Business Strategy
Exam Questions
Course Introduction
Business Strategy explores the formulation, implementation, and evaluation of cross-functional decisions that enable an organization to achieve its objectives and sustain competitive advantage. The course covers core concepts such as environmental analysis, industry dynamics, value creation, resource allocation, and strategic positioning. Students analyze real-world cases to understand how businesses identify opportunities, anticipate threats, and align resources to create effective strategies in a dynamic, global market. Emphasis is placed on critical thinking, problem-solving, and strategic decision-making processes at both corporate and business-unit levels.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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693 Verified Questions
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The market supply curve shows the quantity of a good or service that ,holding other possible influences constant.
A) households would sell at various prices
B) households would buy at various outputs
C) firms would sell at various prices
D) firms would buy at various prices
E) households would buy at various prices
Answer: C
Q2) Which of the following would a manager NOT use to create market inefficiencies?
A) Establishing a brand name.
B) Sophisticated pricing strategies.
C) Diversification efforts.
D) Output decisions.
E) Building market entry barriers.
Answer: A
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Chapter 2: Demand Theory
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Sample Questions
Q1) The demand for space heaters is Q = 250 - P + 2COOL,where COOL is the absolute value of the difference between the average overnight low temperature and 40°F.Assume that the average overnight low is 0°F.When the price of space heaters is P = $30,the price elasticity of demand is:
A) -0.1.
B) -1.0.
C) -0.66.
D) -1.5.
E) -6.6.
Answer: A
Q2) The demand for answering machines is Q = 1,000 - 150P + 25I.Assume that per capita disposable income I is $200.When the price of answering machines is P = $10,the income elasticity of demand is:
A) 2.5.
B) 0.11.
C) 1.0.
D) 25.
E) 1.11.
Answer: E
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Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) Which of the following does not affect the shape of a consumer's indifference curves?
A) Age.
B) Education.
C) Tastes.
D) Prices.
E) Advertising.
Answer: D
Q2) Don consumes bagels and cream cheese.He likes to place 2 ounces of cream cheese on each bagel,no more,no less.In this case,Don's indifference curves for bagels and cream cheese will be:
A) straight lines with slopes equal to -2.
B) L-shaped, or right angles.
C) upward-sloping.
D) horizontal lines.
E) vertical lines.
Answer: B
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Page 5
Chapter 4: Estimating Demand Functions
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Q1) A regression of exports as a function of imports in 1991 across industry types yielded exports = 68 - 0.3(imports),R<sup>2</sup> = .25,Prob > F = .26,and RMSE = 30.If imports by an industry equal 60,what is the estimate of exports from this industry,and how confident are you of your estimate?
A) Exports<sub>estimated</sub> = 50, variation in imports explains 25% of variation in exports, and the F-test statistic is high, so we are confident in our estimate of exports.
B) Exports<sub>estimated</sub> = 86, variation in imports explains 25% of variation in exports, and the F-test statistic is high, so we are confident in our estimate of exports.
C) Exports<sub>estimated</sub> = 50, variation in exports explains 25% of variation in imports, and the F-test statistic is high, so we are confident in our estimate of exports.
D) Exports<sub>estimated</sub> = 86, variation in exports explains 25% of variation in imports, and the F-test statistic is high, so we are confident in our estimate of exports.
E) Exports<sub>estimated</sub> = 50, but the F-test statistic fails standard significance tests and the RMSE is large relative to estimated exports, so we are not confident in our estimate.
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Chapter 5: Production Theory
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Sample Questions
Q1) Lines that represent bundles of inputs that cost the same total amount are called:
A) total cost curves.
B) isocost curves.
C) cost curves.
D) isoquants.
E) isoprofit curves.
Q2) The marginal rate of technical substitution is defined by:
A) MRTS<sub>1,2</sub> = MP<sub>1</sub> /MP<sub>2</sub>.
B) MRTS<sub>1,2</sub> = MP<sub>1</sub>MP<sub>2</sub>.
C) MRTS<sub>1,2</sub> = MP<sub>1</sub>/P<sub>1</sub>.
D) MRTS<sub>1,2</sub> = P<sub>1</sub>/P<sub>2</sub>.
