Strategic Management
Pre-Test Questions
Course Introduction
Strategic Management is a comprehensive course that explores the formulation, implementation, and evaluation of organizational strategies to achieve long-term goals and maintain competitive advantage. The course examines tools and frameworks for environmental analysis, strategic planning, resource allocation, and performance assessment, emphasizing real-world case studies and ethical considerations. Students learn how organizations analyze internal and external environments, respond to changing market dynamics, and sustain growth in complex, global contexts through effective leadership and decision-making.
Recommended Textbook
Managerial Economics Theory Applications and Cases 8th Edition by W. Bruce Allen
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) The principal-agent problem refers to:
A) the threat from foreign competition.
B) the need to manage inventory more effectively.
C) double-entry bookkeeping.
D) the potential costs of separation of ownership and control.
E) the time value of money.
Answer: D
Q2) Managers may make decisions that are not consistent with the goals of stockholders.This is referred to as the problem.
A) principal-agent
B) economic disincentive
C) incentive-compromise
D) efficiency-inefficiency
E) equilibrium
Answer: A
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Chapter 2: Demand Theory
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Sample Questions
Q1) Information on the quantities that would be purchased at different prices,holding all other factors constant,in a given time period from a group of firms is shown in a:
A) firm demand curve.
B) market demand curve.
C) firm demand schedule.
D) market supply schedule.
E) firm supply curve.
Answer: B
Q2) Along a demand curve with unitary elasticity everywhere,total revenue:
A) increases as output increases.
B) decreases as output increases.
C) remains constant as output increases.
D) increases and then decreases as output increases.
E) decreases and then increases as output increases.
Answer: C
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Chapter 3: Consumer Behavior and Rational Choice
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Sample Questions
Q1) The consumer's optimal consumption of X and Y is characterized by:
A) (MU<sub>X</sub>)(MU<sub>Y</sub>) = P<sub>X</sub>P<sub>Y </sub>.
B) MU<sub>X</sub> = P<sub>X</sub>.
C) MU<sub>X</sub> / MU<sub>Y</sub> = P<sub>Y</sub> / P<sub>X </sub>.
D) MU<sub>X</sub> / P<sub>Y</sub> = MU<sub>X</sub> / P<sub>X </sub>.
E) MU<sub>X</sub> / MU<sub>Y</sub> = P<sub>X</sub> / P<sub>Y </sub>.
Answer: E
Q2) An increase in a consumer's income:
A) shifts the consumer's indifference curves out.
B) causes the consumer to buy more of every good.
C) shifts the consumer's budget constraint out.
D) causes the consumer to increase purchases of inferior goods.
E) causes the consumer to buy more inferior goods.
Answer: C
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Chapter 4: Estimating Demand Functions
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Sample Questions
Q1) The coefficient of determination from a regression represents the:
A) proportion of variation in the dependent variable explained by variation in the independent variables.
B) proportion of variation in the independent variables explained by variation in the dependent variable.
C) variation in the dependent variable.
D) proportion of the variation in the dependent variable.
E) proportion of the variation in the independent variable.
Q2) In simple regression analysis (Y = a + bX),the estimate of the intercept coefficient a is equal to
A) Y<sub>mean</sub> - bX<sub>mean</sub>.
B) X<sub>mean</sub> - bY<sub>mean</sub>.
C) Y<sub>mean</sub> + bX<sub>mean</sub>.
D) X<sub>mean</sub> + bY<sub>mean</sub>.
E) Y<sub>mean</sub> - X<sub>mean</sub> / b.
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Chapter 5: Production Theory
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Sample Questions
Q1) Output is produced according to Q = 4L + 6K,where L is the quantity of labor input and K is the quantity of capital input.If the price of K is $12 and the price of L is $6,then the cost-minimizing combination of K and L capable of producing 60 units of output is:
A) L = 5 and K = 6.66.
B) L = 7.5 and K = 5.
C) L = 6 and K = 6.
D) L = 0 and K = 10.
E) L = 15 and K = 0.
Q2) Cast-Steel Chairs produces office chairs using steel and labor with Q = 1/2L<sup>0.4</sup> S<sup>0.6</sup>.If labor costs $10 per hour and steel costs $60 per unit,what is the optimal combination of labor and steel if Cast-Steel's budget is $10,000?
A) S = 75 units, L = 550 hours.
B) S = 0 units, L = 1,000 hours.
C) S = 25 units, L = 850 hours.
D) S = 50 units, L = 700 hours.
E) S = 100 units, L = 400 hours.
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Chapter 6: The Analysis of Costs
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Sample Questions
Q1) When average variable cost is at its minimum:
A) average total cost is increasing with increases in output.
B) average variable cost plus average fixed cost is increasing with increases in output.
C) average total cost is equal to average variable cost.
