Business Strategy
Mock Exam
Course Introduction
Business Strategy explores the principles and frameworks that organizations use to achieve competitive advantage and long-term success. The course examines strategic analysis, formulation, and implementation, guiding students through the evaluation of internal and external environments, industry dynamics, and resource allocation. Through case studies and real-world examples, students learn to assess market opportunities, anticipate competitive threats, and make informed decisions that align organizational capabilities with strategic objectives. The course also addresses the challenges of executing strategy in complex and evolving markets, fostering critical thinking and analytical skills essential for future business leaders.
Recommended Textbook
Managerial Economics and Business Strategy 9th Edition by Michael Baye
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14 Chapters
2024 Verified Questions
2024 Flashcards
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Page 2
Chapter 1: The Fundamentals of Managerial Economics
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) Maximizing the lifetime value of the firm is equivalent to maximizing the firm's current profits if the:
A) interest rate is larger than the growth rate in profits and both are constant.
B) growth rate in profits is constant and is larger than the interest rate.
C) interest rate is smaller than the growth rate of profits.
D) growth rate of profits and the interest rate are equal.
Answer: A
Q2) Suppose the growth rate of the firm's profit is 7 percent,the interest rate is 10 percent,and the current profits of the firm are $120 million.What is the value of the firm?
A) $44 million
B) $4,280 million
C) $4,400 million
D) $6,800 million
Answer: C
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Chapter 2: Market Forces: Demand and Supply
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) Russian state television has imposed a temporary ban on all TV commercials.Your firm specializes in exports to Russia.Ninety percent of its sales consist of consumer goods shipped to Russia.Your supervisor wants to know the likely impact of the ban on your firm's operations.What do you tell her?
Answer: A ban on advertising will likely reduce the demand for your firm's product,resulting ultimately in a lower price and quantity sold.
Q2) A floor price is:
A) the minimum legal price that can be charged in a market.
B) the maximum legal price that can be charged in a market.
C) below the initial market equilibrium price.
D) equal to the initial market equilibrium price.
Answer: A
Q3) An ad valorem tax causes the supply curve to:
A) shift to the right.
B) become flatter.
C) become steeper.
D) shift to the left.
Answer: C
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4
Chapter 3: Quantitative Demand Analysis
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) The demand for good X is estimated to be Q<sub>x</sub><sup>d</sup> = 10,000 4P<sub>X</sub> + 5P<sub>Y</sub> + 2M + A<sub>X,</sub> where P<sub>X</sub> is the price of X,P<sub>Y</sub> is the price of good Y,M is income,and A<sub>X</sub> is the amount of advertising on X.Suppose the present price of good X is $50,P<sub>Y</sub> = $100,M = $25,000,and A<sub>X</sub> = 1,000 units.Based on this information,goods X and Y are:
A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.
Answer: A
Q2) If quantity demanded for sneakers falls by 6 percent when price increases 20 percent,we know that the absolute value of the own price elasticity of sneakers is: A) 0.3.
B) 0.7.
C) 2.3.
D) 3.3.
Answer: C
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Page 5
Chapter 4: The Theory of Individual Behavior
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183 Verified Questions
183 Flashcards
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Sample Questions
Q1) What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P<sub>x</sub> = $10,P<sub>y</sub> = $20,Y = 5,and M = 400?
A) 80
B) 20
C) 40
D) 30
Q2) A decrease in the price of good Y will have what effect on the budget line on a normal X-Y graph?
A) Increase the vertical intercept
B) Decrease the horizontal intercept
C) Parallel outward shift of the line
D) Parallel inward shift of the line
Q3) If a consumer is given a $10 gift certificate good for items in store X,and all items in store X are inferior goods,then the consumer desires to consume:
A) more goods in store X.
B) fewer goods in store X.
C) the same amount of goods in store X.
D) None of the preceding statements is correct.
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Page 6
Chapter 5: The Production Process and Costs
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) The feasible means of converting raw inputs such as steel,labor,and machinery into an output are summarized by:
A) land.
B) production.
C) capital.
D) technology.
Q2) In the short run,the marginal cost curve crosses the average total cost curve at:
A) a point just below the average fixed cost curve.
B) the minimum point of the average total cost curve.
C) the maximum point of the average total cost curve.
D) the point where the average total cost curve and average variable cost curve intersect.
