Business Administration
Test Bank
Course Introduction
Business Administration is an interdisciplinary course that provides students with a comprehensive understanding of the principles and practices involved in managing organizations. The course covers core business functions such as management, marketing, finance, accounting, operations, and human resources. Students learn to develop strategic plans, analyze organizational problems, and make effective business decisions in a dynamic global environment. Emphasis is placed on critical thinking, ethical leadership, team collaboration, and effective communication skills, preparing students for successful careers in various sectors of the business world.
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Managerial Economics and Organizational Architecture 6th Edition by James Brickley
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Page 2
Chapter 1: Introduction
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Q1) In order to survive in a market,a firm needs to
A)make extensive use of available technology.
B)hire more capital and less labor.
C)produce a product demanded by consumers at the lowest possible price while covering costs.
D)charge higher prices for its products than its rivals and revise prices upward periodically.
Answer: A
Q2) From Jerome Kerviel's actions in Société Générale,we realize that in a business organization,managers may turn a blind eye to certain "red flags" in the system if
A)the managers themselves conduct certain illegal activities.
B)the managers know that at some point these illegal activities will fail.
C)the managers believe that no worker will unnecessarily expose himself or herself.
D)the managers embrace risk taking as long as it benefits the company.
Answer: D
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3
Chapter 2: Economists View of Behavior
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Q1) Which of the following is a possible criticism of the happy-is-productive model?
A)The roles attributed to managers under this model represented a new brand of elitism.
B)The economic interests of employees were inappropriately emphasized under this model.
C)The model is based on the assumption that firms operate in a market where there is fierce competition among firms.
D)The model proves to be expensive for a firm to execute.
Answer: A
Q2) The substitution effect
A)reduces the quantity demanded of a good when its price increases.
B)is equal to the income effect for a normal good.
C)is always greater than the income effect.
D)is always smaller than the income effect.
Answer: A
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4
Chapter 3: Exchange and Markets
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Q1) What are the goals of an economic system? What is the criterion to measure the effectiveness of a system?
Answer: Every economic system is confronted with three basic issues: what to produce,how to produce,and for whom to produce.One can answer these questions using a centrally planned system,or allowing the markets to find a solution,or generating a mixed economy.Economists use the Pareto efficiency criterion to measure the effectiveness of an economic activity.According to this criterion,an economic activity is not effective if there is another allocation of resources that can make someone better off without hurting anyone else.
Q2) Price controls on gasoline
A)increase consumer surplus.
B)create a shortage of gasoline.
C)create a surplus of gasoline.
D)increase producer surplus for all producers.
Answer: B
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Chapter 4: Demand
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Q1) Always Round Tire finds the following cross elasticity:
(a)Demand for tires/price of batteries = 0.45.
(b)Demand for tires/price of brake jobs = 0.70.
(c)Demand for tires/price of an oil change = 0.002.
Discuss how the pricing of batteries,brakes,and oil changes will affect the sales of tires.
Q2) A demand function depicts how consumer demand for a product varies with A)income.
B)the cost of raw materials.
C)the price of oil.
D)quantity of goods available in the market.
Q3) Price elasticity of demand tells us the responsiveness of
A)quantity demanded to a change in the price of a substitute good.
B)quantity demanded to a change in quantity supplied of a good.
C)price to a 1 percent change in quantity demanded.
D)quantity demanded to a 1 percent change in price.
Q4) Currently,the demand equation for baseball bats is Q = 100 - 2P.The current price is $15 per bat.Is this the best price to charge in order to maximize revenues?
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6
Chapter 5: Production and Cost
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Q1) Which of the following is a possible limitation in cost estimation?
A)It is difficult to obtain data on relevant costs from accounting reports that record historical data.
B)It is difficult to get qualified people who can obtain data on costs and can interpret the data.
C)Critics argue that the method used for estimating cost is outdated and does not provide accurate cost estimates.
D)Critics argue that cost estimates do not help managers make efficient decisions.
