Learn Before
The 'Use It or Lose It' Budget
A divisional manager at a large corporation consistently spends their entire annual budget, even on projects with questionable returns, such as elaborate office redecorations. The manager's primary motivation is to avoid having their budget cut in the following year, which they believe would reduce their status within the company. Identify the specific type of self-interested behavior this manager is exhibiting and explain why it conflicts with the interests of the firm's owners.
0
1
Tags
Social Science
Empirical Science
Science
Economy
CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
Application in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
The Planner's Blueprint: An Unintended Use of a Market Model
The Prestige Project
A firm's board of directors is reviewing several recent decisions made by its top executives. Which of the following actions is least likely to be categorized as a manager acting in their own self-interest at the expense of the owners?
A CEO of a publicly-traded company decides to acquire a smaller, trendy startup. The acquisition is very expensive, and financial analysts are skeptical about its potential to be profitable. However, the deal generates significant positive media attention for the CEO, who is featured on the cover of several business magazines. Which of the following best explains the CEO's decision from the perspective of the firm's owners?
Match each example of a manager's action to the specific type of self-interested behavior it best represents.
The 'Use It or Lose It' Budget
A manager who authorizes significant spending on employee training programs and upgraded office technology is necessarily acting out of self-interest to enhance their own prestige and work environment, at the expense of the firm's owners.
The Lavish Leader's Ledger
Assessing the Damage: Shareholder Impact of Managerial Actions
A divisional manager at a large corporation rejects a project with a projected 20% return on investment that would require minimal new resources. Instead, she champions and secures approval for a different project with a projected 12% return on investment. This approved project, however, will double the size of her division's staff and budget, significantly raising her profile within the company. Which of the following best analyzes the manager's decision in the context of potential conflicts between owner and manager interests?
A CEO of a publicly-traded company decides to acquire a smaller, trendy startup. The acquisition is very expensive, and financial analysts are skeptical about its potential to be profitable. However, the deal generates significant positive media attention for the CEO, who is featured on the cover of several business magazines. Which of the following best explains the CEO's decision from the perspective of the firm's owners?