Corporate Strategy and Economics Practice Exam
Course Introduction
Corporate Strategy and Economics explores the intersection of strategic decision-making and economic principles within the context of modern corporations. The course examines the tools and frameworks used to analyze complex business environments, evaluate competitive dynamics, and formulate strategies for sustainable growth and value creation. Students learn to apply economic theories such as game theory, market structure analysis, and resource allocation to real-world strategic problems, including diversification, mergers and acquisitions, global expansion, and innovation. Emphasis is placed on understanding how macroeconomic trends, industry forces, and regulatory environments impact strategic choices and organizational performance.
Recommended Textbook
Economics for Managers Global Edition 3rd Edition by Paul G. Farnham
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16 Chapters
1464 Verified Questions
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Page 2
Chapter 1: Managers and Economics
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Sample Questions
Q1) The major categories of expenditures in the economy are:
A)consumption, gross investment, and government purchases.
B)consumption, net investment, and net exports.
C)consumption, fixed investment, government purchases, and net imports.
D)consumption, gross investment, government purchases, and net exports.
Answer: D
Q2) Which of the following would be considered an example of a macroeconomic problem?
A)Should Microsoft reduce the price of its Windows operating system?
B)Should the federal government extend the eligibility period for unemployment benefits?
C)Should Mitsubishi eliminate one of its production shifts?
D)Should JP Morgan Chase increase the interest rate it charges its credit card customers?
Answer: B
Q3) Gross Domestic Product (GDP)is defined as the market value of all goods and services purchased in the economy during a particular year.
A)True
B)False
Answer: False
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Chapter 2: Demand, supply, and Equilibrium Prices
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Sample Questions
Q1) If movies on DVD for home rental and movies seen at a theater are substitutes,and the price of movies seen at a theater increases,the demand for movies on DVD will: A)increase.
B)stay the same.
C)decrease.
D)cannot be determined.
Answer: A
Q2) The supply of a good is a function of price and the demand for the good.
A)True
B)False
Answer: False
Q3) All else constant,as more firms substitute alternative materials,e.g.,plastic,for copper,the market price of copper would be expected to: A)increase.
B)stay the same.
C)decrease.
D)cannot be determined with the information given.
Answer: C
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4
Chapter 3: Demand Elasticities
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Sample Questions
Q1) Which of the following statements is correct for the case of a downward-sloping demand curve (beyond the first unit of output)?
A)P = AR = MR
B)P = AR > MR
C)P > AR > MR
D)P = AR < MR
Answer: B
Q2) Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?
A)coffee and tea.
B)gasoline and large SUVs.
C)tennis racquets and tennis balls.
D)hot dogs and hot dog buns.
Answer: A
Q3) As the number of available substitutes for a good increases,the price elasticity of demand for the good will increase as well.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Sample Questions
Q1) In a multiple regression problem involving two independent variables,if b is computed to be +2.0,it means that:
A)the relationship between X and Y is significant.
B)the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X , holding X constant.
C)the estimated value of Y increases by an average of 2 units for each increase of 1 unit of X , without regard to X .
D)the estimated average value of Y is 2 when X equals zero.
Q2) Conjoint analysis employs an approach to consumer behavior that is similar to the economic indifference curve model.
A)True
B)False
Q3) What are the effects of two independent variables that are highly correlated? What can be done to remedy the problem?
Q4) Refer to Scenario 2.If the age of a house increases by 1 year given that the square feet is held constant,what is the impact on the house's market value?
Q5) Why are estimated models of demand and consumer behavior useful to managers?
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Chapter 5: Production and Cost Analysis in the Short Run
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Sample Questions
Q1) Refer to Scenario 2.The average fixed cost of 2 units of output is:
A)$8.00.
B)$8.50.
C)$12.00.
D)$20.50.
Q2) A firm's decision to expand the size of its production facility would be considered a short-run decision so long as the expansion can be completed in less than a year.
A)True
B)False
Q3) Which of the following statements concerning the relationships among the firm's total cost functions is false?
A)TC = TFC + TVC
B)TVC = TFC - TC
C)TFC = TC - TVC
D)TC = TFC when output = 0.
Q4) Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.
