Strategic Management and Economics
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Course Introduction
Strategic Management and Economics explores the intersection of economic theory and strategic decision-making within organizations. The course examines how firms develop and implement strategies to achieve competitive advantage, focusing on market structures, game theory, resource allocation, and business models. Students analyze the impact of economic forces on organizational choices, assess industry competition, and investigate how external and internal environments shape strategy formulation. By integrating economic principles with practical management tools, the course equips students with critical skills to evaluate strategic options and drive long-term organizational success in dynamic markets.
Recommended Textbook Economics for Managers Global Edition 3rd Edition by Paul
G. Farnham
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Page 2
Chapter 1: Managers and Economics
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Sample Questions
Q1) 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
Q2) Which of the following market structures is most similar to perfect competition?
A)Monopsony.
B)Monopolistic competition.
C)Oligopoly.
D)Monopoly.
Answer: B
Q3) "Gross Investment spending" refers exclusively to purchases of plant and equipment by businesses and net changes in business inventories.
A)True
B)False
Answer: False
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Chapter 2: Demand, supply, and Equilibrium Prices
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Q1) Assume the technology for producing personal computers improves and,at the same time,individuals discover new uses for personal computers so that there is greater utilization of personal computers.Which of the following will happen to equilibrium price and equilibrium quantity?
A)Price will increase; quantity cannot be determined.
B)Price will decrease; quantity cannot be determined.
C)Quantity will increase; price cannot be determined.
D)Quantity will decrease; price cannot be determined.
Answer: C
Q2) "Demand" is best defined as the relationship between:
A)the price of a good and the quantity consumers are willing and able to buy at each price level.
B)the current price of a good and the quantity demanded at that price.
C)the quantity supplied and the price people are willing to pay for a good.
D)the amount of income someone has and the price he is willing to pay for a good.
Answer: A
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Chapter 3: Demand Elasticities
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Q1) As we move down a linear demand curve,the absolute value of the price elasticity of demand:
A)increases.
B)stays the same.
C)decreases.
D)cannot be determined without more information.
Answer: C
Q2) Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.
A)True
B)False
Answer: False
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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Chapter 4: Techniques for Understanding Consumer Demand and Behavior
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Q1) Refer to Scenario 1.Is the slope coefficient statistically different from zero?
A)No.
B)Yes.
C)Inconclusive.
D)None of the above.
Q2) The t-test is used to test hypotheses concerning the individual regression coefficients.
A)True
B)False
Q3) Which of the following approaches to understanding and predicting consumer behavior provides the most insight into how consumers can be expected to respond in an actual market setting?
A)Test marketing.
B)Conjoint analysis.
C)Analysis of historical data.
D)Expert opinion.
Q4) Refer to Scenario 2.Based on the 95 percent confidence intervals for each of the partial regression coefficients,which independent variable is statistically different from zero and why?
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Q5) Why are estimated models of demand and consumer behavior useful to managers?
Chapter 5: Production and Cost Analysis in the Short Run
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Q1) A firm's production function is the relationship between:
A)the inputs employed by the firm and the resulting costs of production.
B)the factors of production and the resulting outputs of the production process.
C)the demand for a firm's output and the quantity it is able to produce with available resources.
D)the firm's production costs and the amount of revenue it receives from the sale of its output.
Q2) All else constant,as the amount of a firm's implicit costs increases,the difference between economic profit and accounting profit will:
A)increase.
B)stay the same.
C)decrease.
D)cannot be determined without more information.
Q3) The term "fixed input" refers to:
A)inputs to production that do not vary with respect to quality.
B)inputs to production that do not vary in price.
C)inputs to production that yield a constant or "fixed" marginal product.
D)inputs to production, the quantity of which cannot be varied in the short run.
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Chapter 6: Production and Cost Analysis in the Long Run
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Q1) An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.
A)True
B)False
Q2) The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:
A)engineering estimation technique.
B)statistical cost estimation technique.
C)survivor approach.
D)back-of-the-envelope approach.
