per student than other developed countries, but does not have better educational outcomes

The No Child Left Behind Act gave extra money to failing schools to support them

The No Child Left Behind Act failed to improve student performance

One result of tying funding to student performance is that some schools resort to cheating to improve student test scores