From a transaction cost perspective, discuss why a firm may contract with an investment bank to underwrite or place an issue.
What will be an ideal response?
Investment banks generate their fees from the services they offer, which are generally based on their specialties and the information they possess. The investment bank is able to exploit its specialized knowledge of evaluating the worth of firms and as a result can tell the issuing firm what the securities are worth. It may offer the firm somewhat less than this amount but the firm gets all of the funds immediately and avoids the high cost of waiting and other transaction costs. The investment bank can use its knowledge of what the firm and/or securities are worth and its extensive client base to sell the issue, again exploiting specialized skills and information.
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The accompanying figure shows Becky's daily production possibilities curve for dresses and skirts.
Relative to point X, at point Y:
A. fewer skirts and fewer dresses are produced. B. more dresses and fewer skirts are produced. C. more dresses and more skirts are produced. D. more skirts and fewer dresses are produced.
The manager of Steel Works learns of a new technological interdependency between the intermediate stage and the final stage of production. If Steel Works currently contracts with another firm for the final stage of production, which of the following is true?
A) The manager has less of an incentive to integrate forward. B) The manager has less of an incentive to integrate backward. C) The manager has more of an incentive to integrate backward. D) The manager has more of an incentive to integrate forward.
When your neighbor's dog barks all night long, this is an example of a negative externality
a. True b. False Indicate whether the statement is true or false
Which of the following explains why business owners have a strong incentive to strive for operational efficiency?
a. they recognize that operational efficiency promotes the public interest. b. since the owners are residual income claimants, increased efficiency will mean a higher income for the owners. c. if production is not conducted efficiently, the firm will ship jobs and capital out of the domestic market in order to be able to compete effectively. d. Increased operational efficiency allows the firm to receive government tax breaks.