Q2) Assume the generic production function Q = f (K,L)displays both decreasing returns to capital (K)and decreasing returns to labor (L).Then
A)this production function will certainly display decreasing returns to scale.
B)this production function will certainly display constant returns to scale.
C)this production function will certainly display increasing returns to scale.
D)this production function may display increasing returns to scale.
Q3) Can a production function with two factors exhibit increasing returns to scale while at the same time have diminishing returns to each factor?
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Chapter 6: Market Structure
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Q1) Under what market structure do we have only one firm?
A)Perfect Competition
B)Monopoly
C)Monopolistic Competition
D)Oligopoly
Q2) Currently,a monopolist's MR = $5 and its MC = $10 and it serves 10 consumers.An 11<sup>th</sup> consumer walks in.Should the company provide service to the additional customer?
A)Yes,MC is equal to the number of customers,so it should provide service to the additional customer.
B)Yes,MR < MC,so it should provide service to the additional customer.
C)No,MR is less than the number of customers,so it should not provide service to the additional customer.
D)No,MR < MC,so it should not provide service to the additional customer.
Q3) In a monopolistically competitive market,the seller maximizes profits by
A)setting P = ATC.
B)setting MC = ATC.
C)setting price where MR = MC.
D)setting price where P = MC.
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Page 8
Chapter 7: Pricing With Market Power
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Q1) A customer pays an admission fee to get into the local YMCA and also a monthly membership fee.This is called A)bundling.
B)two-part tariff.
C)price discrimination.
D)block pricing.
Q2) A firm with market power in pricing faces a A)flat demand curve.
B)supply curve parallel to the horizontal axis.
C)downward-sloping supply curve.
D)downward-sloping demand curve.
Q3) Which of the following is a reason for firms to bundle products?
A)To extract additional profit from a customer base with heterogeneous product demand
B)To extract additional profit by charging higher prices for the goods in a bundle
C)To clear the old stock of the product
D)To increase customer welfare and satisfaction
Q4) Give examples of block pricing,bundling,price discrimination and two-part tariffs.
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Chapter 8: Economics of Strategy: Creating and Capturing
Value
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Q1) Successful invention and innovation in the marketplace
A)can create value and are easy to capture.
B)cannot create value and are difficult to capture.
C)can create value but are often difficult to capture.
D)are not important to most company strategies.
Q2) Beside barriers to entry,what are some of the other reasons for incumbents to maintain their profits?
Q3) Human resources,as a source of creating value in a modern company,are also referred to as
A)hardware.
B)software.
C)wetware.
D)dryware.
Q4) As opposed to corporate strategy,business strategy is focused on A)increasing the elasticity of consumer demand.
B)the type of production technique to use.
C)the type of industry to produce in.
D)how to compete with other firms in the industry.
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Q5) Many manufacturers attempt to build fairly close relationships with the firms that supply their packaging and boxes.Why?
Chapter 9: Economics of Strategy: Game Theory
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Q1) We have two players A and B,where A can go L or R,and B can go T,B,or R.The payoffs are decided after this.Which of the following is a characteristic of such games?
A)Dominant strategies
B)Simultaneous moves
C)Sequential moves
D)Backward induction
Q2) Identify the statement that best defines Nash equilibrium.
A)It is a set of strategies in which a firm does the best it can,given the action of its rival.
B)It is a sequence of actions,where the actions are taken at each node of the game.
C)It is a set of strategies that gives a player the first-mover advantage.
D)It is a sequence of actions that are taken to influence the actions of rivals.
Q3) You toss two coins and if heads or tails shows up,then I take $1.If only one heads shows up,then you give me $1.We play this game many times.Who comes up ahead at the end of the day?
Q4) What are the key managerial insights derived from game theory? Which one is the most important?
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Page 11
Chapter 10: Incentive Conflicts and Contracts
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Q1) Often people in business work in teams,each using specialized knowledge to get the tasks done.If one member of the team does no work,this is called:
A)signaling
B)bargaining
C)free-riding.
D)costless contracting
Q2) You want to hire a law firm to represent you from which you derive benefit.The law firm incurs costs from providing this service.As long as marginal benefits are greater than marginal costs,value is:
A)minimized.
