Which of the following terms describes the situation created by a large dominant firm
where smaller firms can find buyers as long as they sustain a lower price?
a) Price umbrella
b) Price leading
c) Predatory pricing
d) Premium pricing
e) Price lining
Substitutes erode profits because of which of the following factor?
a) Substitutes compete for similar inputs driving up production costs
b) Substitutes divide demand and drive up internal rivalry
c) Firms producing substitutes use similar worker skills dividing the labor pool
d) Manufacturers of substitutes enter markets later and have lower sunk costs
e) None of the above
Which of the following terms best describes a phenomenon whereby, despite equal
innovative capabilities, an entrant is willing to spend more to develop an innovation?
a) The replacement effect
b) Strategic intent
c) Strategic stretch
d) Hypercompetition
e) The sunk cost effect
If a firm can sell its product for more than its fixed costs, but not for more than its totals
costs:
a) It will shut down
b) It will lower its fixed costs
c) It will stop producing that product
d) It will continue to operate in the short run at a loss
e) It will increase its production quantity
Aligning individual and group tasks with those of the firm and aligning incentives so
that individuals and groups will consistently work in the same direction is known as:
a) Coordination
b) Agency control
c) Accountability
d) Dimensional alignment
e) Unitary functional alignment
In which of the following markets is a consumer more sensitive to price?
a) Credit Cards
b) Items sold door to door
c) Customized software upgrade
d) Copier/Printer Toner
e) Health Care
According to the GHM Theory, the choice between an in-house sales force versus
independent agents should turn on the relative importance of investments in developing
persistent clients by the agent versus list-building activities by the insurance firm. What
would GHM thus predict about the sales of whole life versus term life insurance?
a) Both would be sold by the insurance company’s in-house sales force
b) Whole life would be sold by the insurance company’s in-house sales force; term by
an independent agent
c) Whole life would be sold by an independent agent; term by the insurance company’s
in-house sales force
d) Both would be sold by an independent agent
e) An insurance company would try to “buy” the business (whole and term life
insurance) of its independent agents
What term coined by Michael Porter describes a tool that can be used to show how
nearly every industry can be broken down into smaller pieces known as segments?
a) Industry breakdown matrix
b) Industry five forces matrix
c) Industry value creation matrix
d) Industry segmentation matrix
e) Industry dimensions matrix
What type of entry exists if structural barriers are so high the incumbent need do
nothing to deter entry?
a) Deterred Entry
b) Judo Entry
c) Stealth Entry
d) Accommodated Entry
e) Blockaded Entry
In which of the following markets is a consumer less sensitive to price?
a) Airlines
b) Refrigerators
c) Health Care
d) Computer components
e) Washing Machines
Which one of the following terms describes relationships in social networks in which
one actor is the critical link between individuals or entire groups?
a) Structural hole
b) Missing link
c) Social connection
d) Network connection
e) Network link
What term best describes a firm informing customers about a product’s benefits?
a) Advertising
b) Certification
c) Disclosure
d) Notice
e) Broadcasting
What firm is generally regarded as being the first to extensively use mass production
processes?
a) IBM
b) Burroughs
c) Remington Rand
d) Ford
e) Sears
Which of the following does not tend to affect the threat of entry?
a) Expectations about pre-entry competition
b) Government protection of incumbents
c) Consumers highly valuable reputation/consumers are brand loyal
d) Experience curve
e) Network externalities
What term describes when a firm sells a combination of goods and services together,
but not individually?
a) Packaging
b) Combining
c) Bundling
d) Mixing
e) Assembling
What term best refers to a wage payment made to an employee that is large enough for
the employee to purchase the median amount of personal goods and services?
a) Living wage
b) Efficiency wage
c) Minimum wage
d) Efficiency payment
e) Termination wage
What term describes the price at which a consumer is indifferent between buying a
product and going without it?
a) Value creation
b) Competitive advantage
c) Consumer surplus
d) Maximum willingness-to-pay
e) Value chain
What situation occurs if an incumbent firm with increasing marginal costs or limited
capacity sets a price just below the entrants’ marginal costs even though the incumbent
may be unable to meet all market demand (or possibly may have to sacrifice its profits
to do so)?
a) Contestable limit pricing
b) Strategic limit pricing
c) Predatory pricing
d) Quality pricing
e) Capacity expansion
What term best describes when quiet periods in markets are punctuated by fundamental
‘shocks” or “discontinuities” that destroy old sources of advantage and replace them
with new ones?
a) Creative destruction
b) Entrepreneurship
c) Innovation
d) Market for ideas
e) Disruptive technologies
Which of the following has a downstream relationship with a Toyota Motor
Corporation?
