Course Introduction
Industrial Organization Exam Practice Tests
Industrial Organization examines the structure, behavior, and performance of firms and markets beyond the scope of perfect competition. The course explores how companies compete, the nature and implications of market power, pricing strategies, barriers to entry, industry concentration, product differentiation, and the regulatory environment. Using both theoretical models and real-world case studies, students analyze the effects of firms' strategic decisions on market outcomes, consumer welfare, and public policy. Topics also include cartels, mergers, vertical integration, and the role of innovation in shaping industrial dynamics.
Recommended Textbook
Economics of Strategy 6th Edition by David Besanko
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14 Chapters
419 Verified Questions
419 Flashcards
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Page 2
Chapter 1: The Power of Principles: an Historical Perspective
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Sample Questions
Q1) What was one of the first plant/factory types to use the "American System" of manufacturing?
A) Firearms
B) Steel
C) Oil
D) Automobiles
E) Chemicals
Answer: A
Q2) What form of communication was integral to the growth of multistory headquarter buildings?
A) Telegraph
B) Mail
C) Telephone
D) Morse code
E) Intercom
Answer: C
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3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) What measure,that depends on how much of a firm's revenues are attributable to product market activities that have shared technological characteristics,production characteristics,or distribution channels,is used to determine how diversified a firm is at a given time?
A) Integration level
B) Rumelt score
C) Conglomerate level
D) Activity share
E) Relatedness
Answer: E
Q2) Which of the following benefits of diversification explains the idea that corporate diversification can provide situations where an acquiring firm determines the stock price for firm they intend to acquire is too low?
A) Use of internal capital markets
B) Economies of scale and scope
C) Economizing on transaction costs
D) Diversifying shareholder portfolios
E) Identifying undervalued firms
Answer: E
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4
Chapter 3: The Vertical Boundaries of the Firm
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Sample Questions
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
Answer: B
Q2) What term describes features that need to relate to each other in a precise fashion otherwise they lose a significant portion of their economic value?
A) Design attributes
B) Critical components
C) Contract factors
D) Coordination factors
E) Relationship attributes
Answer: A
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Chapter 4: Integration and Its Alternatives
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Sample Questions
Q1) Which of the following is a characteristic of an implicit contract?
A) It is an understanding between parties in a business relationship
B) It is generally enforceable in court
C) The threat of losing future business makes implicit contracts not viable
D) They are typically used in firms that have little relationship with one another
E) It is an alternative agreement method to the Keiretsu understandings between members
Q2) 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
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Chapter 5: Competitors and Competition
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Sample Questions
Q1) Based on Bresnahan and Reiss' study of the relationship between concentration and prices,how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?
A) 1
B) 2
C) 3
D) 4
E) 5
Q2) What kind of competition is generally described as price competition?
A) Bertrand competition
B) Cournot competition
C) Perfect competition
D) Chamberlin competition
E) Monopolistic competition
Q3) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
Q4) In a two firm market,let the marginal cost of producing a product be $20 and the market demand for their products be given by Q =12-P +P and Q =12-P +P .What is the Bertrand equilibrium price each firm would produce in this market?
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Chapter 6: Entry and Exit
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Sample Questions
Q1) What term describes a market where a monopolist cannot raise price above long run average cost?
A) Blockaded
B) Perfectly contestable
C) Accommodated
D) Deterred
E) Predatory
Q2) 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
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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Chapter 7: The Dynamics Competing Across Time
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Sample Questions
Q1) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.If the firm believes each scenario is equally likely and invests today,what is the net present value of the investment?
Q2) What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself?
A) Uniform delivered pricing
B) Uniform FOB pricing
C) Uniform customer pricing
D) Uniform favored pricing
E) Uniform competitive pricing
Q3) What term describes a decision that has a long-term impact and is difficult to reverse?
A) Dedicated investment
B) Strategic commitment
C) Critical choice
D) Market investment
E) Firm commitment
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Page 9
Chapter 8: Industry Analysis
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Sample Questions
Q1) Which of the following is not a significant entry barrier in the commercial airframe manufacturing market?