B)not maximized because more hours of services are provided.
C)not maximized because fewer hours of services are provided.
D)maximized.
Q3) ______ can provide incentives to honor implicit contracts.
A)Value maximization
B)Adverse selection
C)Reputational concerns
D)Bargaining power
Q4) What is an agency relationship? What are agency problems?
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Chapter 11: Organizational Architecture
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Q1) The key to understanding changing organizational architecture is that:
A)it is costless.
B)there are only direct costs.
C)there are only indirect costs.
D)there are direct and indirect costs.
Q2) How is the architecture within firms usually designed?
Q3) If a company picks an organizational architecture that is inappropriate for its marketplace,then:
A)the company is unlikely to survive market competition.
B)technology is likely to rescue the company from bankruptcy.
C)competition is likely to help the company to grow.
D)government regulation is likely to cause the company to fail.
Q4) Economic theory implies that a mature industry without any significant technological change will tend to have firms with similar architectural structures,similar reward structures,and similar performance systems.Would the power of the marketplace be important in this case?
Q5) What is corporate culture?
Q6) Describe the three aspects of organizational architecture of a firm.Which is the most important aspect?
Q7) Are organizational changes always needed?
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Chapter 12: Decision Rights: the Level of Empowerment
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Q1) If D represents the level of decentralization of corporate decision making,and A and C are positive constants,then Benefits = B × D and Costs = A × D + C × D<sup>2</sup>.The optimal level of decentralization occurs where:
A)benefits equal costs.
B)costs are equal to zero.
C)D = BD - AD - CD<sup>2</sup>
D)D = (B - A)/ 2C
Q2) Firms grant decision rights to teams of employees for all of the following reasons except to:
A)manage activities.
B)make products.
C)make basic investment decisions.
D)recommend actions.
Q3) We say that a firm is vertically integrated if:
A)it develops differentiated products that command price premiums.
B)it makes some of its own inputs.
C)it centralizes all its output decisions but decentralizes its pricing decisions.
D)it decentralizes all its input purchases but centralizes its decisions on output.
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Chapter 13: Decision Rights: Bundling Tasks Into Jobs and Subunits
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Q1) In the BankInc case,the change in assignment for caseworkers was made practical by:
A)centralized functional management systems.
B)computerization of task input for managerial oversight.
C)elimination of cross-training among credit tasks.
D)integrating credit checking with pricing,but maintaining document preparation in a separate department.
Q2) Two tasks are said to be ______ if performing more of one task increases the benefit or reduces the cost of performing another task.
A)substitutes
B)complements
C)bundled
D)flexible
Q3) The most famous story about organizing tasks into jobs comes from Adam Smith's tale of the pin factory.In that story,he argues that:
A)specialization of jobs into simple tasks increases productivity.
B)cross-training is critical for productivity.
C)coordination is the biggest problem for factory efficiency.
D)one worker should be assigned all the tasks in pin construction.
Page 15
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Chapter 14: Attracting and Retaining Qualified Employees
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Q1) A primary reason for the use of implicit contracts in internal labor markets is to:
A)establish long-term employment relationships.
B)encourage employees to participate in decision making.
C)reduce the costs associated with formalizing contracts.
D)reduce the training and recruitment expenses.
Q2) A waiter in an all-night restaurant at a dangerous location is likely to receive:
A)a competitive market wage.
B)a wage that equals returns to general training.
C)a wage that equals returns to specific human capital.
D)a wage with a compensating wage differential.
Q3) When a firm focuses on hiring only for entry-level jobs and tends to promote from within the firm,then the firm is said to:
A)use the benchmark competitive labor market.
B)have an internal labor market.
C)hire based on human capital.
D)use compensating differentials.
Q4) Explain the effect of self-selection on compensating wage differential.
Q5) What are efficiency wages and why are they important in internal labor markets?
