Business Strategy
Exam Bank
Course Introduction
Business Strategy explores the processes and frameworks that organizations use to gain and sustain competitive advantage in dynamic environments. The course covers key concepts such as strategic analysis, industry and competitor assessment, resource-based perspectives, and the formulation and implementation of effective strategies. Students will learn how to evaluate external opportunities and threats, internal strengths and weaknesses, and make informed decisions to achieve organizational objectives. Through case studies, simulations, and practical applications, participants develop skills for strategic thinking, problem-solving, and leadership, equipping them to contribute to strategic planning and execution in real-world business contexts.
Recommended Textbook
Managerial Economics and Business Strategy 8th Edition by Michael Baye
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14 Chapters
1968 Verified Questions
1968 Flashcards
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which of the following is incorrect?
A) Accounting profits generally overstate economic profits.
B) Accounting profits do not take opportunity cost into account.
C) Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production.
D) Managers should only be interested in accounting profits.
Answer: D
Q2) If the interest rate is 5 percent, what is the present value of $10 received one year from now?
A) $9.50
B) $10.05
C) $9.52
D) $9.77
Answer: C
Q3) Marginal benefits are the:
A) incremental benefits of a decision.
B) average benefits of a decision.
C) total benefits of a decision.
D) present discounted benefit of a decision.
Answer: A
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Chapter 2: Market Forces: Demand and Supply
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) The economic principle that producers are willing to produce more output when price is high is depicted by the:
A) upward slope of the supply curve.
B) extreme steepness of the supply curve.
C) downward slope of the supply curve.
D) interaction of the supply and demand curves.
Answer: A
Q2) In a competitive market, the market demand is Q<sup>d</sup> = 60 - 6P and the market supply is Q<sup>s</sup> = 4P. A price floor of $9 will result in a
A) shortage of 30 units.
B) shortage of 12 units.
C) surplus of 30 units.
D) surplus of 12 units.
Answer: C
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Chapter 3: Quantitative Demand Analysis
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:
A) decrease.
B) increase.
C) remain constant.
D) either increase or remain constant, depending upon the size of the price increase.
Answer: A
Q2) If the own price elasticity of demand is infinite in absolute value, then:
A) demand is perfectly inelastic.
B) the demand curve is horizontal.
C) consumers do not respond at all to changes in price.
D) demand is neither perfectly inelastic nor is the demand curve horizontal.
Answer: B
Q3) When marginal revenue is zero, total revenue:
A) will increase when price increases.
B) is maximized.
C) will decrease when price decreases.
D) will decrease as quantity decreases.
Answer: B
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Page 5
Chapter 4: The Theory of Individual Behavior
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179 Verified Questions
179 Flashcards
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Sample Questions
Q1) If the price of a good falls, then the equilibrium consumption of that good: A) increases if it is an inferior good. B) decreases if it is a normal good. C) remains the same.
D) None of the statements is correct.
Q2) What is the horizontal intercept of the budget line, given that M = $1,000, P<sub>X</sub> = $50, and P<sub>Y</sub> = $40?
A) 2000.0
B) 20.0
C) 25.0
D) 11.11
Q3) An economics professor went out to dinner one night and observed one of her students drinking heavily. The next day was a final exam. When the professor's husband found out the student was in her class, he said the student's behavior was irrational. The professor disagreed. Under what condition is behavior irrational according to the properties of consumer behavior discussed in the chapter? What situations could make the student's behavior rational?
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Chapter 5: The Production Process and Costs
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173 Verified Questions
173 Flashcards
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Sample Questions
Q1) The inputs that a manager uses to alter production are referred to as:
A) variable factors.
B) long-run factors.
C) fixed factors.
D) All of the statements are correct.
Q2) Which of the following is NOT a means of acquiring product and process innovations?
A) Independent research and development
B) Mass production of the existing product
C) Reverse engineering
D) Hiring employees of innovating firms
Q3) With a linear production function there is a:
A) perfect complementary relationship between all inputs.
B) perfect substitutable relationship between all inputs.
C) fixed-proportion relationship between all inputs.
D) variable-proportion relationship between all inputs.
Q4) The maker of Turbotax produces software that prepares federal income tax returns. In addition, it produces software that prepares various state income tax returns. Why doesn't it pay for the firm to specialize in federal software?
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Chapter 6: The Organization of the Firm
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157 Flashcards
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Sample Questions
Q1) Hold-up:
A) is a hazard associated with relationship-specific exchange.
B) mitigates worker shirking.
C) makes spot exchange efficient.
D) solves the principal-agent problem.
Q2) Long-term contracts are NOT efficient if:
A) a firm engages in relationship-specific exchange.
B) specialized investments are unimportant.
C) the contractual environment is simple.
D) managers shirk.
Q3) Suppose a new contracting environment with an economic environment that looks more uncertain is considered. This new contract will result in:
A) an increase in the marginal cost and a longer optimal contract.
B) an increase in the marginal cost and a shorter optimal contract.
C) a decrease in the marginal cost and a longer optimal contract.
D) a decrease in the marginal cost and a shorter optimal contract.
Q4) In general, automobile manufacturers produce their own engines but purchase tires from independent suppliers. Why?
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Chapter 7: The Nature of Industry
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123 Flashcards
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Sample Questions
Q1) The chemical industry has a Lerner index of 0.67. Based on this information, a firm with marginal cost of $10 should charge a price of:
A) $30.30.
B) $14.93.
C) $6.70.
D) $3.30.
Q2) Which of the following may transform an industry from oligopoly to monopolistic competition?
A) Entry of new firms
B) Significant vertical integration
C) Exit of firms
D) A series of horizontal mergers
Q3) An industry consists of four firms with annual sales of $3,000, $5,000, $4,000, and $6,000. What is the industry's HHI?
