Business Strategy
Study Guide Questions
Course Introduction
Business Strategy explores the frameworks, tools, and analytical skills necessary for developing and implementing effective strategies in competitive business environments. The course examines key concepts such as industry analysis, competitive advantage, corporate strategy, and strategic positioning. Through the study of real-world case studies and theoretical models, students learn how organizations assess their internal and external environments, make informed choices, and adapt to changing markets. Emphasis is placed on practical application, critical thinking, and the integration of functional areas to formulate and execute strategies that drive long-term organizational success.
Recommended Textbook
Transactions and Strategies 1st Edition by
Robert J. Michaels
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17 Chapters
1179 Verified Questions
1179 Flashcards
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Page 2
Chapter 1: Reasoning With Economics: Models and Information
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75 Flashcards
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Sample Questions
Q1) Publicly available data on production costs and box office revenues reflect that:
A)R-rated movies on an average collect higher revenues than G-rated movies.
B)revenue collected by PG-rated movies donot cover the production and distribution costs.
C)G-rates movies help investors to make artistic or polictical statements.
D)family-rated movies are on average profitable.
Answer: D
Q2) Which of the following individuals will undertake extensive research before making their choice?
A)A person planning to buy a new house
B)A homemaker purchasing daily groceries
C)A person searching for a present before attending a birthday party
D)A student buying academic books as recommended by the faculty
Answer: A
Q3) Why do economists sometimes treat decision makers as boundedly rational?
Answer: Economists often treat decision makers as boundedly rational because decision makers try their best for rationality but are constrained by limited information and limited processing abilities.
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Chapter 2: Transactions and Institutions: the Building Blocks
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80 Flashcards
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Sample Questions
Q1) The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185.Suppose Ed and Luis do not speak the same language and Ed hires an interpreter who charges $2 per hour.Ed and Luis finally agree to a price of $160.This implies:
A)Luis' valuation of the good will increase.
B)Ed's opportunity cost will decline.
C)economic value from the transaction will decline.
D)Ed will receive to a lower benefit than Luis.
Answer: D
Q2) Price tags reduce transaction costs in countries where people's time is more valuable.
A)True
B)False
Answer: True
Q3) What is the marginal cost rule of specialization?
Answer: The marginal cost rule of specialization states that an individual/economy should specialize in the production of the good in which the individual's/country's marginal cost of production is lower.
Page 4
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Chapter 3: Markets
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Sample Questions
Q1) An increase in the cost of lumbering activities will:
A)increase the quantity of wood supplied to the furniture market.
B)decrease the quantity of wood supplied to the furniture market.
C)decrease the supply of wood to the furniture market.
D)increase the supply of wood to the furniture market.
Answer: C
Q2) An increase in the price of Kellogg's breakfast cereal is likely to shift the demand curve for cereal manufactured by Malt-O-Meal to the right.
A)True
B)False
Answer: True
Q3) How do speculators provide a more rational guide to production and consumption decisions compared to markets?
Answer: The price level which results from speculation reflects both the present and the future price of the commodity.It is thus considered a more useful guide to rational consumption and an accurate measure of scarcity.
Q4) What is the income elasticity of demand for an inferior good?
Answer: The income elasticity of demand for an inferior good is always negative.
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Page 5
Chapter 4: Cost and Production
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Sample Questions
Q1) Discuss the relation between average variable cost (AVC) and marginal cost (MC) curves.
Q2) Explain how isocosts allow firms to arrive at the most efficient input mix for producing a particular level of output.
Q3) In an industry, when the cost curve of a firm is upward sloping at low levels of output relative to the market, it implies:
A)the industry is characterized by constant returns to scale.
B)the industry has a high degree of competition.
C)not many firms can operate together in this industry.
D)the firm can charge a price lower than competition and still cover its costs.
Q4) The marginal cost curve intersects the average total cost and average variable cost curves at their minimum points.
A)True
B)False
Q5) Suppose the price level of a product is gradually declining due to fall in demand.When will a producer of this product decide to shut down in the short run?
Q6) Explain with examples the reasoning behind the positive slope of the LRAC curve at higher levels of output.
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Chapter 5: Extreme Markets I: Perfect Competition
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Sample Questions
Q1) Economists consider the model of perfect competition useful because:
A)it is a standard for analyzing producer and consumer benefits.
B)its assumptions exactly fit into actual conditions in some markets.
C)its assumptions can be easily replaced with realistic ones.
D)it is a standard for analyzing consumer choices.
Q2) Assume that buyers are aware of the similarities between the products sold by two dairy farms.The dairy producers can still practice price discrimination through advertisement and salesmanship.
A)True
B)False
Q3) How is the short-run supply curve of a perfectly competitive market different from the long-run supply curve?
Q4) Assume that a rise in petroleum prices increases the cost of milk transportation from the dairies to the market.We can expect the long-run supply curve in this industry to shift downward.
A)True
B)False
Q5) How is the short run response to a change in demand or cost condition different from the long run response in a perfectly competitive market?
