Business Policy
Exam Questions
Course Introduction
Business Policy is a comprehensive course that equips students with the knowledge and analytical skills needed to understand, formulate, and implement effective business strategies within dynamic and competitive environments. The course explores fundamental concepts of strategic management, decision-making processes, and the integration of various functional areas such as marketing, finance, operations, and human resources. Students will engage in case studies and real-world scenarios to develop critical thinking and problem-solving abilities, preparing them to address complex business challenges and to make informed decisions that align with organizational goals and policies.
Recommended Textbook
Economics of Strategy 5th Edition by David
Besanko
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18 Chapters
450 Verified Questions
450 Flashcards
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Page 2
Chapter 1: Basic Microeconomic Principles
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Sample Questions
Q1) Which of the following statements is true regarding the relationship between average and marginal cost functions?
A)When average cost is a decreasing function of output, marginal cost is greater than average cost.
B)When average cost neither increases or decreases (because it is constant or at a minimum point), marginal cost is equal to average cost
C)The average cost function is always smaller than the marginal cost function
D)The average cost function is always greater than the marginal cost function
E)When average cost is an increasing function of output, marginal cost is less than average cost
Answer: B
Q2) If =.8 and P=$25,what is MR?
A)$20
B)$6.25
C)-$5
D)-$6.25
E)$5
Answer: D
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Page 3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Which of the following is not a benefit Ace captures through a cooperative of stores while maintaining independent store ownership?
A)Access to same distribution channels as large retailers
B)No central office providing direction
C)Quantity discounts
D)Local tailored product offerings
E)Location in Small neighborhoods
Answer: B
Q2) What kind of economies come from reductions in average costs due to increases in capacity utilization?
A)Short-run economies of scale
B)Short-run economies of scope
C)Long-run economies of scale
D)Long-run economies of scope
E)Fully automated economies
Answer: A
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4
Chapter 3: Agency and Coordination
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Sample Questions
Q1) Which of the following is not a principal/agent relationship?
A)Shareholders/Company CEO
B)Shareholders/Company employees
C)Company/Hired counsel
D)Carmaker/Auto part supplier
E)Shareholder/IRS auditors of a company
Answer: E
Q2) Which of the following is not a reason Yahoo! CEO Jerry Yang as an agent would turn down Microsoft's takeover offer?
A)Yang believed the firm is worth greater than the offer
B)Yang believed that the combined firm would create value for shareholders
C)Yang was working on behalf of shareholders to maximize the purchase price
D)Yang had different preferences than shareholders regarding the firm's independence
E)Yang had hidden information about future projects for Yahoo!
Answer: B
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5
Chapter 4: The Power of Principles - an Historical Perspective
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Q1) How has Atlanta been able to grow as a center of commerce despite its poor water and rail connections?
A)Widespread air transportation
B)New government regulations
C)Improved Financing
D)Better Communications
E)Better technology and innovation
Q2) What was a key contribution to the dominance of the family-run small business in 1840?
A)Factories
B)Infrastructure
C)Raw Materials
D)Management
E)Laws
Q3) What is a benefit of alliances and joint ventures over mergers and acquisitions?
A)Better organizational structure
B)Scale savings
C)Less vertical integration
D)Less horizontal integration
E)Lower likelihood of antitrust scrutiny
Page 6
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Chapter 5: The Vertical Boundaries of the Firm
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Sample Questions
Q1) What is a reason that companies might want to "buy" instead of "make" talent from the market when looking to acquire employees with a particular skill set?
A)External training methods are better than internal ones
B)Companies are always willing to pay more for external employees
C)External training is more advanced (up-to-date)than internal
D)Scale economies can result in fixed education costs while in house education methods may be more expensive
E)Externally trained employees are more likely to become better business leaders
Q2) Which of the following types of fit (used to aide in coordination along all dimensions of production)explains a situation where the steps of a particular process must occur in a particular order?
