Which of the following is a source of diseconomies of scale at a large firm?
a) Labor costs
b) Spreading specialized resources too thin
c) Conflicts of interest
d) Incentive processes
e) All of the above
Which of the following in the late 19th century was predicted by the firm-size
hypothesis?
a) Forward integration was most likely to occur for products that require specialized
investments in human capital
b) Increases in the size of manufacturing firms led to independent wholesale and
marketing agents losing scale/scope cost advantages and in turn led to manufacturers
forward integrating into marketing and distribution
c) Forward integration was most likely to occur for products that do not require
specialized investments in equipment and facilities
d) For industries with small manufacturers, marketing relied on specialized assets
e) For industries with small manufacturers, distribution relied on specialized assets
What is a grim trigger strategy in a two firm repeated game?
a) A strategy where a firm will always aggress regardless of how the other firm acts
b) A strategy where a firm will always cooperate regardless of how the other firm acts
c) A strategy in which a firm is prepared to match whatever changes in strategy the
competitor makes
d) A strategy in which a firm initially cooperates and then aggresses for the rest of the
game as soon as the opponent aggresses
e) A strategy in which a firm is prepared to aggress when its opponent cooperates and
cooperate when its opponent aggresses
Which of the following products and services depend on standards?
a) Cellular communications
b) Internet
c) Video gaming
d) High-definition television
e) All of the above
What primary agency cost problem plagued the partnership between Sony’s hardware
and software from 1998-2008 with regards to digital music?
a) High infrastructure costs
b) Contract disputes
c) High transaction costs
d) Overlapping distribution channels
e) Manager/worker slacking
What term represents the conduct and performance of firms in the market after entry
has occurred?
a) Postentry competition
b) Postentry actions
c) Postentry procedures
d) Postentry diversification
e) Postentry strategic decisions
What term refers to the situation in the used car market where owners are more anxious
to sell low-quality cars than high-quality cars?
a) Clunker market
b) Quality conundrum
c) Car scrapping market
d) Low-quality market
e) Lemons market
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
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
Which of the following encouraged firms to develop through internal R&D rather than
through M&A in the 20th century?
a) Lower wage costs for internal labor compared to merged or acquired labor
b) Faster results obtained with R&D
c) Federal antitrust policies
d) Lack of financial capital to engage in M&A
e) High transactions costs associated with M&A activity.
What term describes when a firm sells a combination of goods and services at a price
below what the individual items would cost?
a) Packaging
b) Combining
c) Bundling
d) Mixing
e) Assembling
What type of organizational structure is one in which there is a single department
responsible for each of the basic business functions within the firm?
a) Unitary functional structure
b) Multidivisional structure
c) Matrix structure
d) Network structure
e) Individual structure
Which of the following benefits of diversification explains the idea that a firm with
many business lines can reduce swings in value because it receives only a small
percentage of its revenue from any one of those business lines?
a) Use of internal capital markets
b) Economies of scale and scope
c) Economizing on transaction costs
d) Diversifying shareholder portfolios
e) Identifying undervalued firms
Which of the following facets of modern financial infrastructure came as a result of
deregulation in the 1970s and 1980s?
a) Separation of commercial and investment banking
b) Enhanced role of central banks
c) Increased regulation of securities markets
d) Supply of debt and equity funding for firms that could not fund themselves through
retained earnings
e) The availability of large investment funds facilitating M&A to flourish
Given an employee cost of effort function (where e is given in hours worked per week
and each unit of e produces an extra $100 in sales:
If the firm offers a salary-plus-commission job of $500 per week plus 20% of sales,
what is the employee’s marginal benefit of effort? How much more will the employee
work than the standard 40 hour work week? What is the employee’s actual salary when
they work to maximize their payoff?
Suppose a firm’s plant produces Q units in any given year. The plant itself operates with
annualized costs of $10M and other annual fixed expenses totaling $3M. In addition,
the firm’s variable costs depend on Q and are given by the formula 5Q2+3Q. What is the
formula for the firm’s Short-Run (i.e. one year) Average Costs?
Suppose you manufacture 10 million hard drives per year specifically for Dell laptop
computers. Suppose your average variable cost C=$20/unit, annualized cost of
investment to build a hard drive factory I=$30 million, and the market price (bailout
market price in the event Dell does not buy) Pm=$22/unit. If Dell agrees to purchase the
10 million hard drives at a price P*=$25/unit and subsequently renegotiates to only
purchase for $22.50/unit, what is your company’s new “rent”?
Suppose the cost of producing a 30 second commercial for television is $100,000. If
airtime on the evening news costs $200,000 and is viewed by 5 million people, what is
the advertising cost per potential customer?
Given an employee cost of effort function (where e is given in hours worked per week
and each unit of e produces an extra $100 in sales:
If the firm offers a salary-plus-commission job of $400 per week (instead of $500) plus
20% of sales, at what effort level does the employee maximize their payoff?
Suppose that a firm offers secret discounts to 200 customers in a particular industry to
attract those customers from a competitor firm. If there is a 2% probability that any one
of those customers will disclose the pricing, what is the probability that the firms
competitors will hear from one of those 200 customers? Suppose there are instead 20
buyers to which discounts are offered. What is the probability then that the competitors
may find out about one of the discounts?
Suppose a firm’s plant produces Q units in any given year. The plant itself operates with
annualized costs of $10M and other annual fixed expenses totaling $3M. In addition,
the firm’s variable costs depend on Q and are given by the formula 5Q2+3Q. What is the
formula for the firm’s Average Variable Costs?
Suppose a firm’s plant produces Q units in any given year. The plant itself operates with
annualized costs of $10M and other annual fixed expenses totaling $3M. In addition,
the firm’s variable costs depend on Q and are given by the formula 5Q2+3Q. What is the
formula for the firm’s Average Fixed Costs?
Given an employee cost of effort function (where e is given in hours worked per week
and each unit of e produces an extra $100 in sales:
If the firm offers a salary-plus-commission job of $500 per week plus 20% of sales,
how can we write the employee’s payoff function? What is the employee’s total
compensation for working a 46 hour workweek (Note: This is the compensation and not
payoff net of effort costs)?