Jensen & Meckling discussion questions
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1. Compare and contrast (2 – 4 sentences) the mechanisms by which markets and organizations assign decision rights. In other words, how are decision rights allocated by markets and how are decision rights allocated by organizations –which features are similar and which are different?
2. Please give at least two (2) examples of general knowledge and two (2) examples of specific knowledge for your project organization (four (4) examples total). Give a brief (1 – 2 sentence) explanation of why you categorize each of these examples as general or specific. Your examples should be RELEVANT to your core business process as discussed during the Intro to Organizational Architecture lecture last week — not just the first examples that come to mind in order for you to “check the box” on this assignment.
3. On p. 25 J&M sate that “Minimizing cost of given total output often seems to degrade into a system where managers are rewarded for minimizing average cost per unit of output…measuring performance by average cost per unit of output will virtually never be consistent with firm value maximization in the absence of a quantity constraint.” Go back to your intermediate micro section on costs and production and explain what J&M mean by this statement. WHY isn’t managing based on average costs optimal? Please draw a graph of the relevant cost curves to support your explanation.
4. Please look at the graph on p. 18. Why isn’t the minimum total organizational costs at the intersection point between the cost of inconsistent objectives and the cost of poor information? Hint: This answer is related to our answer in #3 above.
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