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N14082-E1 

A LEVEL 4 MODULE, AUTUMN SEMESTER 2017-18 

MANAGERIAL ECONOMICS

SECTION A 

1. Write brief answers explaining the nature and   significance of each of the following concepts: 

a) Economies of scale 

b) Adverse selection 

c) Agency costs  

d) Efficiency wages 

e) Learning economies 

f) An executive stock option 

SECTION B

2. Economists have begun to explore how management quality affects firm performance. What difficulties are there in measuring management, what approaches have been used to measure management? Does the evidence support the view that management matters? Use examples where necessary.  

3. Discuss how screening and signalling may be used to overcome information asymmetries using appropriate examples. 

4. Discuss what is meant by the term “transaction costs”. Explain in detail how changes in firm boundaries may be used to address transaction costs. 

5. Compare the alternative forms of executive compensation from the perspective of motivation. Do you consider the historically level of CEO rewards to be an adverse consequence of the agency problem or a solution to that problem?  

6. Discuss the efficiency properties of the internal labour market. Explain the role of promotional tournaments in an internal labour market. 

7. What is moral hazard? Discuss, using examples, how moral hazard may create instability in financial markets.