Business Strategy
Midterm Exam
Course Introduction
Business Strategy is a comprehensive course that explores the frameworks, tools, and analytical techniques used to formulate and implement effective strategies in complex business environments. Students examine the fundamental concepts of strategic management, including competitive analysis, resource-based views, and industry structure. The course emphasizes real-world applications through case studies, enabling students to assess market positions, adapt to environmental changes, and align organizational resources to achieve long-term objectives. By the end of the course, students will have developed the skills needed to make informed, strategic decisions that drive sustainable business success.
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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Q1) Which of the following variables does not influence the quantity of product that a firm is able to sell?
A)Price of the product
B)Price of related products
C)Plant production costs
D)Incomes and tastes of consumers
E)Advertising
Answer: C
Q2) If a firm is producing as efficiently as it knows how,the how will the total cost function slope?
A)Upward
B)Downward
C)No Slope
D)Downward until an output threshold value, then upward
E)Upward until an output threshold value, then downward
Answer: A
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Chapter 2: Economies of Scale and Scope
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Q1) What is the approximate observed median learning curve slope for typical firms?
A).6
B).7
C).8
D).9
E)1.0
Answer: C
Q2) Which of the following practices does not contribute to the strategic fit of Southwest Airlines?
A)No in-flight catering
B)Use of multiple types of planes
C)No use of congested airports
D)Re-engineered boarding process
E)No first class section on plane
Answer: B
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 is a key factor in determining how a firm resolves coordination problems?
A)Incentive based pay
B)Effective IT systems
C)Firm culture
D)Alignment of goals
E)Organizational structure
Answer: E
Q2) Which of the following is a tool a firm can use to combat agency problems?
A)Monitoring
B)Performance-Based Incentives
C)Bureaucracy
D)a, b & c
E)None of the above
Answer: D
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) What was a key factor that aided foreign steel producers in penetrating U.S.markets?
A)Shifting demand in the economy to "lighter" products
B)Invention of the basic oxygen furnace
C)Development of the continuous casting process
D)U)S. steelmakers' commitment to "light" products
E)Development of the electric arc furnace
Q2) 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
Q3) Which of the following government regulations on business conditions did not increase circa 1910?
A)Regulation on corporate governance
B)Securities markets regulation
C)Antitrust regulation
D)Regulations on disability insurance provisions
E)Regulations on insurance for widows and children
Page 6
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Chapter 5: The Vertical Boundaries of the Firm
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Q1) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and the market price (bailout market price in the event Dell does not buy)Pm=$22/unit.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit and subsequently renegotiates to only purchase for $22.50/unit,what is your company's new "rent"?
Q2) Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines?
A)Site specificity
B)Physical asset specificity
C)Dedicated assets
D)Human asset specificity
E)The fundamental transformation
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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Page 7
Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Q1) For what critical aspect of drug development has research (Azoulay & Henderson)shown that major drug houses have chosen tapered integration?
A)Clinical Research
B)Drug Development
C)Marketing
D)Sales
E)Manufacturing
Q2) Why are the current health care systems on the rise being built around the integration of clinical information technology and disease management systems?
A)They both have high costs
B)They both are new trends in health care
C)They are easy to integrate
D)They do not require a significant investment to integrate
E)They both require asset specificity and coordination
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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 of the following is generally a way that LBOs can help a firm realize its potential value?
A)The synergies created allow for cost savings
B)The transaction reduces the disparity between a firm's actual and potential share price
C)The reduction in the number of shares outstanding makes it possible to give a firm's management a large equity share
D)The acquisition reduces the likelihood of competition in the industry
E)The buyout gives an opportunity to adjust the management structure and makeup
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Chapter 8: Competitors and Competition
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Q1) What kind of competition is generally described as quantity competition?
A)Bertrand competition
B)Cournot competition
C)Perfect competition
D)Chamberlin competition
E)Monopolistic competition
Q2) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
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) What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)?
A)Horizontal differentiation
B)Vertical differentiation
C)Idiosyncratic differentiation
D)Spatial differentiation
E)Non-price differentiation
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Chapter 9: Strategic Commitment
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Q1) What type of option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future?
A)Real option
B)Commitment option
C)Project option
D)Decision option
E)Future option
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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11
Chapter 10: The Dynamics of Pricing Rivalry
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Q1) Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?
