ITE2643: Chapter 4-3

According to transaction cost theory, why do firms seek to reduce transaction costs?

• To reduce costs incurred when buying on the marketplace what it cannot make itself

• To increase monitoring contract compliance

• To reduce costs of obtaining information on products

• To increase production costs

What does information technology substitute for as its cost decreases?

• Buildings and machinery

• Middle managers and clerical workers

• Both middle managers and clerical workers, and buildings and machinery

• Neither middle managers and clerical workers, nor buildings and machinery

According to transaction cost theory, why do firms seek to reduce transaction costs?

• To increase monitoring contract compliance

• To reduce costs of obtaining information on products

• To increase production costs

• To reduce costs incurred when buying on the marketplace what it cannot make itself

How does information technology help firms lower the cost of market participation?

• By increasing transaction costs

• By reducing transaction costs

• By increasing production costs

• By increasing the cost of information

What is the result of firms being able to contract with external suppliers instead of using internal sources?

• Firms can increase their revenues

• Firms can shrink in size (numbers of employees)

• Firms can increase in size (numbers of employees)

• Firms can stay constant in size (numbers of employees)

What is a possible outcome of information technology reducing internal management costs?

• Firms will have more self-interested individuals

• Firms will have more middle managers and clerical workers

• Firms will have fewer middle managers and clerical workers

• Firms will have the same number of middle managers and clerical workers

According to agency theory, what is the firm viewed as?

• A unified entity

• A profit-maximizing entity

• A principal who employs agents

• A nexus of contracts among self-interested individuals

What does information technology enable organizations to do in terms of agency costs?

• Increase agency costs

• Reduce agency costs

• Eliminate agency costs

• Increase coordination costs

What is the expected effect of information technology on firm size over time?

• Firm size will increase

• Firm size will fluctuate

• Firm size will shrink

• Firm size will remain constant

What is the expected effect of information technology on revenue per employee over time?

• Revenue per employee will increase

• Revenue per employee will fluctuate

• Revenue per employee will decrease

• Revenue per employee will remain constant