Category

Transaction cost theory

  1. What is the main focus of Transaction Cost Theory?
    a) Maximizing organizational efficiency
    b) Minimizing the costs of transactions
    c) Enhancing employee satisfaction
    d) Improving financial accounting systems
    Answer: b) Minimizing the costs of transactions
  2. Who is primarily credited with developing Transaction Cost Theory?
    a) Michael Porter
    b) Oliver Williamson
    c) Peter Drucker
    d) Herbert Simon
    Answer: b) Oliver Williamson
  3. In which year did Oliver Williamson receive the Nobel Prize in Economics for his work on Transaction Cost Theory?
    a) 1985
    b) 1990
    c) 2009
    d) 2015
    Answer: c) 2009
  4. Transaction costs include all of the following EXCEPT:
    a) Search and information costs
    b) Bargaining and decision-making costs
    c) Production costs
    d) Monitoring and enforcement costs
    Answer: c) Production costs
  5. What is the primary determinant of whether an organization should make or buy a product, according to Transaction Cost Theory?
    a) Availability of skilled labor
    b) Cost of capital
    c) Transaction costs
    d) Technological advancement
    Answer: c) Transaction costs
  6. Which of the following best describes “asset specificity” in Transaction Cost Theory?
    a) The ability to generalize resource usage
    b) The degree to which an asset can be redeployed
    c) The profitability of an asset
    d) The size of the asset
    Answer: b) The degree to which an asset can be redeployed
  7. High asset specificity typically leads to:
    a) Increased outsourcing
    b) Vertical integration
    c) Lower transaction costs
    d) Decentralized decision-making
    Answer: b) Vertical integration
  8. Which type of transaction cost arises when organizations try to ensure compliance with contracts?
    a) Search costs
    b) Enforcement costs
    c) Decision-making costs
    d) Coordination costs
    Answer: b) Enforcement costs
  9. What does Transaction Cost Theory suggest about market transactions versus hierarchies?
    a) Markets are always more efficient
    b) Hierarchies are always more efficient
    c) Efficiency depends on transaction costs
    d) Both are equally efficient
    Answer: c) Efficiency depends on transaction costs
  10. According to Transaction Cost Theory, what is a major disadvantage of using market mechanisms?
    a) Reduced competition
    b) Increased transaction costs
    c) Inefficient resource allocation
    d) Lack of scalability
    Answer: b) Increased transaction costs
  11. What is “bounded rationality” in the context of Transaction Cost Theory?
    a) The limited ability of individuals to make rational decisions
    b) The assumption that all decisions are perfectly rational
    c) A focus on maximizing profits
    d) The use of irrational decision-making processes
    Answer: a) The limited ability of individuals to make rational decisions
  12. Which of the following is an example of “opportunism” in Transaction Cost Theory?
    a) A supplier underpricing competitors
    b) An employee working overtime
    c) A partner acting in self-interest at another’s expense
    d) A company adopting sustainable practices
    Answer: c) A partner acting in self-interest at another’s expense
  13. Transaction Cost Theory is often used to explain:
    a) Organizational growth
    b) Outsourcing decisions
    c) Marketing strategies
    d) Employee retention
    Answer: b) Outsourcing decisions
  14. What is a key assumption of Transaction Cost Theory?
    a) Perfect information is available
    b) Transactions are cost-free
    c) Individuals are prone to bounded rationality
    d) Hierarchies do not incur any costs
    Answer: c) Individuals are prone to bounded rationality
  15. When transaction costs are high, organizations are more likely to:
    a) Use market mechanisms
    b) Vertically integrate
    c) Increase decentralization
    d) Outsource activities
    Answer: b) Vertically integrate
  16. What does “frequency” refer to in Transaction Cost Theory?
    a) How often a transaction occurs
    b) The speed of transaction execution
    c) The number of parties involved in a transaction
    d) The level of risk in a transaction
    Answer: a) How often a transaction occurs
  17. What is the role of governance structures in Transaction Cost Theory?
    a) To reduce production costs
    b) To minimize transaction costs
    c) To control employee behavior
    d) To eliminate opportunism
    Answer: b) To minimize transaction costs
  18. Which of the following is NOT a transaction cost?
    a) Cost of negotiating contracts
    b) Cost of enforcing agreements
    c) Cost of producing goods
    d) Cost of searching for suppliers
    Answer: c) Cost of producing goods
  19. How does uncertainty affect transaction costs?
    a) It decreases transaction costs
    b) It has no effect on transaction costs
    c) It increases transaction costs
    d) It eliminates the need for contracts
    Answer: c) It increases transaction costs
  20. Which organizational structure aligns with high transaction costs?
    a) Decentralized structure
    b) Hierarchical structure
    c) Flat structure
    d) Network structure
    Answer: b) Hierarchical structure
  21. What is a “make-or-buy” decision?
    a) Choosing between manufacturing in-house or outsourcing
    b) Deciding between selling and renting assets
    c) Determining whether to invest in advertising
    d) Selecting suppliers based on cost
    Answer: a) Choosing between manufacturing in-house or outsourcing
  22. Which factor increases the likelihood of outsourcing, according to Transaction Cost Theory?
    a) High asset specificity
    b) Low transaction costs
    c) High production costs
    d) High levels of uncertainty
    Answer: b) Low transaction costs
  23. What is the relationship between opportunism and transaction costs?
    a) Opportunism decreases transaction costs
    b) Opportunism has no effect on transaction costs
    c) Opportunism increases transaction costs
    d) Opportunism eliminates the need for contracts
    Answer: c) Opportunism increases transaction costs
  24. Which industry is most likely to experience high transaction costs?
    a) Retail
    b) Oil and gas
    c) Technology startups
    d) Education
    Answer: b) Oil and gas
  25. Why are long-term contracts used in high-transaction-cost environments?
    a) To reduce production costs
    b) To minimize uncertainty and opportunism
    c) To eliminate the need for negotiations
    d) To increase supplier options
    Answer: b) To minimize uncertainty and opportunism
  26. What is the impact of asset specificity on governance choice?
    a) Increases reliance on markets
    b) Encourages vertical integration
    c) Reduces opportunism
    d) Increases decentralization
    Answer: b) Encourages vertical integration
  27. Which of the following best defines “monitoring costs”?
    a) Costs incurred in evaluating supplier performance
    b) Costs of searching for potential partners
    c) Costs of producing goods
    d) Costs of training employees
    Answer: a) Costs incurred in evaluating supplier performance
  28. Transaction Cost Theory suggests that organizations exist to:
    a) Minimize production costs
    b) Reduce transaction costs
    c) Eliminate competition
    d) Maximize employee satisfaction
    Answer: b) Reduce transaction costs
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