If a firm is producing as efficiently as it knows how, then how will the total cost
function slope?
a) Upward
b) Downward
c) No Slope
d) Downward until an output threshold value, then upward
e) Upward until an output threshold value, then downward
Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is
upstream of firm 2 in a vertical chain. What term best describes the organization of the
transaction where the two firms are independent, each with control over its own assets?
a) Backward Integration
b) Forward integration
c) Nonintegration
d) Contractually unbound
e) Contractually bound
The minimum point on a U-shaped average cost curve is known as which of the
following?
a) Efficient marginal cost (EMC)
b) Lowest price alternative (LPA)
c) Efficient production cost (EPC)
d) Minimum efficient scale of production (MES)
e) Minimum threshold cost (MTC)
Which of the following would be an example of a good with elastic demand?
a) Bread
b) Work Shoes
c) Prescription medicine
d) Luxury speedboat
e) Raincoats in winter
Which of the following is not a way firms suffering from dependence relationships can
take action to reduce their dependence on buyers or suppliers?
a) Vertical integration
b) Using a monopolist buyer/supplier
c) Long-term contracting
d) Joint ventures
e) Alliances
Which of the following terms refers to the practice whereby an incumbent firm
discourages entry by charging a low price before entry occurs?
a) Limit pricing
b) Price leading
c) Predatory pricing
d) Quality pricing
e) Capacity expansion
Which of the following statements is least true regarding how culture can serve as a
control within organizations?
a) Culture controls the activities of employees on the basis of monitoring rather than
firm attachment
b) Individuals who value belonging to the culture will align their individual goals and
behaviors to those of the firm
c) The efficiency of culture as a control can be attributed in part to individuals
controlling themselves
d) The efficiency of culture as a control can be attributed in part to monitoring costs
being reduced
e) The efficiency of culture as a control can be attributed in part to opportunism being
held to a minimum
Evaluating product quality can be accomplished by the use of which of the following?
a) Status Reports
b) Matchmakers
c) Verification
d) Report cards
e) None of the above
Which of the following is not a result of the holdup problem?
a) More difficult contract negotiations and more frequent renegotiations
b) Investments to improve ex post bargaining positions
c) Reduction in the transaction costs of arm’s length market exchanges
d) Distrust
e) Reduced investment in relationship-specific investments
How much revenue a firm brings in by improving the quality of a product such that
more consumers want to buy it depends on which two factors?
a) The decrease in demand caused by the increase in quality and the incremental profit
earned on each additional unit sold
b) The increase in demand caused by the increase in quality and the incremental profit
earned on each additional unit sold
c) The increase in demand caused by the increase in quality and the incremental loss on
each additional unit sold
d) The decrease in demand caused by the increase in quality and the incremental loss on
each additional unit sold
e) The quality of changes to the original product and the decrease in demand cause by
the changes in quality
Suppose an entrepreneur starts a business earning $2M in revenue in 2009 while at the
same time incurring $1.8M in costs. If the entrepreneur’s best outside alternative
employment opportunity is to earn $300K, what are the firms accounting and economic
profits?
a) $200K, -$100K
b) $200K, $100K
c) $300K, $100K
d) $300K, -$100K
e) $200K, $200K
Relaxing of government regulation of economic activities occurred during the second
half of the 20th century for all of the following except:
a) Airline industry
b) Workplace safety
c) Banking industry
d) Trucking
e) Healthcare industry
What is the term for examining consumers travel patterns?
a) Flow analysis
b) Travel analysis
c) Purchase location analysis
d) Consumer distance analysis
e) None of the above
Increased economies of scale and scope are helped by which of the following?
a) Umbrella branding
b) Market branding
c) Bundling
d) Negotiated branding
e) Strategic branding
Which of the following terms describes a contract by which the value of the
compensation depends on the measured performance of the employee?
a) Explicit incentive contract
b) Implicit incentive contract
c) Risk sharing contract
d) Compensation contract
e) Pay-for-performance contract
What is a benefit of alliances and joint ventures over mergers and acquisitions?
a) Better organizational structure
b) Scale savings
c) Less vertical integration
d) Less horizontal integration
e) Lower likelihood of antitrust scrutiny
High quality certification in horizontally differentiated goods is aided by which of the
following?
a) Outcome based scorecards
b) Internet firms like Google and Yahoo
c) Risk adjustment
d) Mean reversion
e) Firms paying for more scorecards
What term does Sutton use to describe the costs of establishing a credible brand?
