Corporate Strategy
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Course Introduction
Corporate Strategy examines the overarching plans and policies that guide an organizations direction and scope, focusing on how firms create value across various markets and industries. The course explores frameworks for analyzing competitive advantage, diversification, vertical integration, mergers and acquisitions, global strategies, and corporate governance. Through case studies and real-world applications, students learn to craft coherent strategic initiatives that align corporate resources with long-term objectives, considering both external market dynamics and internal capabilities.
Recommended Textbook
Transactions and Strategies 1st Edition by Robert J.
Michaels
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Chapter 1: Reasoning With Economics: Models and Information
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Sample Questions
Q1) Publicly available data on production costs and box office revenues reflect that:
A)R-rated movies on an average collect higher revenues than G-rated movies.
B)revenue collected by PG-rated movies donot cover the production and distribution costs.
C)G-rates movies help investors to make artistic or polictical statements.
D)family-rated movies are on average profitable.
Answer: D
Q2) A highly technical product is more likely to be sold by mass advertising as it signals to the consumers that the product is of dependable quality.
A)True
B)False
Answer: False
Q3) Rationality is a normative concept.
A)True
B)False
Answer: False
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Chapter 2: Transactions and Institutions: the Building Blocks
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Sample Questions
Q1) Trade between two parties is beneficial because:
A)it ensures that the standard of living in the poorer country matches its trading partner eventually.
B)it enables each to consume a bundle of goods that it cannot produced domestically.
C)it has an immediate effect on an economy by increasing its production set.
D)it allows the economy of both trading partners to grow equally.
Answer: B
Q2) What is a production set?
Answer: A production set is all possible combinations of goods and services that an economy can produce with its available resources.
Q3) Which of the following statements is true of contracts?
A)They are used only in case of standardized transactions.
B)They protect a seller's investment in the transaction.
C)They allow the concerned parties to benefit from short-term price fluctuations in the market.
D)They reduce the impact of market risk on the transaction as well as economic value in the long run.
Answer: B
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Chapter 3: Markets
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Sample Questions
Q1) Substitution of one commodity for another depends on all of the following factors, EXCEPT:
A)prices of the goods available to the consumers.
B)tastes and preferences of the buyers.
C)the information buyers possess.
D)market protocols.
Answer: D
Q2) A perfectly elastic demand curve will:
A)be a vertical straight line.
B)be a downward sloping straight line.
C)be a horizontal straight line.
D)be an upward sloping straight line.
Answer: C
Q3) Refer to Figure. Which of the following situations would arise if the price of the coupon is above its equilibrium price?
A)The price ceiling on wheat would be removed.
B)The market price of wheat would increase.
C)There would be a surplus of wheat.
D)There would be a shortage of wheat.
Answer: C
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Chapter 4: Cost and Production
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Sample Questions
Q1) Suppose the price level of a product is gradually declining due to fall in demand.When will a producer of this product decide to shut down in the short run?
Q2) The gap between average total cost and average variable cost:
A)is constant at all ranges of output.
B)is high at high levels of production.
C)declines as output expands.
D)depends on the production technology.
Q3) A manufacturer of towels finds that his returns to scale are constant.Which of the following conclusions can be drawn?
A)The long-run total cost curve is horizontal.
B)The long-run average cost curve is horizontal.
C)The long-run total cost curve is downward sloping.
D)The long-run average cost curve is downward sloping.
Q4) Explain with examples the reasoning behind the positive slope of the LRAC curve at higher levels of output.
Q5) Explain the reason behind the declining gap between average cost (AC) and average variable cost (AVC) curves at higher levels of output.
Q6) What is marginal cost?
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Chapter 5: Extreme Markets I: Perfect Competition
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Sample Questions
Q1) Refer to Figure .What will be the shape of the long-run supply curve of land suitable for corn farming?
A)The long-run supply curve of land suitable for corn farming will be perfectly inelastic.
B)The long-run supply curve of land suitable for corn farming will be perfectly elastic.
C)The long-run supply curve of land suitable for corn farming will be less elastic than the short-run supply curve.
D)The long-run supply curve of land suitable for corn farming will be more elastic than the short-run supply curve.
Q2) If there are only a few producers of substitutes for Good X, a merger between producers of Good X and any one of them could significantly _____ for Good X.
A)decrease the elasticity of demand.
B)increase the elasticity of supply.
C)decrease the elasticity of supply.
D)increase the elasticity of demand.
Q3) State any two properties of the perfectly competitive market.
Q4) State two characteristics of the long-run equilibrium under perfect competition.
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Page 7
Chapter 6: Extreme Markets II: Monopoly
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Sample Questions
Q1) Two groups of consumers have different valuations of the two monopoly products you as a monopolist have bundled together.If their valuations for the two products are proportional, i.e.Group A's valuation of X is $10 and Y is $15, while Group B's valuation of X is $20 and Y is $30, bundling the products will be more profitable for the monopolist.
A)True
B)False
Q2) Which of the following is a possible explanation for the fall in prices after an industry is monopolized by combining a group of competitors?