A)True
B)False
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Chapter 6: Production and Cost Analysis in the Long Run
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Sample Questions
Q1) Graphically,all else constant,a decrease in the price of labor would be illustrated by:
A)a parallel shift of the isocost line in toward the origin.
B)rotating the isocost line away from the origin along the labor axis.
C)a parallel shift of the isocost line away from the origin.
D)rotating the isocost line in toward the origin along the capital axis.
Q2) All else constant,as the price of petroleum increases relative to the prices of other inputs to the production process,in their effort to minimize their total costs of production,we can expect to see firms employ:
A)less of each of the inputs of production.
B)more petroleum and less of the other inputs to production.
C)less petroleum and more of the other inputs to production.
D)the same amount of petroleum since there are no substitutes for petroleum.
Q3) Much of the research on the minimum efficient scale suggests that for many firms the LRAC curve is:
A)downward sloping over the relevant range of output.
B)upward sloping over the relevant range of output.
C)U-shaped.
D)flat over a relatively large range of output levels.
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8
Chapter 7: Market Structure: Perfect Competition
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Sample Questions
Q1) Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output.In this case,the firm is earning positive economic profits,which act as an incentive for new firms to enter the market.
A)True
B)False
Q2) Which of the following statements is correct?
A)Economic profit is the difference between total revenue and the full opportunity cost of all the resources used in production.
B)Economic profit is the difference between total revenue and explicit costs.
C)Economic profit is generally greater than accounting profit.
D)Economic profit is the difference between total revenue and implicit costs.
Q3) When a perfectly competitive market has fully adjusted to demand and supply conditions,all of the following are true except:
A)P = MC.
B)P = the minimum of SRATC.
C)P = the minimum of LRAC.
D)P = the minimum of AVC.
Q4) Summarize the characteristics of a perfectly competitive market.
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Page 9
Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Sample Questions
Q1) Which of the following measures is used by the Justice Department to evaluate the competitive effects of proposed mergers?
A)The Lerner Index.
B)The eight-firm concentration ratio for an industry.
C)The four-firm concentration ratio for an industry.
D)The Herfindahl-Hirschman Index.
Q2) All of the following are considered input barriers to entry except:
A)control of a key raw material by a single firm.
B)the ability to obtain financing for capital projects at more favorable rates than potential competitors.
C)the fact that workers in a particular industry belong to a union.
D)a patent on a specialized type of capital that is needed to produce a particular product.
Q3) For lock-in to be an effective competitive strategy,a firm must successfully raid the customer base of competing firms on a regular basis.
A)True
B)False
Q4) Explain how network externalities act as a barrier to entry.
Page 10
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Chapter 9: Market Structure: Oligopoly
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Sample Questions
Q1) Which of the following is the best example of tacit collusion?
A)The formation of a cartel.
B)Price leadership.
C)Predatory pricing.
D)Noncooperative pricing behavior.
Q2) In order for the first player to move in a sequential game to be able to gain an advantage from making the first move,the player must:
A)possess a dominant strategy that is better than the other player's dominant strategy.
B)be able to achieve a higher maximum payoff than the other player.
C)follow the same strategy he would pursue in a Nash equilibrium.
D)be able to make a credible commitment to the strategy.
Q3) It is often observed that the prices charged for gasoline by the various gas stations in a particular city tend to move together very closely.Is this an example of tacit collusion that should be prosecuted in the United States? Why or why not?
Q4) Explain the difference between a cartel and tacit collusion.Is tacit collusion illegal in the United States? Explain.
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Page 11
Chapter 10: Pricing Strategies for the Firm
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Sample Questions
Q1) Which of the following is not cited as a reason for a firm to pursue a group pricing strategy?
A)To minimize its total costs of production.
B)To increase its total profit.
C)To attract and lock in additional customers.
D)To create network externalities.
Q2) Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm.All else constant,this would cause the firm's ability to markup price above average cost to:
A)decrease.
B)stay the same.
C)increase.
D)cannot be determined with the information given.
Q3) Applying a uniform markup to set the price of the various products sold by a firm is more profitable than varying the markup based on differences in the price elasticity of demand for the firm's products.
A)True
B)False
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Chapter 11: Measuring Macroeconomic Activity
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Sample Questions
Q1) When shopping the consumer is interested in absolute prices.
A)True
B)False
Q2) Policies adopted by a country's central bank that influence interest rates and credit conditions,which in turn influence consumer and business spending are called:
A)monetary policy.