D) marginal cost is less than average total cost.
E) marginal cost is greater than average total cost.
Q2) Framjam Sports Equipment produces basketballs at its factory in Kentucky and soccer balls at its factory in Illinois.At its current annual rate of production,the cost of producing basketballs is $70,000 and the cost of producing soccer balls is $45,000.If the firm consolidates production at a single location,the annual cost of production will be $100,000.What is the degree of economies of scope in this case?
A) 15.
B) 0.25.
C) 0.15.
D) 0.85.
E) None of the above.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) A constant-cost industry is one in which:
A) input prices do not change over time.
B) technology does not change over time.
C) input prices and technology do not change as firms enter or exit the industry.
D) input prices and technology do not change over time.
E) firms have reached the maturity phase of the industry's life cycle.
Q2) If labor produces output according to Q = 8L<sup>1/2</sup>,labor costs $10,and output sells for $100,then the optimal level of L is:
A) 8.
B) 16.
C) 1,600.
D) 2.
E) 10.
Q3) In the model of perfect competition,firms maximize profits by producing where:
A) the difference between marginal revenue and marginal cost is maximized.
B) marginal revenue equals price.
C) the difference between price and marginal cost is maximized.
D) price equals marginal cost.
E) the difference between price and marginal revenue is maximized.
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Page 9
Chapter 8: Monopoly
and Monopolistic Competition
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Sample Questions
Q1) If a monopolist faces a constant-elasticity demand curve given by Q = 202,500P <sup>-3</sup> and has total costs given by TC = 10Q,its profit-maximizing level of output is:
A) 50.
B) 60.
C) 75.
D) 100.
E) 120.
Q2) Craig's Red Sea Restaurant is the only restaurant in Columbia,South Carolina,that sells Ethiopian food.The demand for Ethiopian food is given by Q = 25 - P.Craig's costs are given by TC = 25 + Q + 5Q<sup>2</sup>.Its maximum monopoly profit is:
A) -$1.
B) $21.
C) $22.
D) $24.
E) $26.
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Chapter 9: Managerial Use of Price Discrimination
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Sample Questions
Q1) When an electrical utility charges higher prices during the day than at night,it is practicing:
A) peak load pricing.
B) first-degree price discrimination.
C) second-degree price discrimination.
D) third-degree price discrimination.
E) fourth-degree price discrimination.
Q2) A firm with production located in a poor Georgia town sells toys locally for $10 each and ships the same toys to sell in a wealthy North Carolina town for $15 each.They are not price discriminating if:
A) laws in Georgia allow it.
B) laws in North Carolina allow it.
C) total advertising costs are $5 per unit.
D) total transportation costs are $5 per unit.
E) consumers in North Carolina would pay more than $15 for the toys.
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Chapter 10: Bundling and Intrafirm Pricing
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Sample Questions
Q1) When a firm requires a customer to buy additional products in order to buy one of its products,this is known as a(n):
A) bundling contract.
B) price differentiation.
C) oligopolistic device.
D) two-part tariff.
E) maximizing device.
Q2) If a firm uses optimal transfer pricing between production division A and marketing division B,and a competitive external market for the output of division A exists,then production division A will surely:
A) make positive economic profits.
B) make normal economic profits.
C) sell at marginal costs.
D) sell at the external price.
E) sell at less than the external price.
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12
Chapter 11: Oligopoly
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Sample Questions
Q1) The price leadership strategy is most appropriate when a market is:
A) perfectly competitive.
B) monopolistic.
C) monopolistic competitive.
D) oligopolistic.
E) all of the above.
Q2) Cartels can only exist:
A) in oligopoly markets.
B) when products are homogeneous.
C) when products are not homogeneous.
D) in countries where they are legal.
E) when demand curves are perfectly inelastic.
Q3) The OPEC oil cartel lost its market power and world oil prices fell in the 1980s because:
A) OPEC expanded its membership to include all international producers of oil.
B) world consumers boycotted OPEC oil.
C) a limit pricing strategy was pursued by some members of the cartel.
D) members began to cheat on cartel agreements.
E) the United States refused to buy oil from OPEC.
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Page 13
Chapter 12: Game Theory
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Sample Questions
Q1) If player 1 has a dominant strategy,then player 2:
A) must also have a dominant strategy.
B) may or may not have a dominant strategy, but will always lead to a Nash equilibrium.
C) may or may not have a dominant strategy.
D) will not be able to reach an optimal solution to the game.
E) will block this dominant strategy and force player 1 to another strategy.
Q2) In a two-player game in which each player has four options,how many outcomes can there be?
A) 1.
B) 4.
C) 8.
D) 16.
E) 64.
Q3) A feasible strategy set is:
A) all actions with a nonzero probability of occurring.
B) only actions that have a 50% or greater probability of occurring.