Q3) An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.
A)True
B)False
Q4) Most of the empirical research on long-run costs suggests that the long-run average cost curve for most firms has a very pronounced U-shape.
A)True
B)False
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Chapter 7: Market Structure: Perfect Competition
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Q1) High fuel prices and losses by smaller firms have resulted in a considerable amount of consolidation in the trucking industry,which now most closely resembles the oligopoly market structure.
A)True
B)False
Q2) When a firm is producing at the profit maximizing level of out put and P > ATC,the firm is:
A)breaking even.
B)incurring an economic loss.
C)earning an economic profit.
D)earning a profit or incurring a loss depending on the level of total fixed costs.
Q3) A perfectly competitive firm will minimize its losses by shutting down when:
A)P < AVC at the profit-maximizing level of output.
B)P < ATC at the profit-maximizing level of output.
C)P < MC at the profit-maximizing level of output.
D)P < TFC at the profit-maximizing level of output.
Q4) What assumptions in the perfect competition model ensure that economic profit is zero in the long run? Explain.
Q5) Summarize the characteristics of a perfectly competitive market.
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Chapter 8: Market Structure: Monopoly and Monopolistic Competition
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Q1) The addition of gasoline pumps at a grocery store is a good example of a network externality.
A)True
B)False
Q2) The various antitrust laws are written in very specific terms.Thus,there is little or no question as to when a firm has run afoul of one or more of these laws.
A)True
B)False
Q3) The Sherman Antitrust Act:
A)prohibits conspiracies in restraint of trade.
B)allows the formation of trusts so long as they are public enterprises.
C)allows a group of firms to form a trust only if it is done to take advantage of economies of scale.
D)prevents the military from using armored vehicles on the public streets.
Q4) For a monopolist to earn a positive economic profit,price has to exceed average total cost at the level of output at which marginal revenue equals marginal cost.
A)True
B)False
Page 10
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Chapter 9: Market Structure: Oligopoly
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Q1) Suppose an oligopolistic firm raises the price of its output.Demand for the firm's output will be relatively price ________ if the other dominant firms in the market
A)elastic; do not raise price
B)unit elastic; do not raise price
C)inelastic; also raise price
D)cannot be determined
Q2) According to the kinked demand curve model,if an oligopolistic firm lowers its price,it should expect to see its total revenue:
A)increase.
B)stay the same.
C)decrease
D)cannot be determined without more information.
Q3) It is reasonable to expect that if one firm in an oligopolistic market raises price,the its competitors will do the same so that all firms can earn increased revenues.
A)True
B)False
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Chapter 10: Pricing Strategies for the Firm
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Q1) Which of the following statements is not correct?
A)First-degree and third-degree price discrimination work to increase a firm's profits by converting consumer surplus into revenue for the firm.
B)First-degree and third-degree price discrimination work to increase a firm's profits by more accurately matching willingness to pay to the marginal costs of production.
C)First-degree price discrimination works to increase a firm's profits by converting consumer surplus into revenue for the firm, while third-degree price discrimination increases a firm's profits by more accurately assessing the willingness to pay of different groups of consumers.
D)Because it focuses on more accurately assessing the willingness to pay of different groups of consumers, third-degree price discrimination will increase a firm's profits more than will first-degree price discrimination.
Q2) To the extent that customers can resell products to each other,the effectiveness of a price discrimination strategy will be undermined.
A)True
B)False
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Chapter 11: Measuring Macroeconomic Activity
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Q1) What are the costs associated with inflation?
Q2) In recent years,U.S.exports have exceeded U.S.imports.
A)True
B)False
Q3) If GDP falls:
A)income and production must both fall.
B)income and production must both rise.
C)income must rise, but production may rise or fall.
D)none of the above.
Q4) Commodities that typically last three years or more are called:
A)durable goods.
B)nondurable goods.
C)services.
D)none of the above.
Q5) The legislation passed in 1946 that requires governmental institutions to promote "maximum employment,production,and purchasing power" is called:
A)Full Employment and Balanced Growth Act.