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Chapter 6: Extreme Markets II: Monopoly
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Sample Questions
Q1) A monopolist charges $7 per unit for selling 6 units of his product.To sell 7 units, he reduces price to $6.5 per unit.The marginal revenue (net addition to revenue) from selling the seventh unit is then $3.5.
A)True
B)False
Q2) Refer to Figure .What is the maximum cover charge that the amusement park can levy on consumers whose demand curve is D ?
A)$36
B)$31.5
C)$18
D)$27
Q3) Refer to Figure .What would be the consumer surplus if this remained a perfectly competitive market?
A)$320
B)$160
C)$280
D)$140
Q4) Identify some of the basic assumptions of monopoly.
Q5) What are cover and commodity charges?
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Chapter 7: Between the Extremes: Interaction and Strategy
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Sample Questions
Q1) In a game, which strategic choice is called a dominant strategy?
Q2) When can a grim trigger prevent oligopolists from breaking an agreement?
Q3) The demand curve faced by a dominant firm in an oligopoly model is the difference between the market demand and the supply that the fringe will produce at each price.
A)True
B)False
Q4) In a Betrand price-setting duopoly model, the equilibrium output:
A)will be equal to the monopoly output.
B)will be equal to the competitive market output.
C)will lie between the monopoly and the competitive market output.
D)will be higher than the monopoly output.
Q5) Refer to Figure .Determine the total production in this market under Cournot equilibrium?
A)6 units
B)12 units
C)8 units
D)20 units
Q6) What is an ascending-value auction?
Q7) How is the dominant firm's residual demand curve derived in an oligopoly market?
Page 9
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Chapter 8: Competition and Strategy
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Sample Questions
Q1) In a market characterized by many sellers, if an outsider devises a way to reduce transaction costs it will:
A)benefit both buyers and sellers.
B)cause both buyers and sellers to lose.
C)benefit the buyers but cause the sellers to lose.
D)benefit the sellers but cause the buyers to lose.
Q2) If Electro is a retailer of ductile iron pipes manufactured by Steelfact Corporation, an agreement between these two companies will be called a horizontal agreement.
A)True
B)False
Q3) Wal-Mart's store managers have the authority to stock items and price them to satisfy localized demand.Which of the following properties of this retail store is illustrated here?
A)Relationship with employees
B)Regional relationships
C)Centralized decision making
D)Decentralized decision making
Q4) Name some of the barriers to entry that can be created by a competitive firm to protect profits?
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Chapter 9: Beyond Markets; Property and Contracts
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Sample Questions
Q1) Which of the following is an example of a possessory property right?
A)The right to use a public park for morning walk.
B)The right to park your car in your garage.
C)The right to enjoy the fragrance of the flowers planted in your neighborhood.
D)The right to travel in public transport.
Q2) According to the Coase theorem, if the initial distribution of rights favors some party, market efficiency will ensure that the net benefits to that party are maximized.
A)True
B)False
Q3) Refer to Table .What will be the payoff to each producer in the presence of a unitization contract?
A)Each producer will earn $10
B)Frasel will earn $6 while Mike will earn $16
C)Frasel will earn $16 while Mike will earn $6
D)Each well owner will earn $14.
Q4) Why do some unitization contracts require landowners to turn operations to a third party?
Q5) Who is considered to be a free rider according to economists?
Q6) Define a contract.
Page 11
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Chapter 10: The Economics of Contracts
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Sample Questions
Q1) How can an incomplete contract prevent opportunism? Explain with an example.
Q2) Which of the following can be classified as a highly specific asset?
A)A country's soldiers
B)A wind turbine in an installation that produces "renewable" electricity
C)A cattle farm
D)A cruise ship
Q3) Which of the following is an example of vertical integration?
A)An industrialist building new plants in a country where operation costs are low.
B)A cosmetic company collaborating with worldwide retailers to market its product.
C)A fruit juice manufacturer purchasing orchards.
D)An exporter delivering goods at a contracted price.
Q4) When are liquidated damages required? Describe with an example.
Q5) Which of the following will be an efficient payment scheme for a defendant's attorney, who is experienced in handling similar cases in the past?
A)Contingency fees
B)Capitation fees
C)Hourly billing
D)Quality based billing
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Chapter 11: Risk and Information in Contracts
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Sample Questions
Q1) How does asymmetric information affect a contract?
Q2) People's abilities to bear risk increases with:
A)their abilities to understand the market.
B)their abilities to diversify their asset holdings.
C)their abilities to invest in risky assets over a large time period. D)their abilities to judge the probability of outcomes.
Q3) Suppose in the market for used cars, buyers would be willing to pay $9,000 for a car in good condition, while buyers would have to incur a cost of $3,500 to repair a car in poor condition.Assume a risk-averse buyer is aware that some of the cars are lemons, but is uninformed about the probability of a car being in good condition or otherwise.What price would this buyer, seeking only to minimize risk, be willing to pay for a car?
A)$3,925
B)$5,500
C)$7,775
D)$5,850
Q4) How is the utility of a gamble to a risk averse person different from that to a risk neutral person?
