Chapter 4

Question 1

____ are irrelevant to an extent decision

Answer 1

Fixed Costs

Question 2

Only take another step when _____

Answer 2

The benefits of taking another step are greater than the costs

Question 3

What is marginal analysis?

Answer 3

Process of breaking down the business decision into small steps and compute the costs and benefits of taking another step.

Question 4

_____ is the additional cost incurred by producing and selling one more unit.

Answer 4

Marginal Cost (MC)

Question 5

____ is the additional revenue gained from selling one more unit.

Answer 5

Marginal Revenue (MR)

Question 6

Marginal analysis pints companies in the right direction, but it does not _____

Answer 6

Tell companies how far to go.

Have to compute the MC and MR again to determine next step

Question 7

To induce higher effort, ______.

Answer 7

Use incentives to reduce marginal cost or increase marginal benefit

Question 8

Criticisms of inventive pay make the mistake of confusing ____ and ______.

Answer 8

• Procedural fairness
• Outcome fairness

Question 9

If a company adopt incentive pay, you get ____, but also greater ______.

Answer 9

• Higher Productivity
• Inequality

Question 10

Managers undertake an investment only if _____

Answer 10

MC’s of the investment are greater than the Marginal benefits of the investment