Business Strategy
Final Exam Questions
Course Introduction
Business Strategy explores the formulation, implementation, and evaluation of strategies that drive organizational success in competitive environments. The course examines key concepts such as industry analysis, competitive advantage, corporate and business-level strategies, and strategic decision-making. Students learn to apply analytical frameworks to real-world business problems, assess internal and external factors, and evaluate strategic options to achieve sustainable growth. Through case studies and practical exercises, participants develop critical thinking and problem-solving skills essential for crafting effective strategies in diverse industries.
Recommended Textbook
Economics of Strategy 5th Edition by David
Besanko
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18 Chapters
450 Verified Questions
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Page 2
Chapter 1: Basic Microeconomic Principles
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Q1) What is the revenue destruction effect?
A)The loss in revenue a firm incurs on units it would have sold at a higher price when reducing price to sell extra units
B)The loss in revenue a firm incurs as a result of selling fewer units of output when raising price to increase profit
C)The loss in revenue a firm incurs due to brand level elasticities
D)The loss in revenue a firm incurs due to being in a perfectly competitive market
E)The loss in revenue a firm incurs due to predatory pricing
Answer: A
Q2) In what special situation might the law of demand not hold?
A)In a perfectly competitive market
B)When there is a high price elasticity of demand
C)When MR=MC
D)At the Nash Equilibrium
E)If high prices confer prestige
Answer: E
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3
Chapter 2: Economies of Scale and Scope
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Q1) Which of the following best describes economies of scope?
A)The average cost declines as output increases
B)The average cost increases as output increases
C)The average cost remains constant as output increases
D)Savings are achieved when a firm produces a wider variety of goods
E)Savings are achieved when a firm produces a decreased variety of goods
Answer: D
Q2) What term for production describes a situation where factories and assembly lines represent a significant percentage of total costs?
A)Materials intensive
B)Labor intensive
C)Capital intensive
D)Research intensive
E)Time intensive
Answer: C
Q3) Suppose the cost of advertising in a local newspaper is $5 per thousand papers.If the circulation for the paper is 1.5 million and the cost of preparing an ad for a company is $2500,what is the advertising cost per potential customer?
Answer: $.0067 per potential customer,or $6.67 per 1000 customers
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Page 4
Chapter 3: Agency and Coordination
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Q1) What term describes situations in which the aspects of the agent's action that are important to the principal cannot be observed?
A)Unobservable action
B)Hidden action
C)Covert action
D)Unobservable information
E)Hidden information
Answer: B
Q2) How does Goldman Sachs as a firm manage issues around hidden information and hidden action of the firm's traders (agents)?
A)Monitoring at the department level only
B)Employee incentive based pay in the form of bonuses
C)A 30-member risk committee to examine the value at risk
D)Objective alignment between the firm and shareholders
E)A hedging program
Answer: C
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) 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
Q2) Which of the following did not contribute to the high transaction related risks for U.S.potato sales in 1840?
A)Infrequency of transactions
B)Changing transaction partners
C)Lack of availability of sales and prices for comparable goods
D)Competition from European merchants
E)Geographic distance between buyers and sellers
Q3) What was the major role of private banks in the early 1800s?
A)Serve as an institution for deposits
B)Issue credit
C)Reduce the risk of price fluctuation
D)Create futures markets
E)Sell stocks
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Chapter 5: The Vertical Boundaries of the Firm
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Q1) What problem preventing complete contracts refers to the limits on the capacity of individuals to process information,deal with complexity and pursue rational aims?
A)Agency costs
B)Bounded rationality
C)Performance measurement difficulties
D)Asymmetric information
E)Contract body of law
Q2) What do the vertical boundaries of a firm refer to?
A)The activities the firm itself performs versus purchases from independent firms
B)The level of expertise of the firm's workforce
C)The breadth of products a firm produces
D)The production output level for a firm
E)The chain of production processes from raw materials to finished good
Q3) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.If your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and market price (bailout market price in the event Dell does not buy)Pm=$22/unit,what is your company's RSI (relationship specific investment)?
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Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Q1) According to the GHM Theory,the choice between an in-house sales force versus independent agents should turn on the relative importance of investments in developing persistent clients by the agent versus list-building activities by the insurance firm.What would GHM thus predict about the sales of whole life versus term life insurance?
A)Both would be sold by the insurance company's in-house sales force
B)Whole life would be sold by the insurance company's in-house sales force; term by an independent agent
C)Whole life would be sold by an independent agent; term by the insurance company's in-house sales force
D)Both would be sold by an independent agent
E)An insurance company would try to "buy" the business (whole and term life insurance)of its independent agents
Q2) What term describes when a firm is using the least-cost production process?
A)Agency efficiency
B)Technical efficiency
C)Lean compliant
D)Economizing
E)Six sigma compliant
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Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Who is formally charged with monitoring management to ensure any diversification or other actions increase shareholder value?
A)Firm senior executives
B)Audit division
C)Board of directors
D)SEC
E)Shareholders themselves
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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9
Chapter 8: Competitors and Competition
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Q1) What term describes a firm that faces little or no competition in one of its input markets?
A)Monopolist
B)Monopsonist
C)Oligopolist
D)Oligopsonist
E)Cartelist
Q2) Which of the following is a reason other than concentration that price-cost margins may vary across industries?
A)Accounting practices
B)Regulation
C)Product differentiation
D)Nature of sales transactions
E)All of the above
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?
Q4) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
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Chapter 9: Strategic Commitment
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Q1) What type of contractual clause in a sales contract with a buyer provides a provision such that the seller is obligated to extend the same price terms to the buyer that it extends to other customers?
