Strategic Decision Making
Pre-Test Questions
Course Introduction
Strategic Decision Making focuses on the frameworks, tools, and processes involved in making high-impact decisions within organizations. The course covers key concepts such as problem structuring, risk assessment, stakeholder analysis, and scenario planning, drawing from disciplines like economics, psychology, and management science. Students will learn how to analyze complex situations, evaluate alternatives, and apply critical thinking to real-world business challenges. Through case studies, simulations, and group discussions, the course aims to develop the analytical and leadership skills necessary to make informed strategic choices in uncertain and dynamic environments.
Recommended Textbook
Economics of Strategy 5th Edition by David
Besanko
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18 Chapters
450 Verified Questions
450 Flashcards
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Chapter 1: Basic Microeconomic Principles
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Q1) Suppose a factory is producing 100 units and the price of each unit is $10.If raising the price to $12 per unit results in a drop in sales of 12 units,what is the price elasticity of demand, ?
A)6
B).6
C)1.67
D).8
E).17
Answer: B
Q2) Which of the following variables does not influence the quantity of product that a firm is able to sell?
A)Price of the product
B)Price of related products
C)Plant production costs
D)Incomes and tastes of consumers
E)Advertising
Answer: C
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Chapter 2: Economies of Scale and Scope
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Q1) What kind of economies come from reductions in average costs due to increases in capacity utilization?
A)Short-run economies of scale
B)Short-run economies of scope
C)Long-run economies of scale
D)Long-run economies of scope
E)Fully automated economies
Answer: A
Q2) How does carrying inventories contribute to economies of scale?
A)Increases the interest on the expenses to produce the inventory
B)Inventory depreciates in value while waiting to be used or sold
C)Increases the storage facilities necessary
D)Increases competition with rivals for customers
E)Minimizes the chance of stock-out
Answer: E
Q3) 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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Page 4
Chapter 3: Agency and Coordination
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Q1) How are the coordination problems that exist around the construction of a new home generally solved?
A)Pricing
B)Software
C)Bureaucracy
D)Contractor
E)Markets
Answer: D
Q2) Given an employee cost of effort function (where e is given in hours worked per week and each unit of e produces an extra $100 in sales):
c(e)= 0 if e<=40
(1/3)*(e-40)² if e>40
If the firm offers a salary-plus-commission job of base salary plus 20% of sales,what is the minimum base salary the firm can offer the employee and still have the employee willing to accept the job over a simple $2000 per week salary job?
Answer: $900
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) How have late 20 and 21 century communications technologies directly created global markets from products and services?
A)Created paperless communications
B)Created seamless and instantaneous communications
C)Decreased coordination for interfirm alliances
D)Increased worker productivity
E)Unflattened the world
Q2) Which of the following did not contribute to the high transaction related risks for U.S.potato sales in 1840?
A)Infrequency of transactions
B)Changing transaction partners
C)Lack of availability of sales and prices for comparable goods
D)Competition from European merchants
E)Geographic distance between buyers and sellers
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) Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines?
A)Site specificity
B)Physical asset specificity
C)Dedicated assets
D)Human asset specificity
E)The fundamental transformation
Q2) Which of the following is not a result of the holdup problem?
A)More difficult contract negotiations and more frequent renegotiations
B)Investments to improve ex post bargaining positions
C)Reduction in the transaction costs of arm's length market exchanges
D)Distrust
E)Reduced investment in relationship-specific investments
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) Which of the following conclusions can we make about vertical integration with regards to product market share and scope?
A)If asset specificity is significant enough, vertical integration will be more profitable than arm's-length market purchases, even when production of the input is characterized by strong scale economies or when the firm's product market scale is small.
B)A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
C)A firm with multiple product lines will benefit more from being vertically integrated in the production of components for those products in which it can achieve significant market scale
D)The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
E)If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists
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Page 8
Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Which of the following is generally a way that LBOs can help a firm realize its potential value?
A)The synergies created allow for cost savings
B)The transaction reduces the disparity between a firm's actual and potential share price
C)The acquisition reduces the likelihood of competition in the industry
D)The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds
E)The buyout gives an opportunity to adjust the management structure and makeup
Q2) Which of the following benefits of diversification explains the idea that combining unrelated businesses can allow firms to finance projects through cross-subsidization when they previously were unable to finance the same projects externally?
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
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Chapter 8: Competitors and Competition
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Q1) Which of the following is not a characteristic of substitute products X and Y?
A)They have the same or similar product performance characteristics
B)They have the same or similar occasions for use
C)They are sold in the same geographic market
D)Customers are indifferent between X and Y
E)A price increase of X while keeping the Y's price constant leads to a drop in purchases of X and an increase in purchases of Y
Q2) What term describes the differentiation of a product when it is unambiguously better or worse than competing products?
A)Horizontal differentiation
B)Vertical differentiation
C)Idiosyncratic differentiation
D)Spatial differentiation
E)Non-price differentiation
Q3) In a three firm market where the market share split is 50%,30% & 20%,what is the Herfindahl index?
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Chapter 9: Strategic Commitment
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Q1) What key element of a competitive move adds credibility to a making it a "true" commitment?