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Chapter 15: Incentive Compensation
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Q1) Consider the salary of Mary Sue Nelson,a sales agent for Plain Truth Advertising.Her compensation package for a week is ,where Q is her dollar volume of sales.Her productivity is ,where e denotes her hours of effort and µ is a random variable with mean 0.She has an effort cost of .Under this contract,her choice of effort will be:
A)0 hours per week.
B)20 hours per week.
C)40 hours per week.
D)80 hours per week.
Q2) In the principal-agent model,at the employee's optimal effort choice:
A)the net benefits of effort are maximized.
B)the marginal costs of efforts exceed the marginal revenue.
C)the incentive coefficient of effort is very high.
D)the marginal benefit of effort is negative.
Q3) An efficient allocation of risk among employees and owners must:
A)take into account that performance-based incentives are the sole important component of an employee's salary.
B)take into account that attitudes toward risk differ among different people.
C)recognize that employees have full control over their output.
D)recognize that pooling of risks is never appropriate.
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Page 17
Chapter 16: Individual Performance Evaluation
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Q1) If an employee is paid a fixed wage in a production environment where the wage is independent of output,then the employee has an incentive to:
A)maximize output.
B)shirk.
C)innovate.
D)search for methods to overcome random elements in production.
Q2) Make a case for 360-degree performance evaluation based on the informativeness principle.What problems may be encountered from implementation of such a system?
Q3) A salesperson's bonus for this year is based on meeting targets based on last year's sales.This year turns out to be an unusually good year.The salesperson is likely to:
A)meet the target easily and push forward with all potential sales.
B)fail to meet the last year's targets because of overconfidence.
C)just be satisfied with meeting last year's target.
D)defer some sales to the next fiscal year.
Q4) The old saying is "Be careful what you pay for,because you may get it." Discuss commission based salaries and gaming in light of the saying.
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Chapter 17: Divisional Performance Evaluation
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Q1) Which of these is a commonly used measure of performance for investment centers?
A)Residual income
B)Total assets
C)Total income
D)Variable cost
Q2) If a company division is operated as a revenue center and its demand curve is P = 200 - 2Q,how many units should it produce per day?
A)0
B)25
C)50
D)100
Q3) The accounting-based performance analysis:
A)provides aggregate level data that is insufficient for decision making.
B)is completely under the control of the operating managers.
C)is a true reflector of a particular management center's functioning.
D)provides inexpensive information on opportunity costs.
Q4) What is transfer pricing?
Q5) What are the measures of performance for investment centers? How do they work?
Page 19
Q6) What are the common transfer pricing methods?
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Chapter 18: Corporate Governance
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Q1) In 2003,Sony Corporation announced reform in its management structure.The reform included an increase in the number of outside directors on the Board of Directors,a requirement to separate the Chairman of the Board from the CEO,and greater inclusion of outside directors on the Nomination Committee.Analyze these changes from the perspective of separation of decision control from decision management.
Q2) The principle of Economic Darwinism implies that:
A)publicly traded corporations have evolved unsuccessfully through the competitive process and are not here to stay and flourish.
B)publicly traded corporations have evolved successfully through the competitive process but they are not here to stay and flourish.
C)publicly traded corporations have evolved unsuccessfully through the competitive process but will be here to stay and flourish.
D)publicly traded corporations have evolved successfully through the competitive process and are here to stay and flourish.
Q3) What is managerial power theory and what are its implications?
Q4) What are the shareholder incentives within a corporation?
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Chapter 19: Vertical Integration and Outsourcing
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Q1) Agri-Tech makes machinery for chicken slaughterhouses.Agri-Tech has developed a de-boning technique specifically for Tasty Chicken.It is likely that Agri-Tech will desire:
A)a detailed long-term contract with Tasty Chicken.
B)an open market arrangement with Tasty Chicken.
C)a patent that excludes use by Tasty Chicken.
D)a contract without any price guarantees.
Q2) AutoCorp is a dealership that has a contract that prevents the main company from opening another dealership within a 30-mile radius.This is an example of:
A)a local monopoly.
B)branding.
C)an exclusive territory right.
D)a double markup.
