Strategy and Business Policy
Final Test Solutions
Course Introduction
Strategy and Business Policy explores the formulation, implementation, and evaluation of business strategies integral to organizational success. The course examines frameworks and tools for analyzing external environments and internal capabilities, along with approaches to strategic decision-making at the corporate, business, and functional levels. Case studies and real-world examples are used to illustrate how organizations develop competitive advantages and respond to industry dynamics, global trends, and ethical considerations. Students engage in critical thinking and problem-solving exercises to design effective strategies and create cohesive policies that align with long-term organizational objectives.
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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Sample Questions
Q1) If you are willing to purchase a house for $500,000 and you purchase the house for $500,000,this transaction will generate:
A)There is no surplus created for either of the party.
B)$0 worth of seller surplus and unknown amount of buyer surplus.
C)$0 worth of buyer surplus and unknown amount of seller surplus.
D)No information provided.
Answer: C
Q2) One lesson of business:
A)is tracing the consequences of a policy.
B)promoting a policy change to eradicate inefficiencies.
C)moving assets from lower to higher value uses,thereby creating wealth.
D)None of the above
Answer: C
Q3) A price ceiling can often be viewed as:
A)the government setting price above market equilibrium price.
B)an implicit tax on producers and an implicit subsidy to consumers.
C)the government setting price below market equilibrium price.
D)Both b and c
Answer: D
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Page 3
Chapter 2: Benefits, Costs, and Decisions
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67 Flashcards
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Sample Questions
Q1) A business incurs the following costs per unit: Labor $5/unit;Materials $3/unit and rent $5000/month.If the firm produces 1000 units a month,the total costs equals
A)$5,000
B)$8,000
C)$13,000
D)$3,000
Answer: C
Q2) Scott used $4,000,000 from his savings account that paid an annual interest of 5% to purchase a hardware store.After one year,Scott sold the business for $4,100,000.His economic profits is:
A)$300,000
B)$100,000
C)-$100,000
D)-$200,000
Answer: C
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4
Chapter 3: Extent How Much Decisions
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Sample Questions
Q1) According to the law of diminishing returns
A)Production increases at a decreasing rate
B)Production increases at a increasing rate
C)Production decreases at a decreasing rate
D)Production decreases at an increasing rate
Answer: A
Q2) Total costs increase from $1,500 to $1,800 when a firm increases output from 40 to 50 units.Which of the following are true?
A)FC = $100
B)MC = $300
C)MC = $30
D)FC = $400
Answer: C
Q3) What is the average cost of producing three units?
A)$200
B)$100
C)$50
D)$70
Answer: B
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Page 5
Chapter 4: Investment Decisions: Look Ahead and Reason
Back
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Sample Questions
Q1) A firm sells 1000 units per week.It charges $15 per unit,the average variable costs are $10,and the average costs are $25.In the short run,the firm should
A)Shut-down as the firm is making a loss of $10,000 per week
B)Shut-down as price is lower than average cost
C)Continue operating as the firm is covering all the variable costs and some of the fixed costs
D)Shut-down because it is cost effective to pay off the remaining fixed costs
Q2) Project Delay
Prescott Labs is considering developing a defibrillator product.You know that will require extensive testing and possible modification before it can be launched.Still,you know that even if it is launched two years from now,the present value of sales over the expected 10 year product lifecycle will cover these costs.But now the boys down at the lab tell you that it may not launch for three years.How does this affect your assessment of going ahead with funding the product?
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Chapter 5: Simple Pricing
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Sample Questions
Q1) A product can be classified as an inferior good if an increase in the income causes
A)A decrease in the quantity demanded
B)A decrease in demand
C)An increase in demand
D)An increase in the quantity demanded.
Q2) Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:
A)lower tax revenue in both the short and long run.
B)raise tax revenue in both the short and long run.
C)raise tax revenue in the short run but lower tax revenue in the long run.
D)lower tax revenue in the short run but raise tax revenue in the long run.