C) actions that result in positive profits for the firm.
D) actions that a decision maker is willing to take.
E) the one outcome that the decision maker chooses.
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Page 14
Chapter 13: Auctions
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Sample Questions
Q1) When significant uncertainty exists surrounding the true value of an object at auction,buyers contemplating a bid should bid less when:
A) they have less information about the true value of the item.
B) they are less confident in their own estimates of the true value of the object.
C) there are many other buyers bidding against them.
D) all of the above.
E) none of the above.
Q2) Repurchase tender offers require sellers to:
A) submit a sealed bid indicating the minimum amount that they would accept for their shares.
B) submit a schedule indicating their willingness to supply different numbers of shares at different prices.
C) accept or reject the tender offer price specified by the corporation.
D) contractually limit their opportunity to sell shares on the open market.
E) purchase warrants that specify the future price of shares.
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15
Chapter 14: Risk Analysis
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Sample Questions
Q1) Betty Gamble is willing to pay exactly,but not more than,$20 to get a deal where she has a 1/3 chance of winning $30 and a 1/6 chance of winning $6 and will win $20 otherwise.Betty is:
A) risk-averse and profit maximizing.
B) risk-averse, not profit maximizing.
C) risk loving and profit maximizing.
D) risk loving, not profit maximizing.
E) risk-neutral.
Q2) A frequency definition of probability is:
A) a weighted average of different peoples' degrees of certainty of an event's occurring.
B) a theoretical probability distribution.
C) a person's degree of certainty of an event's occurring.
D) an expected value of a particular outcome.
E) the number of occurrences of an event in a large number of repetitions of an experiment.
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16
Chapter 15: Principalagent Issues and Managerial Compensation
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Sample Questions
Q1) The moral-hazard problem occurs when:
A) a consumer of insurance changes his or her behavior in such a way as to decrease the probability of a payoff.
B) a consumer of insurance changes his or her behavior in such a way as to increase the probability of a payoff.
C) insurance companies change their behaviors in such a way as to increase the probabilities of a payoff.
D) insurance companies change their behaviors in such a way as to decrease the probabilities of a payoff.
E) none of the above.
Q2) Consider Mr.Ed,who purchases an insurance policy on a thoroughbred that he has acquired.He then proceeds to run the horse even though the horse has tendinitis.This is an example of:
A) an adverse-selection problem.
B) a moral-hazard problem.
C) coinsurance.
D) signaling.
E) all the above.
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Chapter 16: Adverse Selection
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Sample Questions
Q1) Which of the following is a credible signal of product quality?
A) A money-back guarantee.
B) High price.
C) A warranty.
D) Assurances by a salesperson.
E) a and c.
Q2) Good drivers have a 20% chance,and bad drivers have a 50% chance,of getting into an accident.A car is worth $900,and an accident would reduce its value to $400.Both types of drivers have utility U = (car value)<sup>0.5</sup>.What is a good driver's expected utility without insurance?
A) 20.
B) 25.
C) 28.
D) 30.
E) None of the above.
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Chapter 17: Government and Business
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Sample Questions
Q1) If there are two equal-sized firms in an industry,the Herfindahl-Hirschman index would be:
A) 50.
B) 100.
C) 2,500.
D) 5,000.
E) 250.
Q2) If there are two large firms,each with one-quarter of the market,and 10 firms,each with one-twentieth of the market,in an industry,the Herfindahl-Hirschman index will be:
A) 250.
B) 1,350.
C) 1,500.
D) 1,600.
E) 1,850.
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Chapter 18: Optimization Techniques
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Sample Questions
Q1) Using the Lagrangian multiplier technique,you allocate your $1,000,000 advertising budget between four media markets so as to maximize your profits.Your assistant informs you that the Lagrangian multiplier is equal to -$0.50.From this you conclude that:
A) you are allocating your budget across markets optimally.
B) advertising is worthless.
C) another dollar of advertising would increase profits $0.50.
D) another dollar of advertising would decrease profits $0.50.
E) you could earn more profit with a larger advertising budget.
Q2) If Y = U(X)W(X),then dY/dX is:
A) U dW/dX - W dU/dX.
B) U dW/dX + W dU/dX.
C) (W dW/dX) / (U dU/dX).
D) (U dW/dX)(W dU/dX).
E) W dW/dX + U dU/dX.
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Chapter 19: Appendix Problems
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Sample Questions
Q1) If the annual interest rate is 25%,the present discounted value of $100 to be received in one year is:
A) $75.
B) $80.
C) $100.
D) $120.
E) $125.
Q2) You buy your child a $100 savings bond that matures in 10 years and pays an annual interest rate of 10%.At maturity the bond will be worth:
A) $228.17.
B) $200.
C) $259.37.
D) $271.17.
E) $217.71.
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