Corporate Strategy
Textbook Exam Questions
Course Introduction
Corporate Strategy explores the foundational concepts, analytical frameworks, and practical approaches that guide organizations in making long-term decisions to achieve competitive advantage and sustainable growth. The course examines how firms define their scope, choose which industries or markets to compete in, allocate resources across business units, and create value through diversification, mergers and acquisitions, alliances, and international expansion. Students will learn to evaluate corporate-level strategies, understand the roles of corporate headquarters, and analyze case studies highlighting real-world strategic challenges faced by companies in dynamic environments.
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Managerial Economics and Strategy 1st Edition by Jeffrey
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Page 2
M. Perloff
Chapter 1: Introduction
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Sample Questions
Q1) If an important assumption is omitted from an economic model
A) the model's predictions will be accurate 50% of the time.
B) the model's predictions will be inaccurate.
C) the model will not predict anything.
D) the model will be rejected by other economists.
Answer: B
Q2) Economic models are most often tested
A) using computer simulations.
B) using data from the distant past.
C) using data from the real world.
D) using logic alone.
Answer: C
Q3) CEOs should focus on
A) beating their competitors.
B) maximizing firm profits.
C) getting the best pay package for the senior management team.
D) minimizing costs.
Answer: B
Q4) Give an example of a tradeoff a pizza restaurant might face.
Answer: Whether to make pepperoni or combination pizzas.
Page 3
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Chapter 2: Supply and Demand
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Sample Questions
Q1) If the demand for eBook readers increases and the supply of eBook readers increases,then
A) it is clear that prices will increase, the change in the quantity of eBook readers sold is ambiguous.
B) it is clear that prices will decrease, the change in the quantity of eBook readers sold is ambiguous.
C) it is clear that quantity sold will increase, the change in the price of eBook readers is ambiguous.
D) it is clear that quantity sold will decrease, the change in the price of eBook readers is ambiguous.
Answer: C
Q2) An increase in consumer incomes will lead to
A) a rightward shift of the demand curve for plasma TVs.
B) a movement upward along the demand curve for plasma TVs.
C) a rightward shift of the supply curve for plasma TVs.
D) no change of the demand curve for plasma TVs.
Answer: A
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Chapter 3: Empirical Methods for Demand Analysis
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Sample Questions
Q1) If the price of orange juice rises 10%,and as a result the quantity demanded falls by 8%,the price elasticity of demand for orange juice is
A) -1.25.
B) inelastic.
C) Both A and B above.
D) Neither A nor B above.
Answer: B
Q2) If the demand for orange juice is expressed as Q = 2000 - 500p,where Q is measured in gallons and p is measured in dollars,then at the price of $3,the demand curve
A) is elastic.
B) has a unitary elasticity.
C) is inelastic.
D) is perfectly inelastic.
Answer: A
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Chapter 4: Consumer Choice
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Sample Questions
Q1) As the price of a good rises,the consumer will experience
A) a desire to consume a different bundle.
B) a decrease in utility.
C) a southern or western movement on the indifference map.
D) All of the above.
Q2) Perfect substitutes
A) always have indifference curves with slopes of -1.
B) always have indifference curves with slopes of 1.
C) have fixed rates of trading off one good for another.
D) have horizontal indifference curves.
Q3) By selecting a bundle where MRS = MRT,the consumer is saying
A) "I value my last unit of each good equally."
B) "I am willing to trade one good for the other at the same rate that I am required to do so."
C) "I will equate the amounts spent on all goods consumed."
D) All of the above.
Q4) What is the difference between ordinal and cardinal measurement?
Q5) Indifference curves cannot intersect.
Q6) If more is better,how can you explain that more pollution doesn't violate this principle?
Page 6
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Chapter 5: Production
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Sample Questions
Q1) Returns to scale refers to the change in output when
A) all inputs increase proportionately.
B) labor increases holding all other inputs fixed.
C) capital equipment is doubled.
D) specialization improves.
Q2) Which of the following is likely to have the longest long run?
A) a beauty salon.
B) a pizza parlor.
C) a road construction firm.
D) an airline.
Q3) With capital on the vertical axis and labor on the horizontal axis,vertical isoquants imply that
A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive.
Q4) Explain why labor might not always be a variable input.
Q5) Cobb-Douglas production functions can never possess varying returns to scale.
A)True
B)False
7
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Chapter 6: Costs
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Sample Questions
Q1) Which of the following will cause the marginal cost curve of making cigarettes to shift?
A) a $5 million penalty charged to each cigarette maker
B) a $1 per pack tax on cigarettes
C) a $1 million advertising campaign by the American Cancer Society
D) All of the above.