Q3) Based on the information above,video games have
A)A unitary elastic demand
B)An inelastic demand
C)An elastic demand
D)A perfectly elastic demand
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Chapter 6: Economies of Scale and Scope
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Sample Questions
Q1) It costs firm A $800 to produce five radios and it costs firm B $500 to produce five batteries.If Firm A merges with firm B,it can produce both the five radios and the five batteries for $1500.The firm has experienced
A)Economies of Scale
B)Economies of Scope
C)Diseconomies of Scale
D)Diseconomies of Scope
Q2) Ceramics
The ArtHaus by Antonia continually introduces new pattern of ceramic plates periodically.She can produce a batch of 1,000 potentially useable units per week.However,between the shaping,firing,painting,and glazing,many are discovered to be flawed through the process and must be discarded.However,Antonia can determine where the more common flaws develop and adjust the production process to eliminate these.Her yield rate for the initial batch is usually 60%,but increase by 2% with each additional batch up to 100%.What best describes her cost schedule? How many batches does it take her to reach 10,000 units? 20,000 units?
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8
Chapter 7: Understanding Markets and Industry Changes
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Sample Questions
Q1) Natural Gas Boom
Technological improvements in hydraulic fracturing,or "Fracking," have decreased the cost of extracting smaller pockets of natural gas.What affect does this have on supply and demand as well as on the equilibrium price and quantity?
Q2) The wages for Nike workers increases.At the same time,we see the price for Adidas shoes increase.How does this affect the market for Nike shoes?
A)The demand curve will shift to the left;the supply curve will shift to the left
B)The demand curve will shift to the left;the supply curve will shift to the right
C)The demand curve will shift to the right;the supply curve will shift to the left
D)The demand curve will shift to the right;the supply curve will shift to the right
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 substitute
C)an increase in the price of a complement
D)all of the above
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9
Chapter 8: Market Structure and Long Run Equilibrium
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Sample Questions
Q1) Monopoly firms manage to earn positive profits,even in the long run because
A)they have no close substitutes
B)there are high barriers of entry to the market
C)they have a cost advantage difficult to duplicate
D)all of the above
Q2) If a firm in a perfectly competitive industry is experiencing higher than normal returns,in the long-run
A)Some firms will leave the industry and price will rise
B)Some firms will enter the industry and price will rise
C)Some firms will leave the industry and price will fall
D)Some firms will enter the industry and price will fall
Q3) In a competitive industry buffeted by demand and supply shocks,prices increase and decrease,but economic profits tend to revert to zero.Hence,profits are exhibiting
A)Above-average return
B)Positive earnings
C)Mean reversion
D)None of the above
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Chapter 9: Strategy: the Quest to Keep Profit From Eroding
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Sample Questions
Q1) Which of the following makes a firm's resources hard to imitate?
A)They flow from the firm's unique history
B)The link between resources and advantages is difficult to discern
C)Resources emanate from a socially complex organizational structure
D)All of the above
Q2) The five forces model is a framework
A)For increasing buyer power in the market
B)For improving competition in the industry
C)For analyzing the attractiveness of an industry
D)For increasing supplier power in the market
Q3) The RBV perspective locates the source of competitive advantage for a firm at the
A)Individual firm level
B)Industry level
C)Customer Level
D)None of the above
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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) An individual in the US wants to buy office equipment from England which costs 2,000 pounds.If the exchange rate is 1pound=$1.9,how much will the office equipment cost him in dollar terms?
A)$2,000
B)$2,800
C)$3,800
D)$1052
Q2) Holding other things constant,if the US dollar appreciates,it makes the US exports
A)Less attractive to foreigners
B)More attractive to foreigners
C)Neither more nor less attractive to foreigners
D)None of the above
Q3) An individual in the US wants to buy a car from England which costs 12,000 pounds.If the exchange rate is 1 pound = $1.75,how much would the car cost him in dollars?
