Reference no: EM133039768

Q1. (a) Explain why people in the following occupations are compensated as they are. i. Insurance agents ii. Authors iii. Food servers.

(b) At the recent shareholders' meeting, the CEO of a small bank proposed a plan to offer each of its employees 250 incentive options for Class A common stock. The key provisions of the plan are that employees must exercise the options between January 2014 and December 2019, and if an employee terminates his or her employment with the bank (or is terminated), the options are no longer exercisable. One shareholder feverishly objected to the plan, claiming that such a move would dilute the value of the outstanding shares. As CEO, how would you defend the stock option plan to the shareholders?

Q2. (a) Discuss the optimal method for procuring inputs that have well-defined and measurable quality specifications and require highly specialized investments. What are the primary advantages and disadvantages of acquiring inputs through this means?

(b) As a manager of the WeDoWell Corporation, you have negotiated with several vendors and are on the average of signing an eight-year contract with Bolts Enterprises. Under the contract, they would ship to you 2,000 titanium bolts per month at a price of $1,000 per bolt. Your assistant has just brought you an article from a trade publication that indicates another company has developed a new technology that reduces the cost of producing the titanium bolts. How would this information affect the optimal length of your contract with Bolts Enterprises? Explain.

Q3. LaGuardia is one of three major airports that serve New York City. The heavy demand for flights to and from the airport has caused systematic delays. The entry of new carriers and expansion of service by existing carriers would increase congestion. In 2000, the airport authority decided to allocate a limited number of new takeoff and landing slots among the various airlines by lottery. Incumbent carriers that had been allocated slots were allowed to retain them.

(a) With a limited number of takeoff and landing slots allocated among the various airlines by lottery, explain why the result may not be economically efficient?

(b) Explain how the following measures would increase efficiency: i) Giving the incumbent carriers ownership over their slots and allowing them to lease or sell their slots. ii) Auctioning the right to new slots