Q3) Tasty Chicken Inc.has worked hard to develop its brand name.Its motto "Absolutely Tasty" has become a common term used for good food.But the company finds that grocery stores do not feature their products in high visibility areas.Further,restaurants never tell their patrons they are eating food manufactured by Tasty Chicken.What needs to be done?
Q4) Why aren't all economic transactions conducted through markets?
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Page 21
Chapter 20: Leadership: Motivating Change Within Organizations
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Q1) FranklinD.Roosevelt pointed out that the New Deal was a series of experiments and that one could learn the good and bad from trying.His leadership reveals:
A)commitment.
B)clever marketing.
C)distribution awareness.
D)flexibility.
Q2) To say that a management proposal has distributional consequences means that:
A)warehouses will be overstocked if it is ratified and implemented.
B)it will disrupt the company's current distribution and marketing channels.
C)it will benefit some managers and harm others if implemented.
D)dividends will no longer be paid on the stock each quarter if it is implemented.
Q3) The three issues related to proposal design are:
A)commitment,distribution,and marketing.
B)flexibility,marketing,and distribution.
C)flexibility,commitment,and marketing.
D)flexibility,commitment,and distribution.
Q4) What are the three issues related to proposal design?
Q5) Why is academic decision making different from decision making within firms?
Q6) What are the two tasks of good leaders?
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Chapter 21: Understanding the Business Environment: the Economics of Regulation
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Q1) A firm can reduce its expected legal costs by negotiating an advance pricing agreement (APA)with the IRS.However,filing an APA can expose the firm to considerable risk by giving the government access to its sensitive cost-related information.This is an example of the _____ that arise due to regulation.:
A)information asymmetries
B)opportunity costs
C)positive externalities
D)legal costs
Q2) Information asymmetries between producers or consumers along with the problems of externalities can:
A)cause market failure.
B)always be solved by alternative dispute resolution (ADR)mechanisms.
C)improve free trade.
D)restrict the use of property rights in a market economy.
Q3) In the 1980s,"voluntary restrictions" on automobile imports raised the prices of Japanese cars by $1,000,of European cars by $2,000,and of American cars by $500.During the period following these restrictions,both Japanese and European automakers opened parts and assembly plants in the US.Why did this happen? How is it related to regulation?
Page 23
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Chapter 22: Ethics and Organizational Architecture
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Q1) Johnson & Johnson,a personal care products company,has a four-tiered credo or mission.In order,it states its relationship to customers,employees,communities,and finally stockholders.This credo seems to have improved the ethical standards of this corporation.Why doesn't it conflict with wealth creation?
Q2) Corporate social responsibility may require changing the mission of the company to a 'constrained' wealth maximization.Is it possible for a few firms in the marketplace to shift their objective functions in this way? Why?
Q3) Informational asymmetry in constructing a contract between a buyer and a seller can lead the seller to:
A)improve the quality of the product.
B)lower the price of the product.
C)focus on ethical codes of conduct.
D)make a perfect contract.
Q4) The expected level of shirking or opportunistic behavior by an agent:
A)can always be determined accurately.
B)is always less than zero.
C)is always zero.
D)is always greater than zero.
Q5) What are some mechanisms for encouraging ethical behavior?
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Chapter 23: Organizational Architecture and the Process of Management Innovation
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Q1) A key to understanding the difference between TQM and reengineering is TQM's emphasis on:
A)one-time reengineering of production processes.
B)the reorganization of inventory control.
C)outsourcing.
D)continuous improvement.
Q2) An improvement in product quality leads to an increase in a firm's value by:
A)reducing inspection cost.
B)reducing the cost of raw materials.
C)reducing labor cost.
D)reducing the opportunity cost of production.
Q3) Which of the following management techniques that were popular during the 1990s can be applied to all three components of an organization's architecture?
A)Benchmarking
B)TQM
C)Economic Value Added
D)Just-In-Time Production and Inventory Control
Q4) Phillip Crosby asserts that quality is free.Is he right?
Q5) Why do innovations in management techniques fail so often?
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