A)$21,000
B)$6,800
C)$12,000
D)Need more information
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Chapter 11: More Realistic and Complex Pricing
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72 Flashcards
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Sample Questions
Q1) You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",
A)Sales of "Blue Cow" would increase,without any changes in sales for "600 minute energy."
B)Sales of both "Blue Cow" and "600 minute energy." would increase
C)Sales of "Blue Cow" would increase,but the sales of "600 minute energy" would be cannibalized
D)Neither "Blue Cow" nor "600 minute energy" would see an increase in sales.
Q2) A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces.Which of the following strategies should it implement?
A)Decrease parking rates if the lot fills up much earlier than 9am
B)Increase parking rates if the lot doesn't fill up until much after 9am
C)If the lot fills up right around 9am the price is right
D)All of the above
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Chapter 12: Direct Price Discrimination
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Sample Questions
Q1) The practice of buying a firm's good in one market at a low price and selling it in another market for a higher price in order to profit from the price difference is known as
A)Predatory pricing
B)Price collusion
C)Arbitrage
D)Mark-up pricing
Q2) Which of the following is FALSE about indirect price discrimination
A)The firm is able to identify each customer's willingness to pay
B)The firm is able to charge different prices to the different value customers
C)The firm is be able to prevent arbitrage
D)All of the above
Q3) Which of the following is FALSE about indirect price discrimination
A)It requires identifying some feature that is correlated with different value customers
B)The firm must be able to charge different prices to the different value customers
C)The firm must be able to prevent arbitrage
D)All of the above
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14
Chapter 13: Strategic Games
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91 Flashcards
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Sample Questions
Q1) If Bratty Brenda decides to hit Tattling Tina,what would Tattling Tina's best response be
A)Tell
B)Not tell
C)Run
D)Hide
Q2) If Tom tattles,what would Sarah's best response be
A)Hit
B)Not hit
C)Run
D)Hide
Q3) If the security guard is somehow certain that the shoplifter would not steal,his best response would be
A)Being watchful
B)Sleeping on the job
C)Run
D)Hide
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Page 15
Chapter 14: Bargaining
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Sample Questions
Q1) If the union leader has already sent strikers to the picket line before entering negotiations,the union has
A)Eliminated half of the strategies of the game
B)Forced the firm to choose the best response in the union's best interest
C)Made it in the firm's best interest to accommodate their requests
D)All of the above
Q2) Looking ahead to how the shopkeeper is more likely to respond what price should the customer more likely to quote?
A)High price
B)Low price
C)Let the shopkeeper quote the price
D)A compromised price between the high and the low
Q3) Looking ahead at how the customer is more likely to react,what price should the shopkeeper charge?
A)High price
B)Low price
C)Offer the good for free
D)A compromised price between the high and the low price
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16
Chapter 15: Making Decisions With Uncertainty
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Sample Questions
Q1) Three possibilities have probabilities 0.5,0.3 and 0.2 and values $10,$20,and $30 respectively.The expected value is:
A)$15
B)$16
C)$17
D)$18
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) What is the expected revenue from developing the complicated software?
A)$10million
B)$15million
C)$20million
D)$50million
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17
Chapter 16: Auctions
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Sample Questions
Q1) Bid-rigging is more likely when
A)auctions are for larger amounts
B)auctions are infrequent
C)auctions are for smaller amounts
D)the auctioneer is paid on commission rather than a fixed fee
Q2) Expected Oral Auction Price with Two Bidders
At an oral auction for a chafing dish,half of all bidders have a value of $160 and half have a value of $120.What is the expected winning bid if there are two bidders?
