Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 2E
To determine
Dimensions of the shareholder-principle that conflict with manager agents.
To discuss whether the compensation committee will provide more salary and bonuses or long-term incentives to mitigate the agency problem.
To explain the role played by each type of pay in motivating the managers.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Why would Dreamforce include a special series of sessions for the CEOs of customer companies? Explain your answer in terms of the organizational influences on the buying decision process.
Describe the principal-agent problem between firm owners and managers. Make sure you identify the principal and the agent and discuss the information asymmetries and different goals of the two players.
Which of the following statements is true?
Multiple Choice
The effectiveness of a board of directors in monitoring managers will be enhanced by appointing members from the firm who are well-informed
about the management problems facing the firm.
Equity ownership by managers is thought to be one of the most effective corporate control mechanisms.
Reducing the amount of debt financing can reduce the divergence between the shareholders' interests and the owner's interests.
Shareholders have little or no ability to force managers to pursue maximization of the firm's value.
Chapter 1 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Ch. 1 - One of the approaches for the Southern Company to...Ch. 1 - Prob. 2ECh. 1 - Prob. 3ECh. 1 - In the Southern Company Managerial Challenge,...Ch. 1 - Prob. 5ECh. 1 - Prob. 6ECh. 1 - Prob. 7ECh. 1 - Prob. 8ECh. 1 - Prob. 1.1CECh. 1 - Prob. 1.2CE
Ch. 1 - Prob. 1.3CECh. 1 - Prob. 1.4CECh. 1 - Prob. 1.5CECh. 1 - Prob. 1.6CECh. 1 - Prob. 1.7CECh. 1 - Prob. 1.8CECh. 1 - Prob. 1.9CECh. 1 - As a value-maximizing aluminum company, should...Ch. 1 - Prob. 2.2CECh. 1 - Prob. 2.3CECh. 1 - Prob. 2.4CECh. 1 - Energy entrepreneur T. Boone Pickens has proposed...
Knowledge Booster
Similar questions
- Explain several dimensions of the shareholder-principal conflict with manageragents known as the principal-agent problem. To mitigate agency problems betweensenior executives and shareholders, should the compensation committee of the boarddevote more to executive salary and bonus (cash compensation) or more to longterm incentives? Why? What role does each type of pay play in motivatingmanagers?arrow_forwardexplain the manegerial importance of the demand function from the management perspective.arrow_forwardWhat is the principal-agent problem? Have you ever worked in a setting where this problem has arisen? If so, do you think increased monitoring would have eliminated the problem? Why don’t firms simply hire more supervisors to eliminate shirking?arrow_forward
- Discuss why in many liability firms, the managers do not receive a fixed payment for their work, but rather they are paid according to the results (such as profits or sales).arrow_forwardAssume you are an engineer working for a chemical production company. You are on the technical team that is responsible for deciding what to do about the dangerous chemical that your company is using to produce its best-selling chemical product. Recent reports have just made known the dangers of this chemical, and the company now needs to decide how to proceed. There are several options to consider: stop producing the harmful product altogether and take a hit on total profits; continue to make the product and sell it, like nothing's wrong, since the federal government has not cracked down. You could also spend money and engineering efforts in R&D to develop a safe chemical that would take its place. There is no guarantee that this would happen any time soon, but the scientists think it is realistically possible. To make matters worse, your biggest competitor produces this harmful product off-shore and is not hampered by the US regulations. If you stop producing this product…arrow_forwardWhich of the following statements regarding business ethics is NOT correct? According to Bagley in The Ethical Leader's Decision Tree, directors' obligation is to manage the corporation "for the best interests of the corporation", which might not be “maximizing shareholder value" all the time. According to Bagley in The Ethical Leader's Decision Tree, when there is no established ethics policy, directors can turn to their company values statement for guidance about what constitutes ethical business behavior. According to Epley and Kumar in How to Design an Ethical Organization, a better way to manage ethics is to design workplace context that encourage good behavior. Keeping prosocial values top of mind for employees as they make decisions will reduce the likelihood of transgressions. According to Epley and Kumar in How to Design an Ethical Organization, the "tone at the top" is a much more significant driver of employees' behavior than "tone in the middle".arrow_forward
- how accountancy science be useful in the application of managerial economics by the firm?arrow_forwardYou are attending the annual stockholders’ meeting of PIC Company. A fellow shareholder points out that the manager of PIC earned $100,000 last year, while the manager of a rival firm, CUP Enterprises, earned only $50,000. A motion is made to lower the salary of PIC’s manager. Given only this information, what should you do?arrow_forwardWhat are the objectives of the firm a)In half a page, and with use of cited references explain the objectives of the firm b)In half a page for each, and with the use of citations, describe The profit model The shareholder model The agency model c)Search for a journal article that was written based on the agency model In one page, explain the objectives of the research and how the model was applied. In one page, discuss the usefulness of its application on the subject of study. Demand Analysis With respect to the topic of demand analysis, in half a page each and with use of citations Describe the application of price elasticity of demand concept in managerial economics. What are its shortcomings? Describe the application of cross elasticity of demand What are its shortcomings? Describe the application of income elasticity of demand concept in managerial economics. What…arrow_forward
- In Chapter 5 of Managerial Economics, Froeb discusses post-investment holdup as a sunk cost problem associated with contract-specific fixed investments. The modern theory of contracts is sometimes called the theory of joining wills, which simply means when parties make an agreement they are joining together to complete an endeavor of mutual interest. The problem with all contracts that endure over time is that not all potential challenges can be anticipated. The idea of joining wills is that parties will attempt to seek accommodations to advance their mutual interest, so long as the return on the invested activity pays off. Froeb illustrates the idea by the example of marriage as a contract. Review the three scenarios below. Look for which, if any, of these scenarios presents an example of post-investment holdup. Your firm conducted a search for a new chief financial officer and hired a highly qualified candidate with a yearly salary of $250,000. After six months, the person left to…arrow_forwardWhich of the following statement is incorrect? a. An agency relationship is developed when the principal hires another party (agent) to perform some services on his behalf. b. Shareholders and managers do have an agency relationship c. Sustainable finance encourages firms to adopt UNSDGS d. When there is a conflict between the shareholders and the managers, it is called an agency problem e. Shareholders are the real managers of a businessarrow_forwardThe SCORE framework espoused in the article entitled "The Board's Role in Sustainability" recommends each of the following to achieve board-of- director buy-in of a company's sustainability initiatives, except: O articulating a simple and clear statement of purpose. taking "ownership" of the company's stated purpose. basing compensation systems on metrics that reflect purpose, not just profits. O recognizing that ultimately the firm has a fiducary responsibility to put shareholders' interests above all other.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning