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N14082-E1

A LEVEL D MODULE, AUTUMN SEMESTER 2009-2010

MANAGERIAL ECONOMICS

SECTION A 

1. Write brief notes on each of the following:

(a) Adverse selection

(b) Team production

(c) Agency costs

(d) Asset specificity

(e) Wage premium

(f) Deferred compensation

SECTION B 

2. Explain Akerlof’s ‘lemons problem’.   What institutional factors facilitate the working of real used car markets?

3. Outline Jensen’s ‘free cash flow’ theory.  What does the theory suggest about the relationship between a large firm’s managers, its shareholders and its debt holders?

4. Explain the term ‘moral hazard’.   Discuss the view that moral hazard was a major cause of the recent global financial crisis.

5. With the aid of a simple graph, explain how a firm achieves the best possible combination of technical and agency efficiencies.

6. "Over-paying Chief Executive Officers (CEOs) is good for business".   Discuss this proposition using theoretical and empirical insights from Managerial Economics.

7. Discuss the determinants of the horizontal boundaries of firms.