1.a. In old times, for large firms with diverse product offerings, senior executives are less likely to possess the relevant specific knowledge for making operational decisions for the company. So it is optimal for decentralizing operational decisions. In addition, the opportunity cost of having senior management concentrate on operating and coordination issues rather than on major strategic issues, such as marking, can be enormous. Therefore, it is better for centralizing marking for senior management focusing more on the big strategic issues.
b. When the company is in the new era, because both environmental factors (such as the rate of technological change) and GM’s business strategy (whether it produces multiple products, chooses to operate in multiple locations, and so on) affect the desirability of functional versus product or geographic organization. Also, the administrative load of the senior executives increased that they might be unable to handle their entrepreneurial responsibilities efficiently. This situation arose when the operations of GM became too complex and problems of coordination, appraisal, and policy formulation too intricate for a small number of top officers to handle both long-run, entrepreneurial, and short-run, operational administrative activities in the new era. So marketing and operating decision rights should be decentralized to the divisions. 2a. i). The marginal cost per round trip is $10,000. Xerdak could also use a two-part price – to price all transfers at marginal cost, which is $10,000 in fuel per round trip while also charging a fixed fee for $30,000 per month. ii). Assume the company plane flies 20 times each month. So the transfer price for a round trip is (10,000+10,000+10,000)/20+10,000=$11,500 iii). As commercial airlines charge $600 for a round trip, the market price should be 600*50=$30,000 assuming there are