B)fiscal policy.
C)foreign policy.
D)exchange rate policy.
Q3) Changes in the natural rate of unemployment are related to changes in the composition of the labor force and to the changes in the productivity of the economy over time.
A)True
B)False
Q4) The largest component of national income is:
A)compensation of employees
B)proprietor's income
C)rental income
D)corporate profits
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Chapter 12: Spending by Individuals, firms, and
Governments on Real Goods and Services
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Sample Questions
Q1) ________ investment is more volatile than other forms of investment spending because this type of investment can be changed relatively quickly.
A)Business fixed
B)Inventory
C)Residential
D)Capital
Q2) Business taxes increase.What is the impact on aggregate expenditures and income?
A)Both increase.
B)Both decrease.
C)Aggregate expenditure increases and income decreases.
D)Aggregate expenditure decreases and income increases.
Q3) Within the Keynesian cross,the adjustment towards equilibrium occurs through:
A)inflation.
B)inventories.
C)interest rates.
D)none of the above.
Q4) The slope of the linear consumption function represents induced consumption expenditures.
A)True
B)False
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Chapter 13: The Role of Money in the Macro Economy
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Sample Questions
Q1) Money serves all of the following functions except:
A)medium of exchange.
B)store of value.
C)unit of account.
D)measure of power.
Q2) There are 15 Federal Reserve District Banks.
A)True
B)False
Q3) The equilibrium price in the money market is the:
A)inflation rate.
B)exchange rate.
C)interest rate.
D)none of the above.
Q4) The Resolution Trust Corporation insures bank deposits.
A)True
B)False
Q5) The discount rate is influenced by Fed actions whereas the Fed sets the federal funds rate.
A)True
B)False
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Chapter 14: The Aggregate Model of the Macro Economy
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Sample Questions
Q1) A decrease in the nominal money supply would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.
Q2) The aggregate supply curve that defines the level of full employment or potential output based on a given amount of resources,efficiency,and technology in the economy is called:
A)short-aggregate supply curve.
B)long-run aggregate supply curve.
C)intermediate aggregate supply curve.
D)none of the above.
Q3) Economic variables that generally turn down before a recession begins and turn back up before the recovery starts are called:
A)leading indicators.
B)coincident indicators.
C)lagging indicators.
D)none of the above.
Q4) Why is judging trends in economic indicators important to managers?
Q5) What are the reasons for a decrease in the NAIRU.
Page 16
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Chapter 15: International and Balance of Payments Issues
in the Macro Economy
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Sample Questions
Q1) A measure of the change in the stock of real and financial assets held by a country's residents in a foreign country and by foreigners in the given country is called the:
A)current account.
B)financial account.
C)national income product account.
D)none of the above.
Q2) Starting in 2008 and continuing into 2012,the Japanese yen kept appreciating against the U.S.dollar,hurting Japanese exports to the U.S.
A)True
B)False
Q3) An increase in the supply of dollars on the foreign exchange market,all else equal,will result in:
A)appreciation of the U.S. dollar and depreciation of the foreign currency.
B)appreciation of the U.S. dollar and appreciation of the foreign currency.
C)depreciation of the U.S. dollar and depreciation of the foreign currency.
D)depreciation of the U.S. dollar and appreciation of the foreign currency.
Q4) Briefly explain the behavior of the Federal Reserve considering a balance of payments disequilibria within a fixed exchange rate system.
Page 17
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Sample Questions
Q1) The decrease in demand faced by McDonalds during 2001-2002 can be attributed to:
A)decrease in consumer preference for high-fat content food.
B)increase in lawsuits.
C)increase in competitive pressures.
D)all of the above.
Q2) In 2001-2002,the fast food industry underwent tremendous growth.
A)True
B)False
Q3) Managers can increase firm profits by:
A)increasing revenue only.
B)decreasing costs only.
C)increasing revenue and decreasing costs.
D)none of the above.
Q4) How did McDonald's attempt to address the cultural differences around the world in selling its product?
Q5) Give some examples of oligopolistic behavior among the major fast food companies.
18
Q6) How did McDonalds address the drive-through innovation in China?
Q7) Briefly state several reasons for the decline in sales for McDonald's in 2001-2002.
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