B)Federal Reserve Act.
C)Employment Act.
D)Unemployment Act.
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Chapter 12: Spending by
Individuals, firms, and
Governments on Real Goods and Services
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Q1) Assume that the U.S.dollar depreciates against the Japanese yen.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.
Q2) Long-run macroeconomic policies concentrate on:
A)minimizing fluctuations around potential GDP.
B)maximizing fluctuations around potential GDP.
C)incentives for increasing productivity and the potential output of the economy.
D)none of the above.
Q3) The role of the currency exchange rate is embedded in the import expenditure equation as:
A)autonomous import spending.
B)marginal propensity to import.
C)autonomous export spending.
D)none of the above.
Q4) Distinguish between the short-run and long-run factors that affect residential investment.
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Chapter 13: The Role of Money in the Macro Economy
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Q1) A goal of contractionary monetary policy is to:
A)decrease the rate of growth of real GDP.
B)increase the rate of growth of real GDP.
C)increase inflation.
D)none of the above.
Q2) An increase in the discount rate would:
A)decrease bank borrowing of reserves and reflect an expansionary monetary policy.
B)decrease bank borrowing of reserves and reflect a contractionary monetary policy.
C)increase bank borrowing of reserves and reflect an expansionary monetary policy.
D)increase bank borrowing of reserves and reflect a contractionary monetary policy.
Q3) The interest rate the Federal Reserve charges banks which borrow reserves at the Federal Reserve's discount window is called the:
A)federal funds rate.
B)discount rate.
C)prime interest rate.
D)mortgage interest rate.
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Chapter 14: The Aggregate Model of the Macro Economy
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Q1) Expansionary fiscal policy should be used if:
A)aggregate demand-aggregate supply equilibrium is below potential output.
B)aggregate demand-aggregate supply equilibrium is above potential output.
C)aggregate demand-aggregate supply equilibrium is equal to potential output.
D)none of the above.
Q2) Aggregate supply changes much faster than aggregate demand.
A)True
B)False
Q3) Using the aggregate demand-aggregate supply diagram,graphically illustrate and explain the impact of an escalating budget deficit on the price level and real income in the long-run.
Q4) Average duration of unemployment is an example of a:
A)leading indicator.
B)coincident indicator.
C)lagging indicator.
D)none of the above.
Q5) Increases in resources and efficiency would increase potential GDP.
A)True
B)False
Q6) Explain the long-run consequences of continued increases in the money supply.
Page 16
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Chapter 15: International and Balance of Payments Issues in the Macro Economy
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Q1) Using the foreign exchange market diagram,graphically illustrate and explain the impact of an increase in U.S.income,all else constant,on the exchange rate.
Q2) Using the foreign exchange market diagram,graphically illustrate and explain the impact of an increase in foreign income,all else constant,on the exchange rate.
Q3) What did the European Central Bank (ECB)do to bolster the value of the euro in September 2000?
Q4) Assets which include foreign currencies and gold certificates that central banks use to maintain exchange rates in a predetermined range are called:
A)reserve assets.
B)tangible assets.
C)bank assets.
D)discretionary assets.
Q5) Domestic currency appreciation will:
A)help domestic firms that export and hurt domestic firms that import.
B)hurt domestic firms that import.
C)hurt domestic firms that export and help domestic firms that import.
D)help domestic firms that export.
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Chapter 16: Combining Micro and Macro Analysis for Managerial Decision Making
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Q1) A joint venture allows a foreign firm to easier adjust to a new market and often meet various institutional requirements.
A)True
B)False
Q2) To cut costs in the face of declining demand and increased competition,many fast food restaurants have focused on reducing:
A)labor costs.
B)utility costs.
C)paper napkin costs.
D)none of the above.
Q3) In China,beef is considered a:
A)luxury.
B)necessity.
C)close substitute for chicken.
D)none of the above.
Q4) McDonald's can offset the decline in demand by influencing the different variables that affected the demand function for their products.
A)True
B)False
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