Business Strategy
Final Test Solutions
Course Introduction
Business Strategy explores the frameworks, tools, and concepts organizations use to achieve competitive advantage and long-term success. Students will examine strategic analysis, formulation, and implementation processes, considering both internal resources and external market forces. The course emphasizes real-world case studies, competitive dynamics, and ethical considerations, enabling students to develop critical thinking and decision-making skills essential for navigating complex business environments and formulating effective strategic plans.
Recommended Textbook
Managerial Economics 5th Edition by Luke M. Froeb
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21 Chapters
1734 Verified Questions
1734 Flashcards
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Chapter 1: The One Lessor of Business
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) An example of price floor is
A)Minimum wages
B)Rent controls in New York
C)Both a and b
D)None of the above
Answer: A
Q2) Securities Taxes
Congress has proposed a new tax on any transactions of securities traded on Wall Street.How would this destroy wealth?
Answer: In order for both the buyer and seller to benefit from a transaction the bid price the buyer is willing to pay must exceed the ask price the seller is willing to accept.With the new tax,this spread between bid and ask must be large enough to also cover the new transactions tax.This means that potential transactions in which the bid-ask spread is positive but not larger than the tax will not be consummated.Thus,the tax prevents an asset from moving to a higher valued use.[Note: Congressional spending requires the imposition of taxes.On balance,this could increase wealth if society values government services by more than the tax revenue collected plus the loss due to these unconsummated transactions.]
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Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) For a trucking company,all of the following are examples of fixed costs,except
A)Tax accountant fees
B)Package designing fees
C)Insurance
D)Gasoline costs
Answer: D
Q2) A business incurs the following costs per unit: Labor $5/unit;Materials $3/unit and rent $5000/month.If the firm produces 1000 units a month,the total costs equals
A)$5,000
B)$8,000
C)$13,000
D)$3,000
Answer: C
Q3) Which of the following statements is true?
A)Economic profits ignore implicit costs.
B)Economic profits include implicit costs.
C)Accounting profits include all of the opportunity costs.
D)Economists consider sunk costs in their decision making.
Answer: B
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Page 4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) Shoe-a-holic
Cathy started her own line of custom made,hand embellished wedding shoes.She opened up her own shop paid $2500 in fixed licensing fee.She used about $3000 in raw materials and made $3500.At the end of the first month,Carly,her sister looked at her financials and told her that she was losing money and should shut down.Cathy is heartbroken.As an economics guru,what would you advise her to do?
Answer: Carly is considering $2500 in fixed costs as a part of her calculations,which is why she advises Cathy to shut down.However,fixed costs should not be a part of the decision making in this case because they are sunk and no longer avoidable by stopping production.Even if Cathy shuts down,she cannot get any of the $2500 back.On the flip side,she is actually making a profit of $500 ($3500-$3000)and therefore should not shut down.
Q2) What is the average cost of producing three units?
A)$200
B)$100
C)$50
D)$70
Answer: B
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Page 5
Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) Is the investment in the new printer feasible?
A)Yes since NPV>0
B)No since NPV<0
C)Yes since the present value of the cash flows is greater than zero
D)No since the present value of the cash flows is lesser than zero
Q2) Discontinuing a Missile Program
Merowak Missiles has developed its Democratizer Offensive Weapon System (DOWS)for the US military.After sinking $1 billion into R&D and design,it spent $0.5 billion building the tools and production facility that are unique to DOWS production.It houses these in standard factory floor space that costs $1 million.Each missile has a marginal cost of $2,000.The Pentagon is thinking of discontinuing the program because the missiles are too expensive.If Merowak were to get an order for 50,000 missiles,what would its breakeven price be?
Q3) What is the cost of production at the number of units where the company is indifferent between the two technologies?
A)$750
B)$850
C)$950
D)$1050
Page 6
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Chapter 5: Simple Pricing
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87 Flashcards
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Sample Questions
Q1) A product can be classified as an inferior good if an increase in the income causes
A)A decrease in the quantity demanded
B)A decrease in demand
C)An increase in demand
D)An increase in the quantity demanded.
