Competitive Strategy
Exam Bank
Course Introduction
Competitive Strategy explores the frameworks, tools, and analytical techniques managers use to gain and sustain competitive advantages in dynamic markets. The course examines how firms assess industry structures, analyze competitors, identify sources of differentiation, and position themselves for success. Through case studies and theoretical models, students will learn how to develop strategic plans, adapt to changing environments, anticipate competitor moves, and make informed decisions that enhance organizational performance in both domestic and global contexts.
Recommended Textbook
Economics of Strategy 5th Edition by David Besanko
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Chapter 1: Basic Microeconomic Principles
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Sample Questions
Q1) 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 Short-Run (i.e.one year)Average Costs?
Answer: SAC(Q)= \( 5 Q+3+\frac{13}{Q} \)
Q2) 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
Q3) If =.8 and P=$25,what is MR?
A)$20
B)$6.25
C)-$5
D)-$6.25
E)$5
Answer: D
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Chapter 2: Economies of Scale and Scope
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Q1) According to Smith's theorem,which of the following statements would be true in medical markets for thoracic surgery?
A)When demand for thoracic surgery is high, the market will not support a specialized surgeon
B)When demand for thoracic surgery is low, the market will not support a specialized surgeon
C)The average cost curves for thoracic and general surgeons are both upward sloping
D)The cost curve for a thoracic surgeon will start out lower than the cost curve for a general surgeon due to the greater investment of time
E)General surgeons incur lower training costs than do thoracic surgeons and are thus more efficient in performing thoracic surgery
Answer: B
Q2) 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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4
Chapter 3: Agency and Coordination
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Q1) At what level of effort does performance based pay in the form of salary-plus-commission yield the maximum payoff to an employee?
A)40 hours per week
B)As much as the employee can possible work
C)When the slope of a line tangent to the cost curve is one half of the slope of the salary curve
D)There is no effort level at which an employee can maximize their payoff given a salary-plus-commission pay construct
E)When personal marginal benefit equals personal marginal cost
Answer: E
Q2) 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
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) What significant government infrastructure project led to the development of national stock and commodity markets?
A)Transcontinental Railroad
B)Erie Canal
C)Union Pacific Railroad
D)Prime Meridian Conference
E)Central Pacific Railroad
Q2) 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
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 a lack of transparency/equal access to the details surrounding a contract?
A)Agency costs
B)Bounded rationality
C)Performance measurement difficulties
D)Asymmetric information
E)Contract body of law
Q2) Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?
A)Arm's length market transactions
B)Long-term contracts
C)Strategic alliances and joint ventures
D)Parent/subsidiary relationships
E)Perform activity internally
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) What concept describes the situation where the owner of an asset grants another party the right to use that asset,but the owner retains all controlling rights that are not explicitly stipulated in the contract?
A)Asset specificity
B)Non-contract rights of ownership
C)Control rights agreement
D)Residual rights of control
E)Coordination
Q2) What type of strategic alliance involves two or more firms creating and together owning a new independent organization?
A)Partnership
B)Tapered integration
C)Close-knit semi-formal relationship
D)Mutual agreement
E)Joint venture
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Page 8
Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Which of the following sources of conglomerate value creation explains GE CEO Jeff Immelt's assertions that both GE's size allows it to "drive common initiatives across the company that accelerate growth,satisfy customers and expand margins" and GE's is able "develop people to grow a common culture that is adaptive,ethical and drives execution"?
A)Use of internal capital markets
B)Economies of scale and scope
C)Economizing on transaction costs
D)Dominant general management logic
E)Identifying undervalued firms
Q2) What institution within a firm must fail on some level for managers to be motivated to acquire another firm for the purposes of increasing their own compensation,shielding themselves against risk,or gaining prominence by running a larger firm?
A)Legal department
B)Corporate board
C)Mergers and acquisitions program
D)Firm bonus schedule
E)Corporate governance
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Chapter 8: Competitors and Competition
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Q1) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
Q2) Suppose two hot dog stands,Al's & Bob's,position themselves at different ends of a 1000 yard stretch of beach.Assume there are 100 beach goers evenly distributed along the stretch of beach and travel costs are $.01 per yard.If Al charges $1 for his hot dogs and Bob charges $2 for his hot dogs,what is the cost of purchasing a hot dog from each stand for a hungry beachgoer situated at a position D yards from Al's end of the beach? How many consumers will go to Al's and how many will go to Bob's?
