BMAN30702

Page 1 of 3
Two Hours
Answer Sheet to be provided


UNIVERSITY OF MANCHESTER




CORPORATE CONTRACTING AND MANAGERIAL BEHAVIOUR






31 May 2013

09:45 11:45




Answer ALL questions in SECTION A
on the answer sheet provided
WITHHELD


And answer ONE question from SECTION B
and ONE question from SECTION C

Answer SECTION B and SECTION C in SEPARATE answer books







Calculators may be used, provided that they cannot store text








PTO

BMAN30702
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SECTION A
Answer ALL questions from this section.
WITHHELD

SECTION B
Answer ONE question from this Section.

11. Discuss the evidence in favour of the Managerial Power Approach. Do you find
it convincing? (30 marks)

12. Explain the reasons behind the separation of corporate control and ownership.
Do you consider them important? Provide examples when building your
arguments. (30 marks)

SECTION C
Answer ONE question from this Section.

13. Intel is a producer of semi-conductor chips used in computers and electronic
devices. Dell produces computers. The following diagram shows a sequential
game between Intel and Dell in extensive form. First Intel decides to use 64 bit
or 32 bit technology. After Intels decision Dell decides to build towers or mini-
case computers. The payoffs to each firm (in billions) are listed on the diagram.




Question 13 continued overleaf

64-
bit
32-
bit
Towers
Mini-
cases
Intel
Towers
Mini-
cases
Intel: 10
Dell: 2
Dell
Dell
Intel: 4
Dell: 4
Intel: 5
Dell: 10
Intel: 3
Dell: 3
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Question 13 continued

a) What is the Nash equilibrium or equilibria in this game? Clearly explain
your reasoning. (15 marks)


b) Does Intel have a first-mover advantage? (5 marks)


c) Provide examples of possible strategic moves by Dell. (10 marks)

(TOTAL 30 MARKS)




14. John works for ABC plc. His utility function is given by the following equation:
U(e) = W e
2
where W is his wage and e is the unit of effort. His reservation
utility is 10,000. ABC Corp.s benefit from Johns work is B = 2000*e.
Assuming that Johns output is costlessly observable, then:


a) What should be Johns wage? Why? (5 marks)

b) What is the firms profit? Explain. (5 marks)

c) Illustrate both numerically and diagrammatically the optimal effort level.
(10 marks)

d) ABC Corp. offers John a deal, whereby John pays 1 million to the
company and keeps all his output. Is this a good deal for John? Is this
beneficial to the company? Show clearly your workings. Use a diagram
to illustrate your point. (10 marks)

(TOTAL 30 MARKS)


END OF EXAMINATION PAPER