Q2) Its lunch time,you are hungry and would like to have some pizza.By the law of diminishing marginal value,
A)you would pay more for your first slice of pizza than your second
B)you would pay more for your second slice of pizza than your first
C)you would pay an equal amount of money for both the slices since they are identical
D)none of the above
Q3) If potatoes are inferior goods,which of the following will increase the demand for potatoes?
A)Increase in the price of a complement
B)Decrease in income
C)Decrease in the price of a substitute
D)Increase in income
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) An airlines realizes that instead of offering free checked in baggage,they could put a charge on checked baggage without the demand for the tickets decreasing.The space saved can be used to carry priority mail packages,with hardly any additional costs.The airlines has realized
A)Economies of scale
B)Economies of scope
C)Diseconomies of scale
D)Diseconomies of scope
Q2) If marginal costs rises above average costs,average costs must
A)Be increasing
B)Be decreasing
C)Stay constant
D)None of the above
Q3) When a firm is experiencing increasing marginal costs,it implies
A)A constant marginal productivity
B)decreasing average costs
C)decreasing marginal productivity
D)increasing marginal productivity
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8
Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) A market maker faces the following demand and supply for widgets.Eleven buyers are willing to buy at the following prices: $15,$14,$13,$12,$11,$10,$9,$8,$7,$6,$5.Eleven sellers are also willing to sell at the same prices.If the market maker bought and sold at the equilibrium price,what is his profit
A)$1
B)$2.5
C)$3
D)$0
Q2) At the equilibrium price
A)only sellers who value the product more than the equilibrium price would be willing to sell
B)only buyers who value the product less than the equilibrium price would be willing to buy
C)only buyers who value the product more than the equilibrium price would be willing to buy
D)None of the parties would be willing to trade
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9
Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) Which of the following cannot be classified as a market structure?
A)Perfect Competition
B)Monopoly
C)All of the above
D)None of the above
Q2) In a competitive industry
A)firms sell more if price is above marginal cost
B)firms sell more is price is below marginal cost
C)firms sell less if price is above marginal cost
D)none of the above
Q3) Which of the following is least like a monopoly
A)Twitter
B)YouTube
C)Facebook
D)Google
Q4) A firm in a ______________ faces a __________ demand curve.
A)perfectly competitive market;perfectly inelastic
B)perfectly competitive market;perfectly elastic
C)monopoly market;perfectly elastic
D)monopoly market;horizontal
Page 10
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Supplier power is high when
A)Suppliers are concentrated
B)The inputs provided are critical
C)The inputs provided are unsubstitutable
D)All of the above
Q2) Industries with high barriers to entry
A)Pushes profits to normal returns
B)Increases the likelihood of firms entering the industry
C)Help firms sustain long term profits
D)Increases the number of competitors
Q3) If a customer values good A at $15,and it costs the firm $10 to produce,current profit per unit is
A)$10
B)$8
C)$5
D)$1
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11
Chapter 10: Foreign Exchange, Trade, and Bubbles
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83 Flashcards
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Sample Questions
Q1) If the price of a Canadian dollar went from 0.95 US dollars to 0.98 US dollars,we would say that the US dollar has
A)Appreciated
B)Depreciated
C)Not changed in value
D)None of the above
Q2) Due to a boom in the US,the average rate of return on investments is likely to rise causing the US dollar to
A)Appreciate
B)Depreciate
C)Not change in value
D)None of the above
Q3) Holding other things constant,a depreciation of the US Dollar relative to the Kenyan Shilling would cause the demand for the Shilling to _____________ and the supply for Shilling to __________.
A)Increase;decrease
B)Increase,increase
C)Decrease;Increase
D)Decrease;Decrease
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Page 12
Chapter 11: More Realistic and Complex Pricing
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72 Flashcards
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Sample Questions
Q1) Which of the following are ways of promoting a firm's product
A)Advertising
B)Discount coupons
C)End-of-aisle displays
D)All of the above
Q2) Which of the following is true?
