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65) Which of the following statements is true about firms pursuing a multidomestic business
strategy?
A) There is a huge amount of data and control information flow between the home and
subsidiary locations.
B) The knowledge transfer between subsidiaries is abundant.
C) They have standard offerings across markets and give preference to international business.
D) They use a loose federation of associated business units.
E) They work in a centralized fashion and the home location exerts strong control on the
subsidiaries.
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
66) Which of the following is a disadvantage for firms pursuing a multidomestic business
strategy?
A) limited knowledge transfer between individual subsidiaries
B) exerting unnecessary control over subsidiaries
C) lack of interest in obtaining additional knowledge about foreign operations
D) inability to react quickly to local challenges and opportunities
E) restriction of decision-making ability of subsidiaries
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
67) A(n) ________ business strategy allows companies to leverage the flexibility offered by a
decentralized organization, while at the same time reaping economies of scale enjoyed by
centralization.
A) international
B) global
C) multidomestic
D) transnational
E) home-replication
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
21
68) Which of the following actions distinguishes firms pursuing a transnational business strategy
from firms using other business strategies?
A) responding to local challenges and opportunities quickly
B) exerting strong control over its subsidiaries
C) striking a balance between centralization and decentralization
D) responding to global challenges and opportunities quickly
E) standardizing product offerings to achieve economies of scale
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
69) Unilever decides when to centralize and when to decentralize depending on the products and
the local markets. This is an example of a(n) ________ company.
A) transnational
B) home-replication
C) multidomestic
D) national
E) import
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
70) Mystic Co., a Texas-based fashion apparel company with subsidiaries in more than 25
countries across the world, is one of the most recognized brands in the global and domestic
markets. In a recent interview with The New York Times, the CEO and spearhead of Mystic Co.,
Burt Swager said, "The secret of the company's success is its ability to strike the right balance
between centralization and decentralization." Mystic Co. is a firm that successfully pursues a(n)
________ business strategy.
A) global
B) transnational
C) home-replication
D) multidomestic
E) international
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Application
22
71) Freeconomics is the leveraging of digital technologies to ________.
A) provide high quality products and services at low prices as a business strategy for gaining a
competitive advantage
B) provide free product information to customers as a business strategy for gaining a competitive
advantage
C) provide dissatisfied customers easy access to business premises and top management of the
firm
D) match customer preferences with product features to increase the customer base
E) provide free goods and services to customers as a business strategy for gaining a competitive
advantage
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
72) According to basic economics within a competitive marketplace, the price of a product is set
by its ________.
A) opportunity cost
B) sunk cost
C) marginal cost
D) transaction cost
E) fixed cost
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
73) Which of the following defines marginal cost?
A) It is the cost of an alternative that must be forgone in order to pursue a certain action.
B) It is the cost of producing an additional unit of output.
C) It is the cost that is independent of the level of goods or services produced by the business.
D) It is the cost that has already been incurred and cannot be recovered.
E) It is the cost incurred in making an economic exchange.
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
23
74) With respect to general approaches for applying freeconomics to various industries,
reduction of sale price of one item in order to sell something else of value is known as ________
approach.
A) labor exchange
B) gift economy
C) freemium
D) zero marginal cost
E) cross subsidies
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
75) With respect to general approaches for applying freeconomics to various industries, the
________ approach means creating an environment that allows people to participate and
collaborate to create something of value for everyone.
A) gift economy
B) freemium
C) cross subsidies
D) zero marginal cost
E) labor exchange
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
76) Which of the following actions of a firm suggests that it uses the freemium approach for
applying freeconomics?
A) It provides free services to customers and gets paid for it by third parties.
B) It reduces the sale price of one item in order to sell something else of value.
C) It distributes products to customers without an appreciable cost to anyone.
D) It offers basic services for free but charges a premium for special features.
E) It allows people to participate and collaborate to create something of value.
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
24
77) Iver Audio is an all-in-one music management tool that was first marketed in 1999. Most
users can use the Basic version that is free, but a $19.99 upgrade provides extra features such as
supertagging, faster ripping and burning. Which of the following explains this approach for
applying freeconomics?
A) labor exchange approach
B) freemium approach
C) zero marginal cost approach
D) cross subsidies approach
E) gift economy approach
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Application
78) Infostruct is a free, Web-based, collaborative, multilingual encyclopedia project supported by
the non-profit Wikimedia Foundation. Its 17 million articles have been written collaboratively by
volunteers around the world, and almost all of its articles can be edited by anyone with access to
the site. This allows people to participate and create something of value for everyone. Wikipedia
is pursuing a ________ approach for applying freeconomics.
A) gift economy
B) zero marginal cost
C) labor exchange
D) cross subsidies
E) freemium
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Application
25
79) Madfly Communication, a mobile manufacturer, offers free mobile connections to people
who buy its mobile phones. The cost of the mobile connection is actually included in the price of
the mobile phone. Madfly Communication is pursuing a(n) ________ approach for applying
freeconomics.
A) cross subsidies
B) gift economy
C) zero marginal cost
D) advertising
E) freemium
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Application
80) Web sites like Ultramuzzic.com and Sonetz.com pursue a(n) ________ approach for
applying freeconomics when they offer free music downloads for users because reproduction and
distribution of these products come at no cost.
A) gift economy
B) zero marginal cost
C) advertising
D) cross subsidies
E) freemium
Difficulty: Moderate
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Application
81) The ability to quickly react to local conditions is an advantage of home-replication business
strategies.
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
26
82) The inability to react to local market conditions is a major disadvantage of firms pursuing a
multidomestic business strategy.
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
83) In contrast to global organizations where most of the resources are centralized in different
countries, different resources in a transnational company need to be centralized in the company's
home country.
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
84) Any industry that utilizes digital technologies is on a path toward increasingly lower costs,
ultimately toward a price of free-or at least "free" for consumers.
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
85) The concept of freeconomics cannot be applied to industries other than Web e-mail or online
searches.
Difficulty: Easy
Learning Obj.: 2.2: Describe how information systems support business models used by
companies operating in the digital world.
Classification: Concept
27