Q3) In common value auctions
A)Every bidder know the value of the object being sold
B)Each bidder makes the same estimate of the value of the good
C)All bidders know the estimates of the others
D)The true value of the item is unknown to bidders
Q4) The winners curse is worse when
A)There are fewer bidders
B)Your rivals do not have as much information as you do
C)Your rivals have more information than you do
D)All of the above
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Page 18
Chapter 17: The Problem of Adverse Selection
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Sample Questions
Q1) Which of the following is NOT a way to signal high quality
A)wearing a business suit on a job interview
B)leaving a big tip for the waiter after a dinner date
C)offering an expensive engagement ring to your bride
D)Doing messy chores before a big date
Q2) Grooming well for a big date is a
A)Screening mechanism
B)Signaling mechanism
C)Way to waste money
D)None of the above
Q3) Someone who values a lottery at less than the expected value is
A)a risk lover
B)risk neutral
C)risk averse
D)one who tends to play lots of lotteries
Q4) In the market for newly developed real estate,adverse selection could occur when
A)The buyers can observe and detect all the features of the properties
B)The buyers know more about the property than the developers
C)The developers of the property know more about the properties than the buyers
D)Neither parties knows about the item properly
Page 19
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Chapter 18: The Problem of Moral Hazard
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Sample Questions
Q1) Sam,after taking a $200 loan from the bank to finance an investment that pays $1000 50% of the time and $0 50% of the time at a 100% interest,discovers another riskier investment that pays out $5,000 but only 10% of the time,while the other 90% of the time it pays zero.Would the he want to switch to the riskier investment?
A)Yes because his return has increased
B)No because his liability to the bank has increased
C)No because his return has decreased
D)None of the above
Q2) Which is NOT an example of moral hazard
A)people eat more at all-you-can-eat buffets
B)loggers clear-cut a tract of land when paying a fixed fee rather than when paying per tree felled
C)Drivers of heavier,safer cares are more likely to run stop signs
D)workers paid an hourly wage work harder than those on commission
Q3) Safe drivers buying "accident forgiveness" insurance tend to
A)Become even safer drivers
B)Engage in more risky driving
C)Engage in less risky driving
D)Not change their driving patterns
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Page 20
Chapter 19: Getting Employees to Work in the Firms Best Interest
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Sample Questions
Q1) The ways to address agency costs include all EXCEPT
A)running background checks on prospective employees
B)hiring only from job fairs
C)spot checks of the quality of employee work
D)replacing closed offices with cubical office spaces
Q2) The problem the agent faces when deciding how to keep the agent motivated is called
A)Adverse selection
B)Moral hazard
C)Both of the above
D)None of the above
Q3) As a result of moving more decision making from the periphery of the organization toward the center,typically
A)the flow of relevant information to the decision maker should be enhanced
B)the flow of relevant information from the decision maker should be enhanced
C)the incentive structure for the decision maker should be strengthened
D)the incentive structure for the decision maker can be eliminated
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Page 21
Chapter 20: Getting Divisions to Work in the Firms Best Interest
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Sample Questions
Q1) The manager of the sales department (a profit center)at Harvey's HVAC,decides to outsource any sales training that the division needs since in house training is expensive,even though the outsourced training does not cover the company's repair and warranty information from the service department.Who is making a bad decision?
A)The Sales department
B)The Service department
C)The Training division
D)None of the above
Q2) Which of the following is FALSE?
A)Maximizing division profits can sometimes lead to reducing company-wide profits
B)Managers of profit centers are never given any discretion in their decision making
C)Profit centers usually largely run themselves
D)A manager being rewarded on division revenues has the most incentive to make good decisions for his division
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22
Chapter 21: Managing Vertical Relationships
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Sample Questions
Q1) Which of the following is TRUE?
A)Discount retailers can defeat price discrimination by the manufacturers through arbitrage
B)Arbitrage is not an effective way for retailers to defeat price discrimination by manufacturers
C)Retailers are incapable of defeating upstream price discrimination once the manufacturer sets prices
D)"High End" retailers can defeat price discrimination by the manufacturers through arbitrage
Q2) Horizontal contracts often result in
A)Higher prices
B)Lower prices
C)Unchanged prices
D)None of the above
Q3) Vertical relationships can increase profits through
A)preventing firms from evading regulation
B)eliminating a double-markup problem
C)making the incentives of manufacturers and retailers unaligned
D)preventing price discrimination
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Page 23