A)To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,raise prices on both the products
C)After acquiring a complementary product,lower prices on both the products
D)All of the above
Q3) The pricing rule MR=MC holds for
A)All firms
B)Single product firms
C)Multiple product firms
D)None of the above
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13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) The idea behind price discrimination is
A)To be able to sell to high-value customers,who value the product most
B)To be able to sell to the marginal customers,who are indifferent about the purchase
C)To be able to sell to the low-value customers,who would otherwise not buy the product
D)To be able to sell to both high and low value customers at different prices
Q2) When deciding what price to charge customers,a firm may choose to charge different prices based on customers'
A)Age
B)Willingness to pay
C)Location
D)All of the above
Q3) Given that the firm wants to sell both the versions,how should it price its products to have the users self-sort themselves profitably?
A)No-name $60;High-end $130
B)No-name $60;High-end $100
C)No-name $40;High-end $100
D)No-name $40;High end $130
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Chapter 13: Strategic Games
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91 Flashcards
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Sample Questions
Q1) If the stores could co-operate,what is the new Nash equilibrium?
A)Megastore $95 and Superstore $80
B)Megastore $305 and Superstore $55
C)Megastore $65 and Superstore $285
D)Megastore $165 and Superstore $115
Q2) What would the Nash equilibrium be in this game?
A)Neither of the players would stop
B)Both of the players would stop
C)Player A stops
D)Player B stops
Q3) If the game is repeated indefinitely,and the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time,what would be the Nash equilibrium?
A)Both the vendors price high
B)Both the vendors price low
C)Vendor A prices high,vendor B prices low
D)Vendor B prices high,vendor A prices low
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Chapter 14: Bargaining
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Sample Questions
Q1) Is this Nash equilibrium efficient?
A)Yes,because the sum of payoffs is highest
B)No,because both the parties can do better
C)No,because both the parties are maximizing their profits
D)All of the above
Q2) When buying a car from a commission salesman you improve your bargaining position by
A)shopping when the new model year cars have just arrived
B)shopping when the showroom is full of customers
C)shopping when the car lot has very few cars left unsold
D)shopping toward the end of the month
Q3) In the simultaneous move labor negotiation game:
A)Neither party prefers bargaining hard in the Nash equilibrium
B)Both the parties want to end up in the least efficient outcome
C)Both parties bargain hard in the Nash equilibrium
D)Both parties want to stay in the prisoner's dilemma
Q4) Burn the Boats
When Hernán Cortés was leading his men in conquest of the Aztecs in Mexico,he famously burned his boats on the beach before setting off inland.How does this help him to bargain with his sometimes unwilling men?
Page 16
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Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) Which types of poor decisions are more visible to a decision maker's supervisor?
A)Agreeing to undertake an unprofitable project
B)Deciding not to undertake a profitable project
C)Deciding not to undertake an unprofitable project
D)Deciding to investigate a proposed project until one is certain
Q2) Type II errors are
A)False negatives
B)False positives
C)True negatives
D)True positives
Q3) You are considering buying a store.The storeowner gives you an estimate of the net profits of the store on a typical day.The owner has most likely given you the figures for A)The best case scenario
B)The worst case scenario
C)Any typical day
D)Any typical year
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17
Chapter 16: Auctions
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Sample Questions
Q1) In an auction where the bidders values are $740,$700,$660,$650,$400,$325 and $300,the highest three bidders decide to form a bid-rigging cartel.What would the winning bid have been without the cartel?
A)$741
B)$701
C)$661
D)$631
Q2) With which choice are you more likely to avoid Bid-rigging cartels?