A)A monopolist faces a downward sloping demand curve.Hence, output expansion leads to lower prices.
B)A reduction in price increases producer surplus.Hence a monopolist may reduce the price of his product.
C)A monopolist may reduce prices to make it difficult for other firms to compete.
D)A monopolist can increase profits by reducing price when its cost of production declines due to increased size of the new firm.The fall in price is less than the decline in cost.
Q3) What is the general principle of price discrimination?
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Page 8
Chapter 7: Between the Extremes: Interaction and Strategy
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Sample Questions
Q1) Refer to Figure .Determine the total production in this market under Cournot equilibrium?
A)6 units
B)12 units
C)8 units
D)20 units
Q2) When is a game dominance solvable?
Q3) Refer to Figure .If the market demand curve D rotates outward (while its vertical intercept remains unchanged), which of the following changes will be observed in the oligopoly market?
A)The fringe's market share will decline
B)The dominant firm's profits will decrease
C)The marginal cost will decrease
D)The overall market price will decline
Q4) In a first-price auction:
A)the lowest bidder receives its actual bid as a payment for the job.
B)the lowest bidder wins the bid and pays the amount bid by the first runner-up.
C)the bidder bids less than its cost and incurs a loss.
D)the lowest bidder wins the bid and has to pay the actual bid for the good.
Q5) When can a grim trigger prevent oligopolists from breaking an agreement?
Page 9
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) Why is reliable data on the formation and survival of startups difficult to obtain?
Q2) Refer to Figure.Determine the profit maximizing price and output when MC' is the marginal cost of the seller and the transaction cost incurred by the buyer is $2.
A)Output = 2.5 units and price = $8.25
B)Output = 2.5 units and price = $6.5
C)Output = 3 units and price = $9
D)Output = 3 units and price = $6.5
Q3) Which of the following is considered per se illegal under the U.S.antitrust law?
A)An agreement to fix prices of commodities.
B)An agreement to maintain certain technical standards.
C)An agreement to operate only in specific regions.
D)An agreement to follow identical production technique.
Q4) Large firms that invest in specific assets which cannot easily be redeployed to other uses or locations, may be able to protect their profits for longer than if they do not make such investments.
A)True
B)False
Q5) What are the benefits of a franchise contract?
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Chapter 9: Beyond Markets; Property and Contracts
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Sample Questions
Q1) For which of the following investment activities does the law clearly define the parties' underlying rights?
A)Construction of a swimming and boating club on a deserted lake.
B)Planting apple trees in a public garden.
C)Using scrap from neighborhood trash disposal site to create wrought iron furniture.
D)Construction of a multi-storied building on an inherited property.
Q2) Why are inclusive property rights considered to be sources of wealth?
Q3) Refer to Table .What would be the maximum number of days for which the orchard owner would wish to keep the beekeeper in the orchard by paying him a compensation which is sufficient to cover the latter's opportunity cost?
A)5 days
B)7 days
C)More than 7 days
D)3 days
Q4) Who is considered to be a free rider according to economists?
Q5) Why do some unitization contracts require landowners to turn operations to a third party?
Q6) What do property rights usually depend on?
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Chapter 10: The Economics of Contracts
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Sample Questions
Q1) Asset specificity means lower costs of redeployment and lower risks of opportunism associated with a contract.
A)True
B)False
Q2) Suppose Bella had entered into a contract to rent Michelle's apartment for one year.The contract mentioned that if either of the two parties breached it, the other was to recover her loss.If Michelle breaches the contract, a payment which leaves Bella no worse off than if the contract was honored, is called opportunistic damage.
A)True
B)False
Q3) Explain the concept of liquidated damages with an example.
Q4) Which of the following is NOT true of an incomplete contract?
A)It discourages parties from acting opportunistically.
B)It increases the cost of negotiation.
C)It allows renegotiation among parties if certain events occur.
D)It contains provisions for terminating the contract if certain events occur.
Q5) When are liquidated damages required? Describe with an example.
Q6) How can an incomplete contract prevent opportunism? Explain with an example.
Q7) How do buyers and sellers benefit from a contract?
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Chapter 11: Risk and Information in Contracts
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Sample Questions
Q1) Which of the following situations can lead to a winner's curse?
A)A bid which is won by multiple bidders but fails to cover the expectations of the seller.
B)A win which makes a player over-enthusiastic about further gambles.
C)An overoptimistic bid which helps the bidder to win but fails to cover his costs.
D)A win which makes the player risk-averse toward future gambles.
Q2) The effects of asymmetric information in the car market can be weakened by:
A)providing a warranty for the product.
B)purchasing business interruption insurance.
C)inserting a "buyer beware" clause in the agreement.
D)buying a "put" option.
Q3) Which of the following is an example of a moral hazard?
A)A student committing suicide after failing in an examination.
B)A housekeeper leaving a house unlocked after insuring it against burglary.
C)An exporter delivering faulty products after receiving a certain fraction of the total payment.
D)A person deriving utility from a commodity without paying for it.
Q4) How is the utility of a gamble to a risk averse person different from that to a risk neutral person?