A)Indemnification clause
B)Most favored customer clause (MFCC)
C)Escape clause
D)Money back guarantee
E)Meet the competition clause (MCC)
Q2) What is the most likely reason a firm would pursue the "mad-dog" commitment strategy of making a tough commitment when tactical variables are strategic complements,a strategy with harmful strategic effects?
A)For deterrence of new entrants by creating capacity competition
B)To exploit intangible weaknesses of other firms
C)To test the response of other market firms
D)For deterrence of new entrants by increasing price competition
E)They are following another firm
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Chapter 10: The Dynamics of Pricing Rivalry
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Q1) What term refers to the situation in the used car market where owners are more anxious to sell low-quality cars than high-quality cars?
A)Clunker market
B)Quality conundrum
C)Car scrapping market
D)Low-quality market
E)Lemons market
Q2) Suppose Firm #1 dominates a market for widgets priced at $100/unit with a marginal cost of $60/unit.If Firm #2 enters the market and offers comparable widgets at a 3% discount,extending a price umbrella optimal as long as Firm #1 loses no more than what portion of its market share?
Q3) What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?
A)Dedicated pricing
B)Strategic pricing
C)Marginal pricing
D)Cost-plus pricing
E)Cooperative pricing
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12
Chapter 11: Entry and Exit
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Q1) What is the typical "capacity use" ratio as reported by plant managers to the U.S.Census of Manufacturers annually?
A)40%
B)50%
C)60%
D)70%
E)80%
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
Q3) Which of the following is not an exit barrier for firms in an industry?
A)Sunk costs
B)Labor agreements or commitments to purchase raw materials
C)Obligations to input suppliers
D)Excess capacity
E)Government restrictions
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Page 13
Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) How did European governments help Airbus aggressively pursue a 50% market share in its early years of operation?
A)Subsidies
B)High-interest loans
C)Helping to ensure scope economies from military aircraft division
D)Paying in excess of cost for military aircraft
E)Guaranteeing a set level of annual aircraft purchases
Q2) Which of the following is not a part of the five-forces framework?
A)Supplier Power
B)Internal rivalry
C)Regulation
D)Buyer Power
E)Substitutes and Complements
Q3) Which of the following is not a way teams "collude" within professional sports markets?
A)Agreeing on ticket prices
B)Agreeing on rules and schedules
C)Employing the same pool of referees
D)Sharing national broadcast revenues
E)Agreeing on rookie drafts
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What type of curve can be used to describe the set of price-quality combinations that yields the same consumer surplus to an individual?
A)Frontier curve
B)Learning curve
C)Level curve
D)Implicit curve
E)Indifference curve
Q2) Which of the following statements best describes a characteristic of geographic specialization focus strategies?
A)Offers a variety of products and/or sells to a variety of customer groups within a narrow geography
B)Offers an array of product varieties to a limited class of customers
C)Caters to the particular needs of the customer group served
D)Offers a limited set of products to an array of different customer groups
E)Does an especially good job satisfying a subset of the needs of the consumer groups being served
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Page 15
Chapter 14: Sustaining Competitive Advantage
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Q1) What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck,but returns to normal performance following?
A)Regression to the mean
B)Competitive advantage
C)Persistent performer
D)Sustainable firm
E)Predictable performance
Q2) What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it?
A)Value creation effect
B)Product linkage
C)Product externality
D)Complementary effect
E)Network effect
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16
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Q1) Which of the following terms best describes an idea,developed by Gary Hamel and C.K.Prahalad,which means a fundamental focus of a firm's strategy that commits it well beyond its current resource profile?
A)Leveraging resources
B)Strategic intent
C)Strategic stretch
D)Hypercompetition
E)Global dominance
Q2) What term best characterizes the battle between firms to innovate first?
A)Market for new ideas
B)New product competition
C)R&D race
D)Innovation competition
E)Patent race
Q3) Which of the following is not an example of disruptive technologies?
A)Computer workstations
B)Ink-jet printers
C)Electronic mail
D)Downloadable MP3 recordings
E)Segway human transporters Page 17
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Page 18
Chapter 16: Performance Measurement and Incentives in Firms
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Q1) What term best describes an agent who is indifferent between a sure thing and a gamble of equal expected value?
A)Risk sharing
B)Risk seeking
C)Risk neutral
D)Risk averse
E)Risk premium
Q2) Which of the following phrases best describes the effect created when there is a mismatch between the total benefit to a team and the personal benefit to one team member such that the one team member's effort choices may not be the ones that maximize the teams overall welfare?
A)Personal benefit
B)Team performance problem
C)Effort mismatch
D)Free-rider problem
E)Team dynamic problem
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Chapter 17: Strategy and Structure
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Q1) What type of organizational structure is one in which work groups may be organized by function,geography,or customer base,but where relationships between work groups are governed more by often-changing implicit and explicit requirements of common tasks than by the formal lines of authority that characterize other structures?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
Q2) Which of the following structures best describes a small group of people where one member of the group specializes in monitoring and coordinating the work of other members?
A)Complex hierarchy
B)Individually
C)Self-managed team
D)Hierarchy of authority
E)Divisional
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Chapter 18: Environment, power, and Culture
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Q1) Which of the following terms best describes an individual actor's ability to accomplish his or her goals by using resources obtained through noncontractual exchange relationships?
A)Power
B)Authority
C)Culture
D)Influence
E)Contracts
Q2) What term best describes exchanges of goods,services,or promises on terms that take place outside of traditional economic markets and are not enforceable in court?
A)Handshake agreement
B)Noncontractual exchange relationship
C)Internal context
D)External context
E)Exclusive dealing
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