a) Brand investment
b) Cost of brand establishment
c) Cost of advertising
d) Endogenous sunk cost
e) Market establishment cost
In Chandler’s classic work Strategy and Structure, what was the basic thesis he
concluded by researching case studies of Dupont, GM, Standard Oil of New Jersey and
Sears?
a) Neither structure nor strategy affects one another
b) Either structure or strategy can drive changes in the other
c) Strategy follows structure
d) Structure follows strategy
e) Understanding the relationship of structure and strategy is not necessary in
determining how a firm organizes
How has Atlanta been able to grow as a center of commerce despite its poor water and
rail connections?
a) Widespread air transportation
b) New government regulations
c) Improved Financing
d) Better Communications
e) Better technology and innovation
Which of the following is not a condition under which an incumbent firm can
successfully deter entry by holding excess capacity?
a) The investment in excess capacity must be sunk prior to entry
b) The incumbent should have a sustainable cost advantage
c) Market demand growth should be slow
d) The potential entrant should not itself be attempting to establish a reputation for
toughness
e) The excess capacity investment must be recoverable prior to entry
What term best describes how a firm performs based on a comparison to another firm in
its peer set within an industry?
a) Absolute performance
b) Comparative performance
c) Proportional performance
d) Performance measurement
e) Relative performance
Which set of advice below should a manager disregard when seeking pricing stability
that is least likely to suffer from antitrust legislation?
a) All pricing decisions should be made unilaterally. Avoid direct contacts with
competitors about price
b) Carefully handle public pricing communications
c) Always share analyses of probably competitive reactions
d) Monitor the content. Announce price changes; do not lecture competitors about the
need to raise prices or consequences of reducing them
e) Clear your pricing tactics with an attorney well versed in antitrust law
Which of the following is the definition of “competitors?”
a) Firms that manufacture similar products
b) Firms located in geographic proximity to each other
c) Firms that sell products to the same group of buyers
d) Firms whose strategic choices directly affect one another
e) Firms that purchase factors from the same suppliers
What term refers to situations in which firms can sustain prices in excess of those that
would arise in a non-cooperative single-shot price or quantity-setting game?
a) Dedicated pricing
b) Strategic pricing
c) Marginal pricing
d) Cost-plus pricing
e) Cooperative pricing
Which of the following is a grade used to evaluate quality?
a) Report card
b) Status report
c) Verification
d) Warrantee claim
e) Product statement
What are agency costs?
a) Costs of the sales force
b) Costs associated with slack effort and with the administrative controls to deter it
c) Costs related to general and administrative expenses
d) Costs associated with outsourcing of firm functions
e) Costs attributed to the use of professional service firms
Which of the following is a method firms can use to counteract price fluctuations and
eliminate income risk?
a) Manufacture all needed inputs internally
b) Acquire upstream firms in the vertical chain
c) Enter into futures contracts to hedge the price of raw materials
d) Eliminate competitors by under-cutting their price
e) None of the above
Which of the following terms best describes a place in which a firm can sell its ideas for
full value?
a) Industry for ideas
b) Community of ideas
c) Innovation market
d) Market for ideas
e) Idea environment
Which of the following is not a reason a supplier might seek to sell in bulk?
a) Each sale incurs a fixed cost in writing a contract
b) The purchaser is likely to switch over a small price due to the gains over the large
number of units ordered
c) Each sale involves setting up a different production run
d) The cost of delivery is a fixed on a per unit basis
e) The supplier fears uneven sales
What term best describes assets that are more valuable when used together than when
separated?
a) Isolating
b) Value-creating
c) Imperfectly mobile
d) Scarce
e) Cospecialized
Which of the following terms best describes a piece of information on which an
incentive contract (explicit or implicit) can be based?
a) Absolute Performance
b) Relative Performance
c) Incentive
d) Performance measure
e) Performance standard
What term refers to the ability of individual customers to negotiate purchase prices that
extract profits from sellers?
a) Substitutes and Complements
b) Competition
c) Customer power
d) Seller power
e) Buyer power
What type of organizational structure is typically used in planning courses for an MBA
program?
a) Centralized
b) Decentralized
c) Authoritarian
d) Top-down
e) Lottery
When is a signal informative?
a) When it is lightly advertised by the firm
b) When it is more profitable for the high quality firm to offer it
c) When there are many firms advertising substitute products
d) When it is offered by the low quality firm
e) When the first firm that signals is the low quality firm