A) High development costs
B) Learning curve in production
C) Raw materials and labor
D) Airlines prefer to purchase from the same manufacturer
E) Airlines are reluctant to purchase from startups
Q2) What concept developed by Brandenburger and Nalebuff as a counterpart to Porter's five-forces consists of suppliers,customers,competitors and complementors?
A) McKinsey 7-S Framework
B) Value net
C) BCG Market Share Matrix
D) 6 C's of Marketing
E) 4 P's of Marketing
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Chapter 9: Strategic Positioning for Competitive Advantage
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Sample Questions
Q1) Which of the following is a resource?
A) Brand promotion skills
B) Yield management capabilities
C) Ability to manage sourcing and procurement functions
D) Workers with firm-specific expertise or know-how
E) Ability to integrate order-taking, procurement, manufacturing and out-bound logistics
Q2) Which of the following terms is a concept,developed by Michael Porter,which describes the activities within firms and across firms that add value along the way to the ultimate transacted good or service?
A) Five forces
B) Value creation
C) Value chain
D) Consumer surplus
E) Producer surplus
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11
Chapter 10: Information and Value Creation
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Q1) Which of the following is a source for horizontal differentiation?
A) Price
B) Quality
C) Advertising
D) Location
E) Availability of substitutes
Q2) Which of the following is measured by a report that assesses how a product is produced?
A) Process
B) Inputs
C) Warrantees
D) Outcomes
E) Longevity
Q3) Which of the following serves as a voluntary signal of quality?
A) Warrantee
B) Independent reviews
C) Truth in Advertising
D) Free product financing
E) Public claims
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Page 12
Chapter 11: Sustaining Competitive Advantage
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Sample Questions
Q1) Which of the following terms describes a nation's position with regard to the elements (e.g.human resources,infrastructure)of production that are necessary to compete in a particular industry?
A) Factor conditions
B) Demand conditions
C) Supply conditions
D) Related supplier or support industries
E) Strategy, structure, and rivalry
Q2) Which of the following is not an isolating mechanism that falls under the heading of early-mover advantage?
A) Learning curve
B) Reputation and buyer uncertainty
C) Buyer switching costs
D) Network effects
E) Superior access to inputs or customers
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13
Chapter 12: Performance Measurement and Incentives
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Sample Questions
Q1) Which of the terms best describes the effect that results from supervisors giving all their subordinates average (or above average)grading to avoid making sharp distinctions between those subordinates when evaluating them?
A) Forced ranking system
B) Subjective assessment
C) Ratings balancing
D) Ratings compression
E) Merit ratings system
Q2) Which of the following management actions reflects agency problems due to the fact that information held by the agent is hard to observe?
A) Enriching managers themselves even if shareholders do not benefit
B) Avoiding risky strategic initiatives even if shareholders view them as "reasonable"
C) Paying for services that seem excessive to the shareholders
D) Pumping up the firm's short-run performance even if shareholders are harmed in the long-run
E) Giving work a mediocre effort so managers do not have to work excessive hours
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14
Chapter 13: Strategy and Structure
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Sample Questions
Q1) What variant of the multidivisional structure whose units cross national boundaries do Kogut and Zander argue is superior at transferring specific types of knowledge across national boundaries?
A) Subsidiary
B) Holding Company
C) Conglomerate
D) Partnership
E) Multinational corporation
Q2) What term best defines a complex set of behavior patterns that Nelson and Winter view the actions of firms to be a result of?
A) Routines
B) Decisions
C) Heuristics
D) Relationships
E) Resolutions
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Page 15
Chapter 14: Environment, power, and Culture
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Q1) Which of the following statements is least true regarding the costs that regulation imposes on firms?
A) Regulation costs include lower prices for goods that consumers pay
B) Regulation costs include costs of compliance
C) Regulation costs include increased business costs due to noncompliance
D) Regulation costs include the costs of strategic options that must be forgone because of regulations
E) Regulation costs include potential distortions to a market that may result from the imperfections of a given regulatory regime
Q2) Which one of the following terms describes relationships in social networks in which one actor is the critical link between individuals or entire groups?
A) Structural hole
B) Missing link
C) Social connection
D) Network connection
E) Network link
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