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Two HoursAnswer Sheet to be provided

UNIVERSITY OF MANCHESTER

CORPORATE CONTRACTING AND MANAGERIAL BEHAVIOUR

31 May 2013

09:45 11:45

Answer ALL questions in SECTION Aon the answer sheet provided

WITHHELD

And answer ONE question from SECTION Band 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

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SECTION AAnswerALLquestions from this section.

WITHHELD

SECTION B

Answer ONEquestion from this Section.

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

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

SECTION CAnswer ONEquestion from this Section.

13. Intel is a producer of semi-conductor chips used in computers and electronicdevices. Dell produces computers. The following diagram shows a sequentialgame between Intel and Dell in extensive form. First Intel decides to use 64 bitor 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 explainyour 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 e2where Wis his wage and e is the unit of effort. His reservationutility 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 thecompany and keeps all his output. Is this a good deal for John? Is thisbeneficial to the company? Show clearly your workings. Use a diagramto illustrate your point. (10 marks)

(TOTAL 30 MARKS)

END OF EXAMINATION PAPER