Business Strategy
Test Preparation
Course Introduction
Business Strategy explores the principles and frameworks that guide organizations in achieving competitive advantage and long-term success. This course covers the analysis of industry environments, the formulation and implementation of strategic plans, resource allocation, and the evaluation of business performance. Students learn to assess internal and external factors impacting businesses, develop strategic objectives, and apply critical thinking to solve complex management challenges. By studying real-world cases and participating in simulations, students gain practical skills necessary for effective decision-making in diverse and dynamic market contexts.
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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Sample Questions
Q1) Which of the following best describes marginal cost?
A)The per-unit-of-output cost for a product
B)The incremental cost of producing one more unit of output.
C)A cost invariant to the firm's output
D)The sum of all costs associate with the production of a product
E)The cost of fixed items such as general and administrative expenses
Answer: B
Q2) At what point can a firm achieve a profit maximizing quantity?
A)MR>MC
B)MC=D
C)MR<MC
D)MR=D
E)MR=MC
Answer: C
Q3) Suppose a firm's plant produces Q units in any given year.The plant itself operates with annualized costs of $10M and other annual fixed expenses totaling $3M.In addition,the firm's variable costs depend on Q and are given by the formula 5Q²+3Q.What is the formula for the firm's Average Variable Costs?
Answer: AVC(Q)= 5Q+3
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Page 3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Why is firm specific learning better in general for an organization?
A)Encourages individuality among workers within the organization
B)Keeps unionized workers happy
C)Allows workers to acquire skills they can then "shop around"
D)Ensures worker knowledge is tied to current employment
E)Increases complexity and creativity in the organization
Answer: D
Q2) What might cause a firm to want to increase production past the point where additional revenues offset additional costs?
A)The firm is enjoying the benefits of the learning curve
B)Future production costs will be higher
C)Managers are being rewarded on the basis of short-run profits
D)The firm relies on direct growth incentives
E)The firm wants to violate the rule of equating marginal revenue equal to marginal cost
Answer: A
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Chapter 3: Agency and Coordination
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Q1) How are the coordination problems that exist around the construction of a new home generally solved?
A)Pricing
B)Software
C)Bureaucracy
D)Contractor
E)Markets
Answer: D
Q2) Which of the following factors is an effective tool for companies to use to mitigate hidden action and hidden information problems in agency relationships?
A)Monitoring
B)Offshoring
C)Coordination
D)Objectives
E)Confrontation
Answer: A
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Page 5
Chapter 4: The Power of Principles - an Historical Perspective
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Q1) What does it mean for a manufacturing firm to vertically integrate?
A)Expand using established product technologies to offer a wider variety of products
B)Reorganize management into semi-autonomous divisions
C)Produce raw materials and distribute finished goods on their own
D)Geographic distance between buyers and sellers
E)Use management consultants to optimize processes
Q2) What is the gaizhi process?
A)Valuing assets according to their earnings
B)A state-owned enterprise and private enterprise entering a joint venture
C)An increase of profitability prior to sale
D)Acquisition of large firms by private organizations
E)Restructuring whereby small firms are leased or sold
Q3) Relaxing of government regulation of economic activities occurred during the second half of the 20 century for all of the following except:
A)Airline industry
B)Workplace safety
C)Banking industry
D)Trucking
E)Healthcare industry
Page 6
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Chapter 5: The Vertical Boundaries of the Firm
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Q1) The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?
A)Infrastructure
B)Product innovation
C)Obtaining regulatory approval
D)Customer relationship
E)Manufacturing and communications
Q2) When contracts are incomplete,what must be well defined and enforceable to allow for smooth transactions to occur?
A)Contract performance measures
B)Contract roles
C)Contract costs
D)Contract triggers
E)Contract law
Q3) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit and annualized cost of investment to build a hard drive factory I=$30 million.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit,what is your company's "rent?
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Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Q1) Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm's length market transaction as the level of asset specificity increases?
A)The cost difference increases with greater asset specificity
B)Scale-based advantages of outside suppliers are likely to be stronger with greater asset specificity
C)The cost difference declines with greater asset specificity
D)Scope-based advantages of outside suppliers are likely to be stronger with greater asset specificity
E)The costs are negative for all levels of asset specificity
Q2) What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination,agency and transaction costs?
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) What type of research looks at the changes in market valuations in response to the announcement of diversifying acquisitions to assess the success of diversification?
A)Event studies
B)Valuation studies
C)Diversification studies
D)Market studies
E)Acquisition studies
Q2) Which of the following is not a way managers generally benefit from acquisitions?
A)Increased compensation
B)Consolidation of other senior executives
C)Shielding against risk
D)Political power
E)Social prominence
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Chapter 8: Competitors and Competition
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Q1) 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
Q2) Suppose the demand for a product faces by a monopolist firm is given by Q=60-P/2.If the marginal cost of producing the product is $20,what is the profit maximizing price the firm should charge for the product? What are the firm's profits?
Q3) In what type of market do the actions of individual firms materially affect the overall market?
A)Perfectly competitive
B)Monopolistically competitive
C)Oligopoly
D)Monopoly
E)Diversified
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) Which of the following statements is true about a soft commitment?
