Strategic Management
Final Test Solutions
Course Introduction
Strategic Management is a comprehensive course that explores the concepts, frameworks, and tools essential for analyzing, formulating, and implementing business strategies in dynamic and competitive environments. Students will learn how organizations develop and sustain competitive advantages, assess internal and external environments, and make strategic decisions that influence long-term direction and performance. The course integrates theoretical foundations with real-world case studies, emphasizing critical thinking, problem-solving, and the role of leadership and ethics in strategic planning and execution.
Recommended Textbook
Managerial Economics 5th Edition by Luke M. Froeb
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21 Chapters
1734 Verified Questions
1734 Flashcards
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Page 2
Chapter 1: The One Lessor of Business
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) A consumer values a car at $30,000 and a producer values the same car at $20,000.If the transaction is completed at $24,000,the transaction will generate:
A)No surplus
B)$4,000 worth of seller surplus and unknown amount of buyer surplus
C)$6,000 worth of buyer surplus and $4,000 of seller surplus
D)$6,000 worth of buyer surplus and unknown amount of seller surplus
Answer: C
Q2) A buyer values a house at $525,000 and a seller values the same house at $485,000.If sales tax is 8% and is levied on the seller,then what would be the lowest price that the seller would be willing to sell at?
A)$527,000
B)$523,800
C)$525,000
D)$500,000
Answer: B
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3
Chapter 2: Benefits, Costs, and Decisions
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Sample Questions
Q1) Variable costs are
A)costs that vary with output
B)not important in decision making
C)costs that do not vary with output
D)equal to total costs
Answer: A
Q2) In the long-run,all costs are
A)Fixed costs
B)Variable costs
C)Sunk Costs
D)Marginal Costs
Answer: B
Q3) James used $250,000 from his savings account that paid an annual interest of 15% to purchase a hardware store.After one year,James sold the business for $320,000. What is his economic profit?
A)$320,000
B)$70,000
C)$282,500
D)$32,500
Answer: D
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Chapter 3: Extent How Much Decisions
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76 Flashcards
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Sample Questions
Q1) What is the marginal revenue from producing the fourth unit?
A)90
B)50
C)20
D)180
Answer: B
Q2) Cooling systems
Carl is the lead engineer on a smart HVAC cooling system that works with minimal energy and is voice activated.Given the revolutionary nature of the system,it took many failed tries to create a system that actually worked,a cost of $30,000.Now each unit sells for $6500 and it costs $5000 in raw materials and labor to produce.What costs should Carl take into consideration when deciding to service the order for an additional unit?
Answer: He should only take into account the actual costs for producing another unit,$5000,not the $30,000 in experimentation costs since those costs are already sunk and should not effect whether or not he produces an additional unit.Even though $30,000 is a large amount,these costs have already been incurred and irreversible at this point.
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Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) What is the net present value of the investment?
A)$115.85
B)$1055.59
C)$1076.56
D)$346.78
Q2) Which of the following will decrease the price needed to break even?
A)A decrease in overall fixed but avoidable costs
B)A decrease in the marginal costs
C)An increase in sunk costs
D)Both A&B
Q3) The current break-even quantity is
A)3000
B)600
C)500
D)300
Q4) If a firm sells more than the break-even quantity,
A)It will make a profit
B)It will only cover the variable costs
C)It will make a loss
D)A firm is unable to sell above the break-even quantity
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Chapter 5: Simple Pricing
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87 Flashcards
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Sample Questions
Q1) The demand for a product is more elastic
A)When it has few substitutes
B)In the long-run
C)When the expenditure on the product represent a small portion of the budget
D)When the product is broadly defined
Q2) If your income goes up by 2% and,in response,the quantity demanded of good x falls by 3%,the good x can be considered
A)An inferior good
B)A normal good
C)A public good
D)A private good
Q3) An rational,optimizing,self interested consumer would consume up to the point where
A)the consumer surplus from the last unit is positive
B)the consumer surplus from the last unit is negative
C)the consumer surplus from the last unit is zero
D)none of the above
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) Wine Distribution Merger
Two of UK's larger wine distribution companies,Bibendum and PLB,merged their businesses in October 2014.Bibendum is primarily a restaurant supplier while PLB focuses on supplying wines to retailers.Does this suggest a mechanism through which the merger might create value?