A)Timing fit
B)Size fit
C)Color fit
D)Sequence fit
E)Price fit
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Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Sample Questions
Q1) What Japanese term describes a labyrinth of firms with long-term semi-formal relationships up and down the vertical chain?
A)Kaizen
B)Keiretsu
C)Kanban
D)Karõshi
E)Mochibun kaisha
Q2) Suppose we have two firms (Firm 1 & Firm 2)enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain.What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1?
A)Backward Integration
B)Forward integration
C)Nonintegration
D)Contractually unbound
E)Contractually bound
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Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Which of the following sources of conglomerate value creation explains GE CEO Jeff Immelt's assertions that both GE's size allows it to "drive common initiatives across the company that accelerate growth,satisfy customers and expand margins" and GE's is able "develop people to grow a common culture that is adaptive,ethical and drives execution"?
A)Use of internal capital markets
B)Economies of scale and scope
C)Economizing on transaction costs
D)Dominant general management logic
E)Identifying undervalued firms
Q2) Which Rumelt relatedness classification describes a firm that obtains between 70 and 95 percent of its annual revenues from a principal activity?
A)Conglomerated-business
B)Single-business
C)Dominant-business
D)Related-business
E)Unrelated-business
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Chapter 8: Competitors and Competition
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Sample Questions
Q1) What is a catchment area?
A)The area of a firm's customers as defined by traditional county lines
B)The area a firm's customers shops due to idiosyncratic reasons
C)The area a firm operates in which it has no competition
D)The area where a firms customer will go to shop in the event the firm were to raise prices
E)The contiguous area from which a firm draws most of its customers
Q2) Which of the following market structures generally has a Herfindahl index at .6 and above (usually having light competition,unless threatened by entry)?
A)Perfect competition
B)Monopolistic competition
C)Oligopoly
D)Monopoly
E)N-firm
Q3) In a two firm market,let the marginal cost of producing a product be $20,the market demand be given by the function Q=60-P/2 and the market quantity be equal to Q +Q .What is the Cournot equilibrium quantity each firm would produce in this market?
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Page 10
Chapter 9: Strategic Commitment
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Sample Questions
Q1) What process involves using computer simulations to track the likely competitive implications of pricing and investment decisions over many years?
A)Regression testing
B)Virtual reality
C)War gaming
D)Commitment testing
E)Scenario testing
Q2) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,what is the firm's expected net present value of the investment?
Q3) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?
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Page 11
Chapter 10: The Dynamics of Pricing Rivalry
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Q1) How much revenue a firm brings in by improving the quality of a product such that more consumers want to buy it depends on which two factors?
A)The decrease in demand caused by the increase in quality and the incremental profit earned on each additional unit sold
B)The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold
C)The increase in demand caused by the increase in quality and the incremental loss on each additional unit sold
D)The decrease in demand caused by the increase in quality and the incremental loss on each additional unit sold
E)The quality of changes to the original product and the decrease in demand cause by the changes in quality
Q2) In a six-firm market,if all firms charge the monopoly price,the profit equals $120,000.In that same six-firm market,if all firms instead charge the prevailing price,the profit is $60,000.If the pricing period is one-month long,what is the maximum monthly discount rate implied for each firm to still have an incentive to independently price at the monopoly level?
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Page 12
Chapter 11: Entry and Exit
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Q1) Which of the following is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity?
A)The investment in excess capacity must be sunk prior to entry
B)The incumbent should have a sustainable cost advantage
C)Market demand growth should be slow
D)The potential entrant should not itself be attempting to establish a reputation for toughness
E)The excess capacity investment must be recoverable prior to entry
Q2) When are sunk costs a most effective entry barrier?
A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions
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13
Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) Which of the following is not a significant entry barrier in the commercial airframe manufacturing market?
A)High development costs
B)Learning curve in production
C)Raw materials and labor
D)Airlines prefer to purchase from the same manufacturer
E)Airlines are reluctant to purchase from startups
Q2) Which of the following is not a potential limitation of the five-forces framework?