Q5) Mention some of ways in which insurers control the problem of moral hazard.
Page 13
Q6) When is disclosure economically desirable?
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Chapter 12: Organizations in Concept and Practice
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Sample Questions
Q1) A sole proprietorship is characterized by:
A)separation of ownership and management.
B)mutual agency.
C)existence of multiple contracts.
D)unlimited liability.
Q2) Independent workers using specialized capital save the costs of contracting but risk:
A)generalization.
B)opportunism.
C)inefficiency.
D)over-utilization.
Q3) A hierarchy is usually a group of people who issue orders to subordinates.
A)True
B)False
Q4) The separation of corporate ownership and control removes most executive decisions from shareholder scrutiny, but offers an efficient division of labor between persons with differing skills, goals, and wealth.
A)True
B)False
Q5) Mention some areas where partnerships are common.Give reason for your answer.
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Chapter 13: Organizational Design
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Sample Questions
Q1) A firm's ability to process information depends on:
A)its human resources.
B)how the information is transferred within the organization.
C)its organizational design.
D)how the information originates.
Q2) Identify the characteristic of a U-form organization from the following.
A)A divisionally organized firm is often called a U-form firm.
B)The heads of the different branches at different locations report to the headquarters.
C)Information submitted by all departments are used by the headquarters to make all the decisions.
D)There is a substantial degree of inter-dependence between various departments.
Q3) Identify a disadvantage of organizational charts.
Q4) Identify the main characteristics of a matrix form organization.
Q5) Centralization of decision-making in a firm is a good idea when:
A)the people who produce the information also have decision-making skills.
B)all the information comes from internal sources.
C)the incentives of the decision-makers is not aligned with the firm's share holders.
D)those who have the relevant information are not equipped to analyze it.
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Chapter 14: Vertical Relationships
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Sample Questions
Q1) _____ increases with the variability of outcomes and the underlying degree of randomness in the environment that can affect a business relationship.
A)The problem of double marginalization
B)Asset specificity
C)Uncertainty
D)Volumetric interdependence
Q2) Although coal and iron ore are both important raw materials used in steel production, coal is a more specific resource compared to iron ore.
A)True
B)False
Q3) _____ is a monthly payment made by a franchisee to the franchisor usually a certain percentage of the former's gross revenue.
A)Royalty
B)Annuity
C)Contingent fee
D)Capitation fee
Q4) Why do vertical contracts impose restraints and obligations?
Q5) What are the advantages of vertical integration?
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Chapter 15: Employment Relationships
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Sample Questions
Q1) An employee who has worked with only one organization all her life, and is now close to her retirement age, is unlikely to find an equally profitable position with another company because:
A)her productivity is very low.
B)her firm-specific capital is of little use to other organizations.
C)other organizations can not verify her previous work record.
D)her preference for leisure is likely to be very high.
Q2) Over the long run, migration by workers to higher-wage regions:
A)allows wages to equalize across regions.
B)explains why wage differentials may persist.
C)causes disequilibrium in the labor market.
D)increases wages further in those regions.
Q3) Identify the correct statement from the following.
A)A worker's wage line and productivity line over his lifetime are parallel to each other.
B)The wage line of a worker's lifespan is an upward sloping straight line.
C)The productivity line of a worker's lifespan rises at a decreasing rate.
D)A worker's wage is always equal to his productivity.
Q4) Explain the significance of efficiency wages in solving the principal/agent relationship in employment.
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Chapter 16: Time, Risk and Options
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Sample Questions
Q1) Why are interest rates considered to be the opportunity cost of investments?
Q2) A situation in which an individual has no information about probabilities and the underlying distributions of the possible outcomes of an investment choice is called:
A)a prior distribution.
B)updating.
C)risk tolerance.
D)pure uncertainty.
Q3) The _____ shows all of the combinations of risk and return that leaves an investor equally well off from holding either a low-risk or a high-risk investment.
A)indifference curve
B)expectation
C)standard deviation
D)correlation coefficient
Q4) Refer to Figure 16-1.Pr[A or B] will be:
A)5/6.
B)11/12.
C)1/6.
D)3/4.
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Chapter 17: Conflict, Negotiation and Group Choice
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Sample Questions
Q1) Identify the statement which is true about bargaining.
A)There is a strong relationship between bargaining power and education.
B)The distribution of prices within the zone of agreement has a high standard deviation.
C)Average final prices are often near the halfway mark between valuation and opportunity cost and there is hardly any deviation from this.
D)There is a strong relationship between bargaining power and income.
Q2) A lawyer's ability to understand a client's legal situation and his professional norms may improve the outcome of a negotiation with another attorney, relative to the outcome if the client bargained for herself.
A)True
B)False
Q3) Differentiate between norms and focal points.
Q4) The differences that people settle by voting are most likely to include:
A)issues that affect few people.
B)decisions that need to be taken at a short notice.
C)decisions that are divisible.
D)public goods.
Q5) What is the core of a negotiation involving many parties?
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