Q2) If long run average costs are constant with respect to output,you have
A)Increasing returns to scale
B)Decreasing returns to scale
C)Constant returns to scale
D)None of the above
Q3) If your long-run costs exhibit increasing returns to scale,securing big orders leads you to
A)Increase average costs
B)Reduce average costs
C)Keep the average costs constant
D)None of the above
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Chapter 7: Understanding Markets and Industry Changes
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82 Flashcards
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Sample Questions
Q1) Nutella and Hazelnuts
A key ingredient of Nutella is hazelnuts which are grown mostly around the Black Sea in Turkey.Nutella uses about a quarter of the world crop.Two things have occurred recently.Nutella is becoming more popular worldwide and a frost destroyed much of this season's crop.How do these occurrences affect the market for hazelnuts?
Q2) All these factors would shift the supply curve of tobacco,except
A)Bad weather
B)Change in the price of tobacco
C)Changes in the wages of agricultural workers
D)A tax charged on the production of tobacco
Q3) An increase in demand could arise from which of the following factors
A)an increase in income
B)a decrease in the price of a complement
C)an increase in the price of a substitute
D)all of the above
Q4) Olive Oil
Spain is the world's number 1 producer of olive oil,mostly in the southern Andalusia region.But very dry weather there has ravaged olive trees.What affect will the poor weather have on the olive oil market?
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Chapter 8: Market Structure and Long Run Equilibrium
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73 Flashcards
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Sample Questions
Q1) A sudden fall in the market demand in a competitive industry leads to
A)A short run market equilibrium price lower than the original equilibrium
B)A market equilibrium price higher than the short run price
C)Some firms exiting the market
D)All of the above
Q2) Two cities face identical prices for their housing.City A decided to be a pollution free city "Clean town" and all the factories would locate in city B "Smogville",we expect the prices of housing in city B "Smogville" to
A)increase
B)decrease
C)stay the same
D)none of the above
Q3) A sudden fall in the market demand in a competitive industry leads to
A)A short run market equilibrium price higher than the original equilibrium
B)A market equilibrium price higher than the short run price
C)New firms entering the market
D)All of the above
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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71 Flashcards
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Sample Questions
Q1) If a customer values good A at $15,and it costs the firm $10 to produce,the firm can increase its profits if
A)Redesign the product such that it delivers $16 in customer value
B)Redesign the production process so that the costs fall to $9
C)One or both of the above
D)None of the above
Q2) Firms maintain their completive edge by
A)Providing a good at lower costs than their rivals
B)Providing a superior product at the same cost as your rival
C)Being innovative
D)All the above
Q3) One of the limitation of Five Forces is that they
A)Reduce producer surplus
B)For one firm to increase profit,the profit of another participant must decrease
C)Does not provide a firm with sustainable competitive advantage
D)Both b and c
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11
Chapter 10: Foreign Exchange, Trade, and Bubbles
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83 Flashcards
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Sample Questions
Q1) Holding other things constant,an increase in the inflation rate in the US compared to China may cause the demand for dollar to _____________ and the supply for dollar to __________.