A)Fund raising
B)Public announcement
C)Relatedness factor
D)Irreversibility
E)Capacity expansion
Q2) What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing potential responses to the commitment by competitors and potential entrants in light of the commitments that they have made and the impact of those responses on competition?
A)Positioning analysis
B)Sustainability analysis
C)Flexibility analysis
D)Judgment analysis
E)Final Commitment analysis
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Chapter 10: The Dynamics of Pricing Rivalry
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Q1) Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?
A)Price umbrella
B)Price leading
C)Predatory pricing
D)Premium pricing
E)Price lining
Q2) What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?
A)Response strategy
B)Always cooperate strategy
C)Always aggress strategy
D)Tit-for-tat strategy
E)Trigger strategy
Q3) Suppose Firm #1 dominates a market for widgets priced at $100/unit with a marginal cost of $60/unit.If Firm #2 enters the market and offers comparable widgets at a 3% discount,extending a price umbrella optimal as long as Firm #1 loses no more than what portion of its market share?
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Chapter 11: Entry and Exit
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Q1) When is predatory pricing a most effective entry barrier?
A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions
Q2) What type of entry exists if (1)the incumbent can keep the entrant out by employing an entry-deterring strategy and (2)employing the entry-deterring strategy boosts the incumbent's profits?
A)Deterred Entry
B)Judo Entry
C)Stealth Entry
D)Accommodated Entry
E)Blockaded Entry
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Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) Which of the following is not a factor that could intensify internal rivalry in the Chicago hospital market?
A)Relatively large number of hospitals
B)Considerable variation in production costs
C)Relatively small number of doctors
D)Excess capacity
E)Aging baby boomers increasing demand for admissions
Q2) What type of entrant would be described as a new entrant with no current brand identity,distribution channels or presence within an industry?
A)Fast follower
B)Passive
C)Aggressive
D)Innovator
E)De novo
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) Which of the following statements best describes a characteristic of geographic specialization focus strategies?
A)Offers a variety of products and/or sells to a variety of customer groups within a narrow geography
B)Offers an array of product varieties to a limited class of customers
C)Caters to the particular needs of the customer group served
D)Offers a limited set of products to an array of different customer groups
E)Does an especially good job satisfying a subset of the needs of the consumer groups being served
Q2) When multiple firms' price-quality positions line up along the same indifference curve offering a consumer the same amount of consumer surplus,what term describes the situation?
A)Price-quality parity
B)Price matching
C)Maximum willingness-to-pay
D)Consumer surplus parity
E)Consumer surplus
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Chapter 14: Sustaining Competitive Advantage
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Q1) What term best describes firm-specific assets such as patents and trademarks,brand-name reputation,installed base,and organizational culture?
A)Competitive advantage
B)Capabilities
C)Resources
D)Threats to sustainability
E)Strategic firm assets
Q2) What did Vonage do to deflect the impact of the intense price competition in the U.S.?
A)Attempted to position itself as the high-quality, high-reliability player in the market
B)Raised its prices
C)Was acquired by Ebay
D)Began jointly providing service with cable companies
E)Replicate other firms on hardware and service features
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Q1) Which of the following terms best describes an idea,developed by Gary Hamel and C.K.Prahalad,which combines commitment to the firm's ambitions with the flexibility to change with circumstances?
A)Leveraging resources
B)Strategic intent
C)Strategic stretch
D)Hypercompetition
E)Global dominance
Q2) Which of the following terms best describes an idea,developed by Gary Hamel and C.K.Prahalad,which means a fundamental focus of a firm's strategy that commits it well beyond its current resource profile?
A)Leveraging resources
B)Strategic intent
C)Strategic stretch
D)Hypercompetition
E)Global dominance
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) What term refers to the practice in a multidivisional firm where orders from other parts of a company are rushed to be filled at the end of each month (allowing divisions filling the orders to recognize revenue but cause inventory problems)?
A)Order rushing
B)Commission sales
C)Pay-for-performance measures
D)Channel stuffing
E)Multitask principle
Q2) What term best refers to a wage payment made to an agent that exceeds his opportunity cost of working and discourages the agent from shirking?
A)Living wage
B)Efficiency wage
C)Minimum wage
D)Efficiency payment
E)Termination wage
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Chapter 17: Strategy and Structure
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Q1) What type of organizational structure is one that is comprised of a set of autonomous divisions led by a corporate headquarters office,assisted by a corporate staff that provides information about the internal and external business environment?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
Q2) What type of organizational structure is one in which employees are subject to two or more sets of managers at once?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
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Chapter 18: Environment, power, and Culture
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Q1) What term does Ronald Burt use to describe a valued relationship between two unconnected parties with a strategy involving spanning a structural hole and bargaining with parties on either side for the most favorable terms?
A)Mavens
B)Nodes
C)Second who benefits
D)Tertius gaudens
E)Brokers
Q2) What term does Ronald Burt use to describe relationships in social networks in which one actor is the critical link between individuals or entire groups of actors?
A)Mavens
B)Nodes
C)Structural holes
D)Tertius gaudens
E)Brokers
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