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Page 13
Chapter 12: Organizations in Concept and Practice
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Sample Questions
Q1) The separation of corporate ownership and control removes most executive decisions from shareholder scrutiny, but offers an efficient division of labor between persons with differing skills, goals, and wealth.
A)True
B)False
Q2) The management function of a sufficiently large firm should be separated from finance and residual claimancy because of:
A)differences in skill requirements and opportunity costs.
B)differences in attitudes towards risk.
C)differences in investment choices and responsibilities.
D)differences in beliefs about a new strategy's probability of success.
Q3) In a _____ the outsider buys the shares with debt collateralized by its other assets, and sometimes also by the target's assets.
A)merger
B)cash tender
C)proxy fight
D)leveraged buyout
Q4) What are junk bonds?
Q5) Mention some areas where partnerships are common.Give reason for your answer.
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Chapter 13: Organizational Design
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Sample Questions
Q1) The information to be gathered for a decision depends on which of the following?
A)The current market conditions and on the expected costs and benefits of acquiring the information.
B)The model that underlies a decision and on the expected costs and benefits of acquiring the information.
C)The cost of the information and the current market conditions.
D)The model that underlies a decision and the amount of information that is internally available.
Q2) One of the disadvantages of an organization which has a matrix structure is that :
A)each individual reports to one boss, causing excess flow of information to one individual.
B)flow of information is difficult when operations are so highly diversified.
C)each individual has two bosses whose interests may not be aligned.
D)there are limits to the information a firm's headquarters can use effectively in making decisions.
Q3) Identify a disadvantage of organizational charts.
Q4) When is centralization of decision-making desirable?
Q5) What is the principal difference between a U-form and an M-form organization?
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Chapter 14: Vertical Relationships
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Sample Questions
Q1) Which of the following exemplifies a vertical restraint imposed by a franchisor in a contract?
A)A clause prohibiting a franchisee from using the company trademark to support a political candidate.
B)A clause prohibiting a franchisee from announcing special offers during Christmas to attract customers.
C)A clause prohibiting a franchisee from bundling two products of the same company.
D)A clause stating the target sales to be achieved by the company during an accounting year.
Q2) _____ improves exchangeability, and reduces the cost of obtaining information about a good and about the parties involved in the transaction.
A)De-integration
B)Outsourcing
C)Vertical integration
D)Standardization
Q3) Explain the three dimensions of uncertainty which affects the choice among markets, contracts, and integration.
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Chapter 15: Employment Relationships
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Sample Questions
Q1) A written contract between an employer and an employee creates value as long as:
A)the benefits exceed the costs of forming and enforcing it.
B)the productivity of the employee is equivalent to the wage.
C)on-the-job learning is unimportant.
D)the relationship between the employer and the employee is short-term.
Q2) The general health of the population of a country improves as its medical support system improves.Which of the following is a likely outcome of this?
A)Marginal product of labor will increase.
B)Value of marginal product of labor will fall.
C)The equilibrium wage rate will decline.
D)There will be excess supply of labor in the market.
Q3) Why are most contracts incomplete?
Q4) What is investment in human capital?
Q5) Options are less than perfect as instruments to induce better performance because:
A)they are most often backdated.
B)they are independent of market volatility.
C)more than 90 percent of options expire worthless.
D)executives often take risky decisions to raise the value of their options.
Q6) What causes employers or employees to behave opportunistically?
Page 17
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Chapter 16: Time, Risk and Options
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Q1) If the writer of an option, holds shares of the stock or an actual quantity of the commodity when she writes the call option on it, her position is said to be:
A)protected.
B)exposed.
C)covered.
D)naked.
Q2) According to the Black-Scholes formula:
A)the value of an in-the-money option will equal the difference between the stock's current price and the strike price.
B)the payoff from an average option is either a multiple or a power of the difference between the strike price and the price they are exercised at.
C)the holder of a basket option has the right to buy or sell the underlying at the highest price it has attained over the life of the option.
D)the price of a call or put option varies with the price of the underlying asset.
Q3) Mention some applications of real options.
Q4) Point out the relevance of the Bayes' theorem.
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Chapter 17: Conflict, Negotiation and Group Choice
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Sample Questions
Q1) If A>B and B>C do not imply A>C, where > means "preferred to", then preferences are intransitive.
A)True
B)False
Q2) Explain the concept of an empty core.
Q3) Which of the following is an example of a zero-sum game?
A)Jill decides to buy a television set from Jack for $500.
B)Angela buys a jacket worth $30 from the apparel store near her apartment.
C)Rachel decides to buy Sarah's couch and is willing to pay whatever price Sarah might ask for it.
D)Joanna buys a camera at a Thanksgiving sale and gets a tripod free.
Q4) A lawyer's ability to understand a client's legal situation and his professional norms may improve the outcome of a negotiation with another attorney, relative to the outcome if the client bargained for herself.
A)True
B)False
Q5) What does an empty core signify about the resources of the negotiators?
Q6) How is the production of public goods funded?
Q7) Differentiate between norms and focal points.
Page 19
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