A)Increase;decrease
B)Increase,increase
C)Decrease;Increase
D)Decrease;Decrease
Q2) Holding other things constant,decreases in the price level in the US will
A)Cause the dollar to appreciate
B)Cause the dollar to depreciate
C)Does not affect the dollar value
D)None of the above
Q3) If the Canadian dollar appreciates,holding other things constant,it makes Canadian imports
A)More expensive for Canadian customers
B)Less expensive for Canadian customers
C)Neither more or less expensive for importers
D)None of the above
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12
Chapter 11: More Realistic and Complex Pricing
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72 Flashcards
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Sample Questions
Q1) Firm X owns both a grocery store and the parking lot outside the grocery store.In order to increase the traffic at the store,the store should
A)Decrease the prices on the goods sold in the store
B)Increase the parking rates
C)All of the above
D)None of the above
Q2) Prospect theory implies that consumers are motivated by
A)The actual price level
B)The distance of the price from the reference price
C)All of the above
D)None of the above
Q3) Advertising claiming superior quality of a product makes its demand
A)More elastic
B)Less elastic
C)Perfectly elastic
D)None of the above
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13
Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) The __________ declared that some forms of price discrimination is illegal,especially when it decreases competition.
A)Robinson-Patman Act
B)Sherman Antitrust Act of 1890.
C)Merger Act
D)Federal Trade Commission Act.
Q2) What is the maximum that the firm can charge for the no-name brand wok without losing customers?
A)$50
B)$60
C)$70
D)$100
Q3) The "damaged goods" strategy refers to
A)Trying to sell damaged goods to your customers
B)Damaging the goods after they have been paid for but before the shipping
C)Incurring additional costs to make the cheaper goods unattractive to high-value users
D)Incurring additional costs to make the more expensive goods better quality
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14
Chapter 13: Strategic Games
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Sample Questions
Q1) If the game is repeated indefinitely,and the vendors adopt a trigger strategy such that they would start charging the low price only if the other vendor charged a low price last time,what would be the Nash equilibrium?
A)Both the vendors price high
B)Both the vendors price low
C)Vendor A prices high,vendor B prices low
D)Vendor B prices high,vendor A prices low
Q2) Which one of the following is a way to get out of a repeated Prisoner's Dilemma Nash Equilibrium?
A)Do not be provoked
B)Do not be easily provoked
C)Be easily provoked
D)All of the above
Q3) The equilibrium of this game indicates
A)Self-interest can sometimes lead to sub-optimal outcomes
B)Rationality can sometimes lead to inefficient outcomes
C)All of the above
D)None of the above
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15
Chapter 14: Bargaining
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82 Flashcards
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Sample Questions
Q1) When buying a car from a dealer,to get a better bargaining position
A)Always carry your check book to show willingness to buy
B)Carry only blank checks to ease the transaction
C)Carry a cashier check that cannot be modified
D)All of the above
Q2) If the shopkeeper goes first and quotes a low price,what is the best response of the customer?
A)Accept the low price happily
B)Walk away from the deal
C)Slam the storeowner's door on the way out
D)Laugh at the storeowner
Q3) In the sequential negotiation games:
A)You can induce a change in the strategy in your opponent only if your threat is believed
B)Any threat can induce a change in strategy in your opponent
C)The best threat is the one that you do not have to carry out
D)A and C
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16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) Type I errors are
A)False negatives
B)False positives
C)True negatives
D)True positives
Q2) You experiment by offering free warranties for your product in market A but not in market B.Sales in A rise from 240 to 360 units per week while sales in B rise from 410 to 430.The Difference-in-difference estimate of the effect of the free warranty is:
A)80 units
B)100 units
C)120 units
D)140 units
Q3) If the firm can only afford developing one of the software,which one would it rather develop (based on expected profit/gain)
A)The simple voice-activated software
B)The complicated thought-activated software
C)Neither of the software
D)Need more information
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Chapter 16: Auctions
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Sample Questions
Q1) Anna's Antiques expects to get two bidders for the unique china teacup it sells.Each of the bidders can either have a high-value of $100 or a low-value of $70 with equal probability.If Anna holds an auction between the two bidders,and both the bidders have low values,she would earn ___ from the auction.