E) MRTS<sub>1,2</sub> = MP<sub>2</sub>/P<sub>2</sub>.
Q3) Whenever marginal product is positive and declining with increasing use of an input:
A) total product is declining as input use increases.
B) average product is declining as input use increases.
C) marginal product is greater than average product.
D) marginal product is less than average product.
E) total product is increasing at a decreasing rate as input use increases.
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Chapter 6: The Analysis of Costs
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Q1) The addition to total cost resulting from the addition of the last unit of output is known as:
A) marginal product.
B) average product.
C) average variable cost.
D) average total cost.
E) marginal cost.
Q2) If a firm is choosing cost-minimizing combinations of inputs,marginal cost can be defined as the price of any:
A) input divided by its average product.
B) variable input divided by its average product.
C) fixed input divided by its average product.
D) variable input divided by its marginal product.
E) fixed input divided by its marginal product.
Q3) The opportunity cost of a firm's inputs:
A) depends on who supplies them to the firm.
B) includes implicit costs but does not include explicit costs.
C) includes explicit costs but does not include implicit costs.
D) should not concern anyone but economists.
E) is the value of the inputs in their most highly valued alternative use.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) If the perfectly competitive market supply of pork bellies shifts from Q<sub>S</sub><sub>,93</sub> = 250 + 50P to Q<sub>S</sub><sub>,94</sub> = 400 + 40P,and the market demand is given by Q<sub>D</sub> = +10,000 - 200P,then the change in equilibrium price will be:
A) $2.
B) $1.
C) $0.
D) -$1.
E) -$2.
Q2) The long-run supply curve for a product is horizontal with ATC = 200.Market demand is defined as P = 1,000 - 5Q.The market is competitive and is in long-run equilibrium with 40 firms in the industry.If a $50 tax is imposed on sellers,how many firms will be in the industry at the new long-run equilibrium?
A) 44.
B) 37.
C) 32.
D) 29.
E) 28.
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Chapter 8: Monopoly and Monopolistic Competition
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Sample Questions
Q1) For a producer of joint products X and Y with total costs C<sub>X</sub> and C<sub>Y</sub>,an isocost curve:
A) isolates C<sub>X</sub> and C<sub>Y</sub> separately.
B) shows points where C<sub>X</sub> = C<sub>Y </sub>.
C) shows points where cost curves are tangent.
D) shows points where C<sub>X</sub> /C<sub>Y</sub> is constant.
E) shows points where C<sub>X</sub> + C<sub>Y</sub> is constant.
Q2) So long as price exceeds average variable cost,in the model of monopolistic competition,a firm maximizes profits by producing where:
A) the difference between marginal revenue and marginal cost is maximized.
B) marginal cost equals marginal revenue.
C) marginal revenue equals price.
D) the difference between price and marginal cost is maximized.
E) price equals marginal cost.
Q3) In the model of monopoly,firms produce a:
A) standardized product with considerable control over price.
B) differentiated product with considerable control over price.
C) standardized product with no control over price.
D) differentiated product with no control over price.
E) standardized or differentiated product with some control over price.
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Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) When a utility charges homeowners less than big industrial users,it is practicing:
A) first-degree price discrimination.
B) fourth-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.
Q2) The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 120.15Q during peak traffic periods and P = 9 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal off-peak load toll for crossing the bridge?
A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.6.
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11
Chapter 10: Bundling and Intrafirm Pricing
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Q1) The XYZ Steel Company produces its own coal for use in its production facility.The demand for steel is given by P<sub>s</sub> = 500 - 2Q<sub>s</sub> and the total cost of producing steel is given by TC<sub>s</sub> = 175Q<sub>s</sub>,where Q<sub>s</sub> is tons of steel per week.The price of coal in a perfectly competitive market outside the firm is $250 per ton,and the total cost of producing coal is given by TC<sub>c</sub> = 40 + 5Q<sub>c</sub><sup>2</sup>,where Q<sub>c</sub> is tons of coal per week.How much coal should the XYZ Company produce?
A) 2 tons.
B) 25 tons.
C) 100 tons.
D) 200 tons.
E) 250 tons.