Q2) A pizza parlor's rent is
A) sunk in the long run.
B) fixed in the long run.
C) avoidable in the short run.
D) variable in the short run.
Q3) Long-run average cost is never greater than short-run average cost because in the long run
A) capital costs equal zero.
B) the firm can move to the lowest possible isocost curve.
C) wages always increase over time.
D) wages always decrease over time.
Q4) A firm pays $5 for each unit of capital.Labor costs $5 per hour for the first 10 hours and $10 per hour for every hour thereafter.Draw the isocost curves for total costs of $50 and $100.
Page 8
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Chapter 7: Firm Organization and Market Structure
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Sample Questions
Q1) If a firm goes out of business because of negative economic profits,its books
A) might indicate a positive accounting profit.
B) might indicate that opportunity costs were zero.
C) might indicate that taxes are too high.
D) might suggest a mistaken value of explicit costs.
Q2) If a firm makes zero economic profit,then the firm
A) has total revenues greater than its economic costs.
B) must shut down.
C) can be earning positive business profit.
D) must have no fixed costs.
Q3) If a competitive firm cannot earn profit at any level of output during a given short-run period,then which of the following FALSE?
A) It will shut down in the short run and wait until the price increases sufficiently.
B) It will exit the industry in the long run.
C) It will operate at a loss in the short run.
D) It will minimize its loss by decreasing output so that price exceeds marginal cost.
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Chapter 8: Competitive Firms and Markets
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Sample Questions
Q1) Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at $0.20 per pound when 500 pounds are grown.The demand for potatoes is Q = 10,000/p.If the long-run supply curve is horizontal,then how many pounds of potatoes will be consumed in total?
A) 0
B) 500
C) 10,000
D) 50,000
Q2) Producer surplus
A) is the minimum amount a firm must receive to engage in trade.
B) is a measure of what a firm gains from trade.
C) represents the opportunity cost of the firm.
D) determines whether or not a firm will produce in the long run.
Q3) The short run is
A) a period of time in which at least one input cannot be varied.
B) when firms are stuck with sunk costs, unlike the long run.
C) treated the same way as the long run.
D) a period of time when no inputs can be varied.
Q4) When is the profit a firm earns equal to the producer surplus? Explain.
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Chapter 9: Monopoly
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Sample Questions
Q1) The more elastic the demand curve,a monopoly
A) will have a larger Lerner Index.
B) will face a lower marginal cost.
C) will earn more profit.
D) will lose more sales as it raises its price.
Q2) Government actions that create monopolies
A) spur product innovation by the monopoly.
B) create deadweight loss.
C) result in lower average costs of production.
D) ensure that firms price at marginal cost.
Q3) If the inverse demand curve a monopoly faces is p = 100 - 2Q,and MC is constant at 16,then profit maximization
A) is achieved when 21 units are produced.
B) is achieved by setting price equal to 21.
C) is achieved only by shutting down in the short run.
D) cannot be determined solely from the information provided.
Q4) When would a profit-maximizing monopolist that operates with no government intervention choose to produce the competitive level of output?
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Chapter 10: Pricing With Market Power
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Sample Questions
Q1) Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) actual cost differences.
Q2) A firm practicing group price discrimination across two countries sets MR = common MC and therefore
A) price will be the same in both countries.
B) price will be twice MR.
C) profit will be the same in both countries.
D) price will likely be different in each country.
Q3) A monopoly will not be able to perfectly price discriminate if
A) each consumer does not reveal her reservation price.
B) demand is very elastic.
C) the firm's marginal cost curve is upward sloping.
D) All of the above.
Q4) Explain using welfare measures whether consumers prefer a single price monopoly or a perfectly price discriminating monopoly.
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Chapter 11: Oligopoly and Monopolistic Competition
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Sample Questions
Q1) In the Cournot model,if the products are differentiated
A) this reduces the pressure of one firm's decisions on the other.
B) this increases the pressure of one firm's decisions on the other.
C) there is no difference between this model and one with homogeneous goods.
D) marginal costs are necessarily different.
Q2) If a cartel is unable to monitor its members and punish those firms that violate the agreement,then
A) the member firms will each act as price setters.
B) the cartel will prosper in the long run.
C) the market will become a monopoly.
D) the cartel will fail.
Q3) Monopolistically competitive firms face downward sloping residual demand curves because these firms
A) have relatively few rivals (compared to competition).
B) sell differentiated products.
C) A and/or B.
D) None of the above.
Q4) In a Bertrand duopoly with product differentiation,explain how a change in one firm's marginal cost can have an effect on the price charged by the other firm.