A)Just above $100
B)$100
C)Just above $70
D)$70
Q2) _______losing bidders lead to _____winning bids
A)Stronger;raise
B)Weaker;reduce
C)Stronger;raise
D)None of the above
Q3) First-price auctions have all the following properties EXCEPT
A)Highest bid wins
B)Highest bidder pays the second highest bid
C)The item is won by the highest bidder
D)The price is set to the highest bid
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18
Chapter 17: The Problem of Adverse Selection
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Sample Questions
Q1) Adverse selection is
A)when people act differently because they are insured
B)when more risk averse people want to be insured more
C)when people at a greater risk want to be insured more
D)when your guess at a test question is wrong
Q2) A risk neutral individual
A)Values a lottery at more than its expected value
B)Values a lottery at less than its expected value
C)Values a lottery at its expected level
D)Tends to play a lot of lotteries
Q3) The following is an example of adverse selection
A)A majority of those applying for well paid jobs are well qualified
B)More reckless drivers opt for cars with more safety devices
C)Individuals living in less secure neighborhoods want to buy less insurance
D)Individuals with a strong family history of heart diseases opt to buy less insurance
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Chapter 18: The Problem of Moral Hazard
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Sample Questions
Q1) One difference between moral hazard and adverse selection is
A)Adverse selection has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)Only A&B
Q2) Individuals with homeowner's insurance tend to be more forgetful about locking their possessions safely before heading out.This is an example of
A)Adverse selection
B)Moral hazard
C)Screening
D)None of the above
Q3) The difference between moral hazard and adverse selection is
A)moral hazard has to do with unobservable characteristics of individuals
B)moral hazard has to do with unobservable actions of individuals
C)adverse selection is when individuals change their behaviors because of a contract
D)adverse selection is when you choose the wrong answer on a test
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Chapter 19: Getting Employees to Work in the Firms Best Interest
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108 Flashcards
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Sample Questions
Q1) In managerial economics,agency costs refer to
A)booking travel arrangements
B)model and actor representation
C)imperfections in dealing with those hired
D)foreign espionage
Q2) To solve the principle agency problem,which of the following questions should you ask
A)Who is making the bad decision?
B)Does the decision maker have all the relevant information?
C)Does the decision maker have the incentive to make the right decision?
D)All of the above
Q3) Monitoring
A)Gives the principle a better performance evaluation metric
B)Allows the principle to better align the incentives of the agent with the goals of the principle
C)Can be costly for the principal
D)All of the above
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Page 21
Chapter 20: Getting Divisions to Work in the Firms Best
Interest
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115 Flashcards
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Sample Questions
Q1) Which of the following is a reason there are divisional conflicts over the transfer price?
A)the manager of the upstream division prefers a transfer price that is too high
B)the manager of the downstream division prefers a transfer price that is too low
C)the corporate headquarters does not have enough information to determine the correct transfer price
D)all of the above
Q2) A cost center is
A)evaluated based on minimizing costs within the division
B)evaluated based on maximizing costs within the division
C)evaluated based on minimizing profits generated by the division
D)evaluated based on maximizing profits generated by the division
Q3) Which of the following is a feature of an M-Form organization?
A)divisions have difficulty responding to changes in customer demand
B)it is easier to maintain customer relationships
C)coordination across divisions is simple and does not take much management time
D)evaluating employees is easier because managers typically are similarly trained
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Page 22
Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Retailers do not find it profitable to engage in promotional activities because
A)They cannot reap the full benefits of the promotion
B)They do not have to share the benefits of the promotion with the manufacturer
C)They are unaware of competing retailers' ability to "free ride" on their efforts
D)All of the above
Q2) Vertical relationships can increase profits through
A)preventing firms from evading regulation
B)creating a double-markup problem
C)making the incentives of manufacturers and retailers unaligned
D)facilitating price discrimination
Q3) Vertical contracts between manufacturers and retailers often aim to
A)Prevent the retailers from defeating upstream price discrimination through arbitrage
B)Reward the manufacturer for undertaking the risk inherent in introducing a new product
C)Serve as a "signal" of the retailer's belief of the likely success of his product
D)All of the above
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23