Q3) Suppose the production function is given by Q = 4K + 3L.What is the average product of labor when 10 units of capital and 5 units of labor are employed?
A) 3
B) 4
C) 11
D) 45
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Chapter 6: The Organization of the Firm
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Suppose a firm manager has a base salary of $85,000 and earns 0.5 percent of all sales.Determine the manager's income if revenues are $2,000,000 and profits are $500,000.
A) $50,000
B) $87,500
C) $95,000
D) $170,000
Q2) The threat of a corporate takeover is an _________ incentive that helps to mitigate the _________ principal-agent problem.
A) internal; manager-worker
B) internal; manager-consumer
C) external; owner-manager
D) external; owner-consumer
Q3) Piece rates are typically a solution to the:
A) manager-worker, principal-agent problem.
B) manager-owner, principal-agent problem.
C) owner-worker, principal-agent problem.
D) None of the preceding statements is correct.
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Chapter 7: The Nature of Industry
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) A student figured out that the HHI for an industry was 15,000.What is the proper conclusion?
A) The market is monopolistic.
B) The market is close to perfectly competitive or monopolistically competitive.
C) The student made some computational errors.
D) There is free entry in the market.
Q2) A frozen food company buys a fresh food company.This takeover is an example of:
A) vertical integration.
B) horizontal integration.
C) cointegration.
D) conglomerate integration.
Q3) A firm has a Lerner index of 0.75 and charges a price of $150.The firm's marginal cost is:
A) $0.
B) $37.50.
C) $112.50.
D) There is not sufficient information to determine the firm's marginal cost.
Q4) Zelda Manufacturing has a rather unique product that sells for $15 per unit,and the marginal cost is $7.50.Determine the Lerner index for Zelda Manufacturing.Does this index indicate market power?
Page 9
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Chapter 8: Managing in Competitive, Monopolistic, and
Monopolistically Competitive Markets
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) You are the manager of a monopolistically competitive firm.The present demand curve you face is P = 100 - 4Q.Your cost function is C(Q)= 50 + 8.5Q<sup>2</sup>.
a.What level of output should you choose to maximize profits?
b.What price should you charge?
c.What will happen in your market in the long run?
Q2) In a monopoly where the marginal revenue and price are,respectively,given by $10 and $20,the price elasticity of demand is:
A) 1.
B) 2.
C) 0.5.
D) Cannot be determined based on the information in the question.
Q3) The primary difference between monopolistic competition and perfect competition is:
A) the ease of entry and exit into the industry.
B) the number of firms in the market.
C) Both A and B are correct.
D) None of the preceding answers is correct.
Q4) Why does the government grant patents to investors?
Why does the government give monopoly power to utility companies?
Page 10
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Chapter 9: Basic Oligopoly Models
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Sample Questions
Q1) Two firms compete as a Stackelberg duopoly.The inverse market demand they face is P = 62 4.5Q.The cost function for each firm is C(Q)= 8Q.The outputs of the two firms are:
A) Q<sub>L</sub> = 48; Q<sub>F</sub> = 24.
B) Q<sub>L</sub> = 35; Q<sub>F</sub> = 6.
C) Q<sub>L</sub> = 6; Q<sub>F</sub> = 3.
D) None of the preceding answers is correct.
Q2) A new firm enters a market which is initially serviced by a Bertrand duopoly charging a price of $30.Assuming that the new firm is equally as efficient as the incumbent firms,what will the new price be should the three firms coexist after the entry?
A) Above $30
B) Below $30
C) Equal to $30
D) Unable to tell given the information provided.
Q3) Which of the following is NOT a quantity-setting oligopoly model?
A) Stackelberg
B) Cournot
C) Bertrand
D) All of the choices are quantity-setting models.
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Page 11
Chapter 10: Game Theory: Inside Oligopoly
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142 Verified Questions
142 Flashcards
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Sample Questions
Q1) The following provides information for a one-shot game. \(\begin{array}{l}
\quad\quad\quad\quad\quad\quad\text { Firm B}\\
\text { Firm A}
\begin{array}{|l|l|l|}
\hline &\text { Low Price } & \text { High Price }\\
\hline & & \\
\text { Low Price } & (2,2) & (10,-8)\\
\hline & & \\
\text { High Price } & (-8,10) & (15,15)\\
\hline
\end{array}\end{array}\) What are the dominant strategies for firm A and firm B respectively?