Q3) 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
Q4) 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?
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Page 10
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 statements is true about a tough commitment?
A)It is good for competitors
B)It is bad for competitors
C)In Cournot competition, elimination of production facilities is an example of a tough commitment
D)In Betrand competition, a commitment to increase prices is an example of a tough commitment
E)Tough commitments are always in the best interest of a firm
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Chapter 10: The Dynamics of Pricing Rivalry
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Q1) 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
Q2) Which of the following is an example of a market where barometric price leadership occurs?
A)Breakfast cereal
B)Prime-rate loan
C)Tobacco
D)Steel until 1960s
E)Fast food hamburger
Q3) 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?
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Page 12
Chapter 11: Entry and Exit
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Q1) What term is defined as a firm selling goods at a price below their normal price (and generally below cost)usually as an export in international trade?
A)Predatory pricing
B)Cost plus pricing
C)Dumping
D)Marginal cost pricing
E)Price leading
Q2) 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
Q3) What type of firm is one that is already operating in a particular market?
A)Market leader
B)Entrant
C)Incumbent
D)Market follower
E)Monopolist
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Page 13
Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) 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
Q2) Which of the following trends or methods has since helped reduce the pricing rivalry that had intensified by the late 1990s?
A)Patients began accepting MCOs with "narrow networks" and MCOs had the upper hand in negotiating with hospitals for inclusion in networks
B)Hospitals removed brand identities
C)Hospitals dropped "centers of excellence" from their hospitals
D)Hospitals consolidating away from related products
E)Hospitals consolidated (conducted mergers)
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Page 14
Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What type of good is one whose quality can be assessed only after the customer has used it for a while?
A)Apparel
B)Search good
C)Experience good
D)Office furniture
E)Airline tickets
Q2) 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
Q3) Which of the following is a capability?
A)Patents and trademarks
B)Brand-name reputation
C)Installed base
D)Organizational culture
E)Sourcing skills
Page 15
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Chapter 14: Sustaining Competitive Advantage
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Q1) Which of the following is not a Legal Restriction?
A)Patent
B)Copyright
C)Trademark
D)Intellectual property
E)Operating rights
Q2) Which of the following is least likely a characteristic of profit persistence in an industry?
A)Entry barriers exist
B)Economic profits should quickly converge to zero
C)Barriers to imitation exist
D)Firms earning above-average profits today should continue to do so in the future
E)Low profit firms today should remain low-profit firms in the future
Q3) Which of the following is an example of an actual network?
A)Computer operating systems
B)E-mail
C)Video gaming
D)DVD players
E)iPods
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Q1) Which of the following terms best describes the ability of a firm to maintain and adapt the capabilities that are the basis of its competitive advantage?
A)Riskiness of R&D
B)Correlated research strategies
C)Evolutionary economics
D)Dynamic efficiency
E)Dynamic capabilities
Q2) Which of the following terms best describes a place in which a firm can sell its ideas for full value?
A)Industry for ideas
B)Community of ideas
C)Innovation market
D)Market for ideas
E)Idea environment
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) Which of the following statements is least true regarding the use of incentive pay for sales employees?
A)If a firm wants to tie pay to a performance measure that is affected by random factors, the firm need not compensate employees for the resulting increase in the variability of their pay
B)In determining how closely to tie pay to performance, the firm must weigh the costs of imposing risk on risk-averse employees against the benefits of providing additional incentives
C)When both risk and incentives are present, the optimal commission rate will reflect a tradeoff among these forces and will be somewhere between 0 percent and 100 percent
D)Stronger incentives are called for if the variance of measured performance is lower
E)When an employee captures all the value associated with extra effort, the employee chooses the effort level that equates the total marginal benefit of effort to the total marginal cost
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Chapter 17: Strategy and Structure
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Q1) Which of the following terms best describes the extent to which two or more positions depend on each other to do their own work?
A)Technology interdependence
B)Task interdependence
C)Information processing
D)Environmental contingencies
E)Structure-environment coherence
Q2) Which of the following terms best describes the division of an organization into formal groupings?
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 terms best describes a transfer between two or more parties or resources,or rights to control resources,which occurs outside the terms of a market context?
A)Power exchange
B)Social exchange
C)Authority exchange
D)Knowledge exchange
E)Formal exchanges
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
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