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Chapter 12: Game Theory and Business Strategy
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Sample Questions
Q1) In the reality TV show Storage Wars,people bid on the contents of repossessed storage units without being able to evaluate the contents.This is an example of a ________ auction.
A) common value
B) private value
C) Dutch
D) second-price
Q2) Common knowledge in game theory
A) is information known to be known by all players.
B) is required for dynamic games.
C) is complete.
D) Both A and B.
Q3) The above figure shows the payoff for two firms,A and B,that must each choose to sell either at a high or low price.Determine the dominant strategies for each firm (if any)and the Nash equilibria (if any).
Q4) When neither player has a dominant strategy
A) game theory will not provide information.
B) no Nash equilibrium exists.
C) at least one Nash equilibrium exists.
D) the game cannot be analyzed.
Page 14
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Chapter 13: Strategies Over Time
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Sample Questions
Q1) In the Stackelberg model,the leader has a first-mover advantage because it
A) has lower costs than the follower.
B) commits to producing a larger quantity.
C) reacts to the follower's decision.
D) differentiates its output.
Q2) Assume a firm is a monopoly and enjoys $10,000,000 profits per year.The firm lobbies to have a moratorium passed by Congress on new firms in its market for the next 25 years.If there is no discount rate,how much would the firm be willing to pay to deter entry?
A) $250 million
B) $25 million
C) $100 million
D) $250 billion
Q3) In the beauty contest where players predict the outcome of players choosing a number between 0 and 100
A) the Nash equilibrium is 0.
B) your prediction should be based on what you think the winning number will be.
C) the Nash equilibrium is 33.
D) there is no Nash equilibrium because people are not rational.
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Chapter 14: Managerial Decision-Making Under Uncertainty
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Sample Questions
Q1) Framing often causes people to A) violate expected utility theory.
B) go to prison.
C) fall afoul of the certainty effect.
D) become risk-averse.
Q2) Buying a diversified mutual stock fund allows you to
A) completely avoid all types of risk.
B) avoid only random, unsystematic risk.
C) avoid only systematic risk.
D) avoid risk only when all the stock prices are perfectly correlated.
Q3) The ability of diversification to reduce risk
A) is greater the more negatively correlated the two events are.
B) is greater the more positively correlated the two events are.
C) is greater the more uncorrelated the two events are.
D) is greater the more risk averse the individual is.
Q4) If Stock A and Stock B both decrease in value at the same time,they are
A) negatively correlated.
B) uncorrelated.
C) positively correlated.
D) bad bets.
Page 16
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Chapter 15: Asymmetric Information
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Sample Questions
Q1) Which of the following workers is most likely to be asked to post a performance bond?
A) car salesman
B) fireman
C) armored car guard
D) basketball coach
Q2) Life insurance companies often give applicants a physical examination to prevent A) the person from dying before obtaining the policy.
B) signaling.
C) adverse selection.
D) profit maximization.
Q3) If all firms pay an efficiency wage,then
A) there is no cost to shirking because the shirking worker can receive his high wage at another firm after being caught and fired.
B) the macroeconomy would enjoy a prolonged period of near-zero unemployment.
C) there is a cost to shirking because the efficiency wage is less than it would have been if only a few firms paid it.
D) there is a cost to shirking because the shirking worker will spend a greater time unemployed after being caught and fired.
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Chapter 16: Government and Business
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Sample Questions
Q1) Laws that are used to prevent firms from colluding and setting high prices are called
A) anti-trust laws.
B) price ceiling laws.
C) anti-cartel laws.
D) anti-competition policies.
Q2) The socially optimal amount of pollution is A) zero.
B) greater than zero.
C) indeterminant.
D) unattainable.
Q3) In a market with positive externalities
A) the efficient level of production is less than what competition will obtain.
B) the efficient level of production is equal to what competition will obtain.
C) the efficient level of production is more than what competition will obtain.
D) there cannot be an efficient level of production.
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Chapter 17: Global Business
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Sample Questions
Q1) The United States and many other countries often impose trade sanctions on other countries.These sanctions
A) decrease producer and consumer surplus in both the sanctioned and sanctioning countries.
B) tend to increase total welfare.
C) tend to decrease the deadweight loss.
D) tend to decrease consumer and producer surplus only in the sanctioned country.
Q2) Outsourcing generally results from
A) unpatriotic behavior.
B) comparative advantage.
C) tax evasion.
D) rent seeking.
Q3) A pollution haven is
A) a place where people actually like pollution and view it as a positive externality.
B) a location with weak environmental rules that attracts manufacturing companies due to decreased costs.
C) a place that has very low worker wages.
D) unattractive for multinational investment because of the ambient pollution.
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