A)Holding oral auctions
B)Holding Vickery auctions
C)Holding sealed-bid auctions
D)Both B&C
Q3) Ebay's use of "bidding agents" will
A)effectively turn an English auction into a Vickery auction
B)effectively turn a Vickery auction into an English auction
C)decide how much to shade your bid for you
D)make you a more aggressive bidder
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Chapter 17: The Problem of Adverse Selection
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Sample Questions
Q1) Which firm is not dealing with adverse selection
A)a manufacturer forgoes a usual 90 day probationary period for new employees
B)a temporary clerical agency requires a typing test
C)a manufacturer requires suppliers to be ISO 9000 certified
D)Smokers get the worse life insurance rates as non-smokers
Q2) To signal to your insurance company that you are a low risk individual,to secure a lower premium,you should
A)Accept an insurance policy with a high deductible
B)Accept an insurance policy with a low deductible
C)Accept an insurance policy with a co-payment
D)Both A&C
Q3) Which is a screen against adverse selection
A)Insurance companies require homeowners to have smoke detectors
B)Rearview cameras in cars
C)Installing engine monitors to track driving habits of the insured
D)Prospective secretaries must take a typing test before being hired
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Chapter 18: The Problem of Moral Hazard
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Sample Questions
Q1) Many spouses complain that their partners tend to "let themselves go" after getting married.This is an example of
A)Moral hazard
B)Adverse selection
C)Terrible husbands
D)None of the above
Q2) To keep employees from shirking,invest in greater monitoring
A)when monitoring is expensive relative to its benefits
B)especially when monitoring is efficient
C)when employees respond well to incentive contracts
D)when incentives solve both moral hazard and adverse selection problems with employees
Q3) You offer an extended warranty for your product that is purchased by a few customers.If the product typically fails 2% of the time,the claim rate will exceed 2% of warranty purchasers because
A)adverse selection will lead those who are more reckless to purchase the warranty
B)moral hazard will lead those who purchase to be more reckless
C)you systematically underestimate product failure rates
D)Both A&B
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) Examples of incentive pay include
A)commission sales
B)providing onsite parking for employees
C)cleaning the worksite with weekly janitorial service
D)offering a certain number of sick days
Q2) The ways to address agency costs include all EXCEPT
A)running background checks on prospective employees
B)hiring only from job fairs
C)spot checks of the quality of employee work
D)replacing closed offices with cubical office spaces
Q3) A firm could persuade the sales agent to accept profit based compensation if the new commission is
A)Positive sales biased
B)Negative sales biased
C)Sales neutral
D)None of the above
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Chapter 20: Getting Divisions to Work in the Firms Best
Interest
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Sample Questions
Q1) A telecommunication company divided into different divisions for residential and business Internet service is an example of
A)An M-form of an organization
B)A functional organization
C)An N-form organization
D)All of the above
Q2) All of the following can cause conflict between divisions EXCEPT
A)Coordination between divisions does not benefit all divisions equally
B)managers of profit centers care too little about the effects of their decisions on other divisions
C)managers are rewarded only for how much profit their own division generates
D)corporate executives can tell when a divisional manager's decisions are appropriate or not
Q3) A profit center
A)Is very complicated to run and manage
B)Doesn't require a lot of attention from executives at the firm's headquarters
C)Requires the parent company's highest degree of attention
D)Does not properly incentivize the managers when it comes to their own division's performance
Page 22
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Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Which of the following is TRUE?
A)Discount retailers can defeat price discrimination by the manufacturers through arbitrage
B)Arbitrage is not an effective way for retailers to defeat price discrimination by manufacturers
C)Retailers are incapable of defeating upstream price discrimination once the manufacturer sets prices
D)"High End" retailers can defeat price discrimination by the manufacturers through arbitrage
Q2) Vertical contracts between manufacturers and retailers often aim to
A)Incentivize the retailers to undertake costly activities,which they otherwise may not realize the full benefits of on their own
B)Serve as a "signal" of the manufacturer's belief of the likely success of his product
C)Reimburse the retailer for the cost of managing an extended inventory
D)All of the above
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