A) 1,659.
B) 2,654.
C) 10,000.
D) There is not sufficient information to compute the industry HHI.
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9
Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Which of the following is true under monopolistic competition in the short run?
A) Profits are always zero.
B) P > MC.
C) P = MR.
D) All of the choices are true in monopolistic competition.
Q2) Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
A) Firms produce homogeneous goods.
B) There is free entry.
C) Long-run profits are zero.
D) There is free entry and long-run profits are zero.
Q3) You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q<sup>2</sup>. What level of profits will you make in the short run?
A) $20
B) $40
C) $60
D) $80
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Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) The market for widgets consists of two firms that produce identical products. Competition in the market is such that each of the firms independently produces a quantity of output, and these quantities are then sold in the market at a price that is determined by the total amount produced by the two firms. Firm 2 is known to have a cost advantage over firm 1. A recent study found that the (inverse) market demand curve faced by the two firms is P = 280 - 2(Q<sub>1</sub> + Q<sub>2</sub>), and costs are C<sub>1</sub>(Q<sub>1</sub>) = 3Q<sub>1</sub> and C<sub>2</sub>(Q<sub>2</sub>) = 2Q<sub>2</sub>.
a. Determine the marginal revenue for each firm.
b. Determine the reaction function for each firm.
c. How much output will each firm produce in equilibrium?
d. What are the equilibrium profits for each firm?
Q2) "An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement is true of:
A) Bertrand and Cournot oligopolies.
B) Cournot and Stackelberg oligopolies.
C) Bertrand and Stackelberg oligopolies.
D) None of the answers is correct.
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Chapter 10: Game Theory: Inside Oligopoly
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Collusion is:
A) legal in the United States.
B) not possible when firms interact repeatedly forever.
C) more likely in industries with a large number of firms.
D) None of the answers is correct.
Q2) If you advertise and your rival advertises, you each will earn $3 million in profits. If neither of you advertises, you will each earn $7 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $10 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is for your firm:
A) and your rival to advertise.
B) and your rival not to advertise.
C) to advertise and your rival not to advertise.
D) not to advertise and your rival to advertise.
Q3) Which of the following are important determinants of collusion in pricing games?
A) The number of firms
B) Firm size
C) History
D) All of the statements associated with this question are correct.
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Page 12
Chapter 11: Pricing Strategies for Firms With Market Power
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140 Flashcards
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Sample Questions
Q1) A campus auditorium sells tickets at half price to students during the last 30 minutes before a concert starts. This is an example of:
A) price discrimination.
B) peak-load pricing.
C) price discrimination or peak-load pricing.
D) None of the statements is correct.
Q2) During spring break, students have an elasticity of demand for a trip to Cancun, Mexico, of -4. How much should an airline charge students for a ticket if the price it charges the general public is $420? Assume the general public has an elasticity of -2.
A) $210
B) $280
C) $160
D) $105
Q3) Which of the following pricing policies enhances profits by creating brand-loyal consumers?
A) Frequent flyer programs
B) Beat-or-pay strategies
C) Trigger strategies
D) Frequent flyer programs and beat-or-pay strategies
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Page 13
Chapter 12: The Economics of Information
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Consider an antique auction where bidders have independent private values. There are two bidders, each of whom perceives that valuations are uniformly distributed between $100 and $1,000. One of the bidders is Sue, who knows her own valuation is $200. What is Sue's optimal bidding strategy in an English auction?
A) Submit a bid of $150.
B) Submit a bid of $200.
C) Submit a bid that is less than $150.
D) Keep bidding until the bid exceeds $200.
Q2) Suppose a risk-neutral competitive firm must set output before it knows for sure the market price. Suppose the market price is given by p = p* + e, where p* is the mean price and e is a random term with an expected value of zero. Then in order to maximize expected profits, the firm should produce where:
A) p = MC.
B) p* = MC.
C) p* + e = MC.
D) p > MC.
Q3) You are the manager of a new computer company that manufactures PCs to order. Devise a plan that will convince potential customers your quality is the best in the business.
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Page 14
Chapter 13: Advanced Topics in Business Strategy
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) When the average cost curve lies above the entrant's residual demand curve, an entrant:
A) can profitably enter the market.
B) cannot profitably enter the market.
C) is indifferent between entering and not entering the market.
D) lowers the incumbent's average cost curve.
Q2) You are the owner of a new network that is superior to an existing two-way network. The network you aim to replace currently has 50 users, each of whom is willing to pay an average of $75,000 for each connection service within the current network. You are confident that each user values connection services within your new two-way network at an average of $100,000 per connection service.
a. What is the maximum price the existing network can charge each user for its services?
b. Devise a pricing strategy that will permit your firm to overcome the first-mover advantage enjoyed by the existing network.
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Chapter 14: A Managers Guide to Government in the Marketplace
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Nonexclusionary, as it relates to public goods, means that:
A) no producer can be excluded from providing the good.
B) no one can be excluded from consuming the good, once it is provided.
C) the government can only exclude consumers from consuming the good.
D) producer-consumer rivalry exists.
Q2) Under the merger guidelines written by the DOJ and FTC, a merger may not be challenged if:
A) there is significant foreign competition.
B) the firms involved have monetary problems.
C) there is an emergence of new technology.
D) All of the statements associated with this question are correct.
Q3) The Clean Air Act and its amendments increase the production costs of the firms in a covered industry through increased:
A) fixed costs while marginal cost is unchanged.
B) marginal cost while fixed costs remain the same.
C) fixed costs and increased marginal costs.
D) average cost while marginal cost is unchanged.
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Page 16