a) Steel manufacturers
b) Tire companies
c) Dealerships
d) Paint producer
e) Car parts manufacturer
Which of the following is not a characteristic of performance based pay?
a) The slope of the relationship between pay and performance for an employee provides
incentives for effort, not the level of pay
b) Employees will always prefer performance based pay thus aligning principal/agent
objectives
c) The overall value maximizing effort level for an employee occurs when personal
marginal benefit equals personal marginal cost
d) Performance based pay can resolve hidden information problems
e) Pay contracts approaching 100% commission and negative salaries can occur
The average PCM (percentage contribution margin) in a Cournot equilibrium is given
by the formula PCM=H/η, where H is the Herfindahl index and η is the price elasticity
of market demand. Given this equation, which of the following statements is true?
a) The more concentrated the industry, the smaller the PCMs in equilibrium
b) The industry concentration only raises the PCMs in equilibrium
c) The industry concentration has no bearing on PCM size in equilibrium
d) The less concentrated the industry, the larger the PCMs in equilibrium
e) The less concentrated the industry, the smaller the PCMs in equilibrium
Which of the following is a trend that Chicago area hospitals should least likely be
worried about with respect to pricing?
a) The FTC recently won an antitrust case that forced the members of the Evanston
Northwestern Healthcare system to negotiate independently with insurers
b) There has been considerable consolidation (hospital mergers) in regional submarkets,
including the city of Chicago and the important North Shore suburbs
c) Employers are asking employees to bear more of their own health care costs. At the
same time some employers are reconsidering the decision to opt for wide, but costly
MCO networks
d) If regulatory barriers fall, entry by specialty hospitals in wealthier communities could
skim off some of the areas’ most profitable patients
e) Employers, payers, regulators and patients are demanding and getting more
information about hospital quality
How does umbrella branding aid economies of scale and scope?
a) Increases effectiveness of advertising due to a greater presence
b) Increases effectiveness of advertising due to national advertising
c) Increases effectiveness of advertising due to offering a broad product line under one
name
d) Increased cost effectiveness through purchasing as a cooperative
e) Increased cost effectiveness through bulk purchasing
Which of the following did not contribute to the high transaction related risks for U.S.
potato sales in 1840?
a) Infrequency of transactions
b) Changing transaction partners
c) Lack of availability of sales and prices for comparable goods
d) Competition from European merchants
e) Geographic distance between buyers and sellers
Which of the following is not an example of a way a seller can increase switching
costs?
a) Creating a product line compatible with parts that are made by other manufacturers
b) Offering coupons that tie discounts to the completion of a series of transactions
c) Offering warranties if product is not serviced at authorized dealer
d) Bundling complementary products that fit together in a product line
e) Offering “frequent customer” points that tie promotions to the completion of a series
of transactions
Which of the following is an example of a market where barometric price leadership
occurs?
a) Breakfast cereal
b) Prime-rate loan
c) Tobacco
d) Steel until 1960s
e) Fast food hamburger
What type of isolating mechanisms impedes existing firms and potential entrants from
duplicating the resources and capabilities that form the basis of the firm’s advantage?
a) Scarce
b) Imperfectly mobile
c) Early-mover advantages
d) Impediments to imitation
e) Cospecialized
What type of good is one whose quality is relatively easy to evaluate before purchase?
a) Consumer packaged good
b) Search good
c) Experience good
d) Automobile
e) Appliance
What aspect(s) of internal context are important in situations of chronic goal conflict?
a) Formal authority
b) Formal controls
c) Contracts
d) Power and culture
e) Exclusive dealings
What problem preventing complete contracts refers to the limits on the capacity of
individuals to process information, deal with complexity and pursue rational aims?
a) Agency costs
b) Bounded rationality
c) Performance measurement difficulties
d) Asymmetric information
e) Contract body of law
What term describes when a firm has minimized the extent to which the exchange of
goods and services in the vertical chain has been organized to minimize coordination,
agency and transaction costs?
a) Agency efficiency
b) Technical efficiency
c) Lean compliant
d) Economizing
e) Six sigma compliant
Which of the following government regulations on business conditions did not increase
circa 1910?
a) Regulation on corporate governance
b) Securities markets regulation
c) Antitrust regulation
d) Regulations on disability insurance provisions
e) Regulations on insurance for widows and children
What tactical term best describes the capacity relationship between Toyota and Honda
such that Toyota’s response is to reduce production output of the Rav 4 if Honda were to
first announce a large increase in the production of the CR-V that drove down prices?
a) Tough commitment
b) Strategic complement
c) Soft commitment
d) Strategic substitute
e) Duopoly
Which of the following serves as a voluntary signal of quality?
a) Warrantee
b) Independent reviews
c) Truth in Advertising
d) Free product financing
e) Public claims