A)Price cutting is easier to detect when demand conditions are volatile
B)Pricing coordination becomes easier in a volatile demand condition because firms are chasing a moving target
C)Price cutting is harder to detect when demand conditions are stable
D)Demand volatility is an especially serious problem when the production involves substantial variable costs
E)Demand volatility is an especially serious problem when the production involves substantial fixed costs
Q2) Why might a firm not be able to react quickly to competitors' pricing moves?
A)Lags in detecting competitors' prices
B)Infrequent interactions with competitors
C)Ambiguities in identifying which firm among a group of firms in a market is cutting price
D)Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand
E)All of the above
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Chapter 11: Entry and Exit
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Q1) Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs?
A)Limit pricing
B)Price leading
C)Predatory pricing
D)Quality pricing
E)Capacity expansion
Q2) When is reputation 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) Who are the most powerful suppliers in professional sports?
A)Players unions
B)Referees
C)Owners
D)Politicians
E)Cities
Q2) Which of the following factors requires the least consideration when assessing supplier power relative to the downstream industry it sells to?
A)Competitiveness of the output market
B)Purchase volume of downstream firms
C)Availability of substitute inputs
D)Threat of forward integration by suppliers
E)Ability of suppliers to price discriminate
Q3) 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
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market?
A)Industry effect
B)Competitive advantage
C)Business unit effect
D)Competitive position
E)Market profitability economics
Q2) Which of the following is not a common characteristic of capabilities?
A)They are valuable across multiple products or markets
B)They are tacit
C)They are easy to reduce to simple algorithms or procedure guides
D)They are embedded in what Richard Nelson and Sidney Winter call organizational routines - well-honed patterns of performing activities inside an organization
E)They can persist even though individuals leave the organization
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Chapter 14: Sustaining Competitive Advantage
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Q1) What type of isolating mechanisms impedes existing firms and potential entrants from duplicating the resources and capabilities that form the basis of the firm's advantage?
A)Scarce
B)Imperfectly mobile
C)Early-mover advantages
D)Impediments to imitation
E)Cospecialized
Q2) Which of the following is not an impediment to imitation?
A)Legal restrictions
B)Superior access to inputs or customers
C)Scale diseconomies
D)Market size economies
E)Intangible barriers: casual ambiguity, dependence on historical circumstances, and social complexity
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16
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Q1) Which of the following factors is least important for a firm to consider when engaged in a patent race and determining whether to increase its investment?
A)The cost of other R&D projects the firm is conducting
B)How much the investment will increase R&D productivity and thereby increase chances of winning the patent race
C)Whether other firms will increase their R&D expenditures in response, thereby decreasing the chance of winning the patent race
D)The number of competitors
E)The fact that antitrust laws may be more forgiving toward independent firms that agree to join forces in R&D before bringing the product to market than if the firms combine after each has made its own invention
Q2) Size,growth,and character of home demand for a firm's product are examples of what?
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 best describes a review system in which an employee's supervisor,coworkers and subordinates are all asked to provide information regarding that employee's performance over a period of time?
A)Traditional top down review system
B)360-degree peer review system
C)Management-by-objective system
D)Subjective performance evaluation
E)Pay-for-performance
Q2) 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
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Page 18
Chapter 17: Strategy and Structure
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Q1) What type of structure is the Japanese keiretsu structure?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
Q2) Which of the following structures involves multiple groups and multiple levels of groupings arising from the need not just to organize individuals into groups,but to organize groups into larger groups?
A)Complex hierarchy
B)Coordination
C)Control
D)Hierarchy of authority
E)Departmentalization
Q3) Which of the following is a dimension along which departmentalization can occur?
A)Tasks
B)Inputs
C)Outputs
D)Geography
E)All of the above
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Chapter 18: Environment, power, and Culture
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Q1) Which of the following is not a way firms suffering from dependence relationships can take action to reduce their dependence on buyers or suppliers?
A)Vertical integration
B)Using a monopolist buyer/supplier
C)Long-term contracting
D)Joint ventures
E)Alliances
Q2) What term does Ronald Burt use to describe a valued relationship between two unconnected parties with a strategy involving spanning a structural hole and bargaining with parties on either side for the most favorable terms?
A)Mavens
B)Nodes
C)Second who benefits
D)Tertius gaudens
E)Brokers
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