A)It is bad for competitors
B)It is good for competitors
C)In Cournot competition, capacity expansion is an example of a soft commitment
D)In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E)Tough commitments are always in the best interest of a firm
Q2) Which of the following is a way that Airbus significantly enhanced the credibility of its commitment to enter super jumbo jet market?
A)By announcing entrance into the market
B)By entering a market they had not been in previously
C)By projecting changes in air travel included increased congestion in the traditional hub-and-spoke system
D)By war gaming how the A380 would accommodate growing numbers of passengers and relive airport slot congestion
E)By securing over 60 early orders for the Airbus A380
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Chapter 10: The Dynamics of Pricing Rivalry
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Q1) In a six-firm market,if all firms charge the monopoly price,the profit equals $120,000.In that same six-firm market,if all firms instead charge the prevailing price,the profit is $60,000.If the pricing period is one-month long,what is the maximum monthly discount rate implied for each firm to still have an incentive to independently price at the monopoly level?
Q2) Which of the following would not help facilitate coordination of pricing across firms in an industry?
A)Predatory pricing
B)Firms settling on round number price points and price increase increments
C)Using a single industry multiplier across firms to give discounts
D)Using a standard cycle for adjusting prices
E)Collusion
Q3) What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?
A)Response strategy
B)Always cooperate strategy
C)Always aggress strategy
D)Tit-for-tat strategy
E)Trigger strategy
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Page 12
Chapter 11: Entry and Exit
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Q1) What term represents the conduct and performance of firms in the market after entry has occurred?
A)Postentry competition
B)Postentry actions
C)Postentry procedures
D)Postentry diversification
E)Postentry strategic decisions
Q2) What term best describes the paradox which says despite the conclusion that predatory pricing to deter entry appears irrational,many firms are commonly perceived as slashing prices to deter entry?
A)Cloud paradox
B)Credit paradox
C)Entry paradox
D)Chain-store paradox
E)Pricing paradox
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Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) What type of entrant would be described as a new entrant with no current brand identity,distribution channels or presence within an industry?
A)Fast follower
B)Passive
C)Aggressive
D)Innovator
E)De novo
Q2) In which of the following ways can entry erode incumbents' profits?
A)Entrants divide market demand among fewer sellers
B)Entrants decrease market concentration
C)Entrants usually grow the market for all parties
D)Entrants increase market concentration
E)Entrants reduce internal rivalry
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 type of good is one whose quality is relatively easy to evaluate before purchase?
A)Consumer packaged good
B)Search good
C)Experience good
D)Automobile
E)Appliance
Q2) Which of the following is a capability?
A)Patents and trademarks
B)Brand-name reputation
C)Installed base
D)Organizational culture
E)Sourcing skills
Q3) What type of strategy seeks to serve all customer groups in the market by offering a full line of related products?
A)Generic strategy
B)Margin strategy
C)Focus strategy
D)Share strategy
E)Broad-coverage strategy
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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 the weakest an example of a "shock"?
A)Contracting to use another firm's proprietary process
B)Product Innovations
C)Discoveries of new sources of consumer value or market segments
D)Shifts in demand
E)Changes in public policy that enables firms to significantly shift their strategic position in a business
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Q1) Which of the following is the least likely factor contributing to early British dominance in the watchmaking industry?
A)Watchmakers employed laborers in the British countryside at a considerably lower wage than laborers in London would demand
B)British watches were priced lower than other makers
C)Watchmakers benefitted from a division of labor
D)Large local demand made specialization of labor possible
E)Crucible steel was manufactured by a British monopoly
Q2) Which of the following describe ways firms have sought to innovate and mange innovation in recent years?
A)Creation of corporate venture departments
B)Spinoffs
C)Joint Ventures
D)Strategic Alliances
E)All of the above
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17
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) 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) Which of the following statements is least true regarding the views of strategy that Nelson and Winter offer differing from Chandler?
A)Their views state that strategy and structure evolve from local interactions of the firm with its environment rather than from top managers formulating and implementing a comprehensive reorganization
B)Their views suggest that the relationship of the firm to the environment, as well as the current patterns of interpersonal relationships generally referred to as the firm's "structure," are both the cumulative result of a long series of adaptations
C)Their views state that strategy and structure are examples of high level heuristics
D)Their views suggest that structure is a set of principles or guidelines for coordinating a firm's decisions in a manner inconsistent with its activities in the environment
E)Their views suggest that strategy is a set of principles or decision guidelines that managers use to foster a firm's survival and profitability
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Chapter 18: Environment, power, and Culture
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Q1) What technique did Google use to preserve its "evil-free" culture when going public with an initial public offering in 2004?
A)Used an IPO underwriter
B)Allow clients to purchase underpriced IPO shares
C)Used a "Dutch auction"
D)Committed to sell a certain number of shares at a set price
E)Drastically underpriced its shares (by 200%)
Q2) Which of the following is an example of informal regulations with respect to a firm's social context?
A)Contracting
B)Employment practices
C)Pricing
D)Entry-deterring behaviors
E)Cultural norms
Q3) What is the source from which a person derives legitimate or formal power?
A)Due to status
B)Possession of specialized knowledge
C)Ability to punish
D)Ability to grant rewards
E)Position within a hierarchy
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