Q2) When the NCAA basketball tournament will only sell tickets to all three games held at a given site as a package,it is practicing:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.
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Page 12
Chapter 11: Oligopoly
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Sample Questions
Q1) Oligopoly is a market structure that necessarily has:
A) cartels.
B) a large number of firms with homogeneous products.
C) a large number of firms with slightly different products.
D) a small number of firms but more than one.
E) only one firm.
Q2) With the price leadership strategy:
A) the many small firms set the market price, and the large firm must follow their behavior.
B) the large firm sets the market price, and the many small firms must follow its behavior.
C) firms collude to determine optimal price and output for the industry.
D) firms determine price and output independent of one another.
E) firms are not profit maximizers.
Q3) Duopolists who compete on the basis of price will:
A) end up with price equal to marginal cost.
B) charge a price greater than marginal cost.
C) charge a price less than marginal cost.
D) price discriminate.
E) charge a price equal to marginal revenue.
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Chapter 12: Game Theory
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Q1) Game theory is useful for understanding oligopoly behavior because:
A) there are so many firms in an oligopoly that all are price takers.
B) firms must differentiate their products if they are to remain in business.
C) firms recognize that because there are only a few firms mutual interdependence is important.
D) without it firms would not be able to maintain cartel agreements.
E) it allows firms to develop greater monopoly power.
Q2) A most-favored-customer clause:
A) is a commitment but not a threat.
B) is a threat but not a commitment.
C) is both a threat and a commitment.
D) is neither a threat nor a commitment.
E) could be either a threat or a commitment depending on the terms.
Q3) Getting to a Nash equilibrium requires:
A) each knowing the opponent's payoffs and cooperation.
B) knowing the opponent's payoffs but not cooperation.
C) cooperation but not knowing the opponent's payoffs.
D) neither cooperation nor knowing the opponent's payoffs.
E) either cooperation or knowing the opponent's payoffs, depending on the game.
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Page 14
Chapter 13: Auctions
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Sample Questions
Q1) Repurchase tender offers require sellers to:
A) submit a sealed bid indicating the minimum amount that they would accept for their shares.
B) submit a schedule indicating their willingness to supply different numbers of shares at different prices.
C) accept or reject the tender offer price specified by the corporation.
D) contractually limit their opportunity to sell shares on the open market.
E) purchase warrants that specify the future price of shares.
Q2) What is the optimal bid for a descending-price auction if the bidder's reservation price is 8,the lowest possible bid is 2,and there are three bidders?
A) 2.
B) 6.
C) 7.
D) 8.
E) None of the above.
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Chapter 14: Risk Analysis
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Sample Questions
Q1) If x<sub>i</sub> is defined as x<sub>i</sub> = \(\pi\)<sub>i</sub>E(\(\pi\)<sub>i</sub>),and p<sub>i</sub> is the probability of occurrence of any x<sub>i</sub>,the formula for the square of the standard deviation can be written as:
A) \(\Sigma\) x<sub>i</sub> p<sub>i</sub>.
B)\(\Sigma\) x<sub>i</sub> p<sup>2</sup><sub>i </sub>.
C) \(\Sigma\)x<sup>2</sup><sub>i</sub> p<sup>2</sup><sub>i </sub>.
D) \(\Sigma\)x<sup>2</sup><sub>i</sub> p<sub>i</sub>.
E)\(\Sigma\)(x<sub>i</sub> p<sub>i</sub>)<sup>2</sup>.
Q2) A person who has a utility function (with income on the horizontal axis and utility on the vertical axis)that is linear is:
A) risk-averse.
B) risk loving.
C) risk-neutral.
D) irrational.
E) always sad.
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Page 16
Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) Use the following profit function (per worker)for the Blue Delta Faucet Company to answer this question. P(e)= 40e - (2e<sup>2</sup> + 100)
Note that P = firm profits and e = worker-hours per day.Assume that effort is observed perfectly.At the profit-maximizing level of effort for the firm,daily per-worker compensation will be:
A) $100.
B) $200.
C) $300.
D) $340.
E) none of the above.
Q2) If effort is unobservable and revenues are riskless,firms can design incentive-compatible compensation schemes by offering workers:
A) profit shares.
