Week 9 Macroeconomic -“Contracting Risk..DOC

Week 9 Macroeconomic -“Contracting Risk.

Question 1

Read the article titled “Contracting Risk: A Quick Guide to Proper Risk Allocation through Contracts for Subcontractors,” located at http://www.thehumanequation.com/en/news_rss/articles/.

Explicate the major risks involved in subcontractor contracts. Then, determine which of the risks involved holds the most risk to the subcontractor. Support your response with evidence or examples.

Question 2

2.1 Real options are useful when a manager wants to make adjustments for risk in capital projects. Suggest ways to determine the need for such an option.

2.2 Transaction costs are inherent in the trade-off between risks and uncertainties. Propose how one can determine the efficient levels of information in an organization to justify taking risk over uncertainty.

Question 3

3.2. How does your analysis of VMP change if the employer is a monopolist producer

of its output but a price-taker in the labor market?

3.19. Most restaurant customers tip according to a percentage rule—between 15 and 25

percent of the bill. Diners who have dinner and a $20 bottle of wine usually pay

the same percentage of the bottle price as diners who order a $100 bottle. Why,

when the same efforts must be made to uncork and pour both bottles?

3.3. Lenders perceive that you are risky, so you must pay 12 percent annual interest to

borrow from one of them. You only receive 6 percent on funds you have deposited

in the bank. Do the opportunity costs of borrowing and using your own funds

differ in this example? Explain why or why not.

3.17. Devise a hypothetical business situation in which buying a lookback call option on

a commodity may be a sound strategy for you. How about a down-and-out call


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