A)It pays little attention to factors that might affect demand
B)It focuses on a whole industry rather than on individual firms that may occupy unique positions that insulate them from some competitive forces
C)The framework does not explicitly account for the role of government, except when government is a supplier or buyer
D)The framework provides a structured way to systematically work through wide-ranging and often complex issues
E)The framework is a qualitative analysis method
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14
Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What type of strategy seeks to serve all customer groups in the market by offering a full line of related products?
A)Generic strategy
B)Margin strategy
C)Focus strategy
D)Share strategy
E)Broad-coverage strategy
Q2) Which of the following is a capability?
A)Patents and trademarks
B)Brand-name reputation
C)Installed base
D)Organizational culture
E)Sourcing skills
Q3) What term describes the price at which a consumer is indifferent between buying a product and going without it?
A)Value creation
B)Competitive advantage
C)Consumer surplus
D)Maximum willingness-to-pay
E)Value chain
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Chapter 14: Sustaining Competitive Advantage
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Q1) What term best describes assets that are more valuable when used together than when separated?
A)Isolating
B)Value-creating
C)Imperfectly mobile
D)Scarce
E)Cospecialized
Q2) What did Vonage do to deflect the impact of the intense price competition in the U.S.?
A)Attempted to position itself as the high-quality, high-reliability player in the market
B)Raised its prices
C)Was acquired by Ebay
D)Began jointly providing service with cable companies
E)Replicate other firms on hardware and service features
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16
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Q1) Which of the following terms describes a nation's position with regard to the elements (e.g.human resources,infrastructure)of production that are necessary to compete in a particular industry?
A)Factor conditions
B)Demand conditions
C)Supply conditions
D)Related supplier or support industries
E)Strategy, structure, and rivalry
Q2) Which of the following is not part of Porter's "diamond",four attributes in a firm's home market that promote or impede a firm's ability to achieve competitive advantage in global markets?
A)Factor conditions
B)Demand conditions
C)Supply conditions
D)Related supplier or support industries
E)Strategy, structure, and rivalry
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) Which of the following terms describes an incentive contract that can be enforced by an outside third party such as a judge or an arbitrator?
A)Explicit incentive contract
B)Implicit incentive contract
C)Risk sharing contract
D)Compensation contract
E)Pay-for-performance
Q2) What term best describes the payment which must be offered to a risk-averse individual to willingly accept a gamble?
A)Certainty equivalent
B)Risk equivalent
C)Risk premium
D)Risk preference payment
E)Certainty payment
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18
Chapter 17: Strategy and Structure
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Q1) Which of the following terms involves the flow of information within an organization to facilitate subunit decisions that are consistent with each other and with organizational objectives?
A)Complex hierarchy
B)Coordination
C)Control
D)Hierarchy of authority
E)Departmentalization
Q2) What variant of the multidivisional structure whose units cross national boundaries do Kogut and Zander argue is superior at transferring specific types of knowledge across national boundaries?
A)Subsidiary
B)Holding Company
C)Conglomerate
D)Partnership
E)Multinational corporation
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19
Chapter 18: Environment, power, and Culture
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Q1) Which of the following statements is least true regarding the conditions John Barney identifies under which culture can be a source of sustained competitive advantage?
A)Culture should be imitable
B)Culture must be valuable for the firm
C)If culture is common to most firms in the market, so that it reflects the influence of the national or regional culture, then it is unlikely to lead to a relative competitive advantage
D)If factors of a firm's culture are easy to copy, other firms will begin to do so, which will nullify any advantage for the firm where the culture first developed
E)Something about the firm's culture and values must be linked to the value the firm creates for customers
Q2) What is the source from which a person derives legitimate or formal power?
A)Due to status
B)Possession of specialized knowledge
C)Ability to punish
D)Ability to grant rewards
E)Position within a hierarchy
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