A) (low price, high price)
B) (high price, low price)
C) (high price, high price)
D) Neither firm has a dominant strategy.
Q2) According to various trade publications,over 200,000 changes are made in airfares each day.Why do you think this is the case?
Q3) Would collusion be more likely in the shoe industry or in the airline industry? Why?
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Chapter 11: Pricing Strategies for Firms With Market Power
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Suppose that the inverse demand for a downstream firm is P = 150 Q.Its upstream division produces a critical input with costs of C<sub>U</sub>(Q<sub>d</sub>)= 5(Q<sub>d</sub> )<sup>2</sup>.The downstream firm's cost is C<sub>d</sub>(Q)= 10Q.When there is no external market for the downstream firm's critical input,the net marginal revenue for the downstream firm is:
A) NMR<sub>d</sub> = 140 2Q.
B) NMR<sub>d</sub> = 150 2Q.
C) NMR<sub>d</sub> = 140 Q.
D) NMR<sub>d</sub> = 150 Q.
Q2) In 1990,Chrysler offered rebates on almost all of its cars.In May of that year it announced that the rebate program would end on June 30.It also announced that no further rebates would be offered for the rest of the year.Chrysler guaranteed this by promising that if it did offer any rebates larger than those offered between May 1 and June 30,all customers who purchased cars before the new rebate would get the full rebate.How should this announcement have affected the pricing behavior of other car manufacturers?
Q3) An auto dealer in Chicago recently told his mother that he makes no money on the sales of his cars but the markup on accessories is 200 percent.Can this possibly be a profit-maximizing strategy?
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Page 13
Chapter 12: The Economics of Information
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147 Flashcards
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Sample Questions
Q1) Suppose you are a risk-neutral manager attempting to hire a new sales manager.All of the workers in the market have the same ability to manage and sell,but they differ with respect to the wage at which they are willing to work for your company.The market for sales managers is composed of three types of individuals: 85 percent are willing to work for $75,000 and 15 percent are willing to work for $85,000.The first interviewee is only willing to work for $85,000.If the human resource director spends five hours interviewing each candidate and the opportunity cost of this director's time is $500,then the director should:
A) search again since the expected benefit of an additional search exceeds the cost.
B) stop searching since the expected benefit of an additional search is less than the cost.
C) search again since the expected benefit of an additional search is less than the cost.
D) stop searching since the expected benefit of an additional search exceeds the cost.
Q2) You are considering opening your own hamburger restaurant.List the information that will influence your decision about whether to start your own restaurant or go with a franchise.
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Page 14
Chapter 13: Advanced Topics in Business Strategy
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Refer to the following payoff matrix:
\(\begin{array}{r}
\text { Player } 2\\
\text { Player } 1
\begin{array}{|l|l|l|}
\hline& \text { a} & \text { b} \\
\hline & & \\
\text { A } Q & \$ 50, \$ 5 & \$ 15, \$ 30 \\
\hline & & \\
\text { B } Q & \$ 40, \$ 2 & \$ 2, \$ 1\\
\hline
\end{array}
\end{array}\) Suppose the simultaneous-move game depicted in the payoff matrix could be turned into a sequential-move game with player 1 moving first.In this case,the equilibrium payoffs will be:
A) ($20, $1)
B) ($50, $5)
C) ($40, $2)
D) ($15, $30)
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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) You are the manager of a monopoly that faces an inverse demand curve \(P = 10010 Q\) ,and has constant average and marginal costs of $20 per unit.The government is considering legislation that would regulate your firm's price at $20 per unit.What is the maximum amount your firm should be willing to spend to lobby against the regulation?
Q2) Consider the monopoly in the figure below with price regulated at $2 per unit.Monopoly profits at the regulated price (assuming the presence of fixed costs)are:
A) $12.
B) $16.
C) $5.
D) There is insufficient information to determine the monopoly profits.
Q3) Which of the following is true concerning negative externalities?
A) Firms tend to produce more than the efficient level of output.
B) Society gains because firms do not pay the external costs of production.
C) Perfect competition is better than monopoly from the viewpoint of society even in the presence of negative externalities.
D) With negative externalities, a monopoly will always produce an output level less than is socially efficient.
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Page 16