B) increased nonmonetary benefits.
C) increased fixed salary.
D) decreased effort requirements.
E) increased future compensation in the form of retirement pay.
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17
Chapter 16: Adverse Selection
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Sample Questions
Q1) Suppose the Ajax Insurance Company provides insurance for skydivers whose wealth before diving is $400.An accident will leave divers with a wealth of $100.The company divides the divers into two classes,safe (probability of an accident = 0.2)and unsafe (probability of an accident = 0.5).The utility of wealth for all divers is given by the function: U(w)= w<sup>0.5</sup>.Given this information,the divers are:
A) risk-averse.
B) risk seeking.
C) risk-neutral.
D) indifferent to risk.
E) risk-averse, risk seeking, or risk-neutral; we cannot tell from this information.
Q2) Requiring applicants for life insurance to undergo a physical examination is an effective way to:
A) reduce moral hazard.
B) increase information asymmetry.
C) reduce adverse selection.
D) increase sales.
E) none of the above.
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Chapter 17: Government and Business
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Sample Questions
Q1) If there are two large firms,each with one-quarter of the market,and 10 firms,each with one-twentieth of the market,in an industry,the market four-firm concentration ratio will be:
A) 40.
B) 50.
C) 60.
D) 10.
E) 12.
Q2) Breckner Gas Company faces a demand for their gas given by P = 30 - 0.25Q.It has total costs (exclusive of the required rate of return on its invested capital)of TC = -60 + 8Q + 0.75Q<sup>2</sup>.If the commission that regulates Breckner determines that $100 is sufficient to compensate equity holders for their invested capital,what are the regulated price and output?
A) P = 23.75, Q = 25.
B) P = 25, Q = 20.
C) P = 27.5, Q = 10.
D) P = 22.5, Q = 30.
E) P = 20, Q = 40.
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Page 19
Chapter 18: Optimization Techniques
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Sample Questions
Q1) Instructed to choose the combination of inputs that minimizes the cost of producing 2,000 pan-head screws,your assistant returns with the startling news that the Lagrangian multiplier is $0.10.From this you conclude that:
A) costs have not been minimized.
B) the average cost of producing screws at 2,000 units is $0.10.
C) the marginal cost of producing screws at 2,000 units is $0.10.
D) marginal cost equals average cost.
E) the price of the screws must be $0.10.
Q2) If Y = a + bX + cX<sup>d</sup>,then dY/dX is:
A) a + bX + cX<sup>d</sup>.
B) b - 1 + (c - 1)X<sup>d</sup><sup> - 1</sup>.
C) b + (d - 1)(c - 1)X<sup>d</sup><sup> - 1</sup>.
D) b + cdX<sup>d</sup><sup> - 1</sup>.
E) bX + cX<sup>d</sup>.
Q3) The power rule of differentiation is:
A) Y = aX<sup>b</sup> \(\rarr\)dY/dX = (b - 1)aX<sup>b</sup><sup> - 1</sup>.
B) Y = aX<sup>b</sup> \(\rarr\) dY/dX = (a - 1)bX<sup>a</sup><sup> - 1</sup>.
C) Y = aX<sup>b</sup> \(\rarr\)dY/dX = (a - 1)aX<sup>a</sup><sup> - 1</sup>.
D) Y = aX<sup>b</sup> \(\rarr\)dY/dX = (b - 1)bX<sup>b</sup><sup> - 1</sup>.
E) Y = aX<sup>b</sup> \(\rarr\)dY/dX = baX<sup>b</sup><sup> - 1</sup>.
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Chapter 19: Appendix Problems
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Sample Questions
Q1) You buy your child a $100 savings bond that matures in 10 years and pays an annual interest rate of 10%.At maturity the bond will be worth:
A) $228.17.
B) $200.
C) $259.37.
D) $271.17.
E) $217.71.
Q2) You've just won the $25 million lottery.You are going to receive a check for $1 million today and at the end of every year for the next 24 years.If the interest rate is 10%,the present value of your prize is:
A) $8,984,744.
B) $9,984,744.
C) $12,984,744.
D) $20,000,000.
E) $25,000,000.
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