Strategic Decision Making Exam Practice
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Course Introduction
Strategic Decision Making explores the theories, frameworks, and practical applications involved in making high-impact choices within organizations. Students learn to analyze complex environments, assess risks and opportunities, and utilize both quantitative and qualitative decision-making tools. The course emphasizes critical thinking and problem-solving, guiding students through case studies and simulations that reflect real-world strategic dilemmas faced by leaders and managers. By the end, participants will be equipped with the skills needed to formulate, evaluate, and implement effective strategies in a competitive and uncertain business landscape.
Recommended Textbook
Economics of Strategy 5th Edition by David Besanko
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Chapter 1: Basic Microeconomic Principles
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Sample Questions
Q1) 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?
Answer: AVC(Q)= 5Q+3
Q2) 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?
Answer: AFC(Q)= \( \frac{13}{Q} \)
Q3) If =.8 and P=$25,what is MR?
A)$20
B)$6.25
C)-$5
D)-$6.25
E)$5
Answer: D
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Chapter 2: Economies of Scale and Scope
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Q1) Which of the following is a characteristic of economies of scale?
A)The average cost declines as output increases
B)The average cost increases as output increases
C)The average cost remains constant as output increases
D)The average costs are cheaper when a firm produces a wider variety of goods
E)The average cost curve takes the form of a U-shape
Answer: A
Q2) Which of the following best describes economies of scope?
A)The average cost declines as output increases
B)The average cost increases as output increases
C)The average cost remains constant as output increases
D)Savings are achieved when a firm produces a wider variety of goods
E)Savings are achieved when a firm produces a decreased variety of goods
Answer: D
Q3) Suppose the cost of advertising in a local newspaper is $5 per thousand papers.If the circulation for the paper is 1.5 million and the cost of preparing an ad for a company is $2500,what is the advertising cost per potential customer?
Answer: $.0067 per potential customer,or $6.67 per 1000 customers
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Chapter 3: Agency and Coordination
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Q1) How does a centralized organization solve coordination problems?
A)Allows for face to face communication
B)Creates a smaller organization
C)Reduces the costs of business
D)Concentrates decision making authority in a one or a small group of people
E)Information can take more time to trickle down
Answer: D
Q2) Which of the following is a tool a firm can use to combat agency problems?
A)Monitoring
B)Performance-Based Incentives
C)Bureaucracy
D)a, b & c
E)None of the above
Answer: D
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Chapter 4: The Power of Principles - an Historical Perspective
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Q1) What was a key factor that aided foreign steel producers in penetrating U.S.markets?
A)Shifting demand in the economy to "lighter" products
B)Invention of the basic oxygen furnace
C)Development of the continuous casting process
D)U)S. steelmakers' commitment to "light" products
E)Development of the electric arc furnace
Q2) Relaxing of government regulation of economic activities occurred during the second half of the 20 century for all of the following except:
A)Airline industry
B)Workplace safety
C)Banking industry
D)Trucking
E)Healthcare industry
Q3) 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
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Chapter 5: The Vertical Boundaries of the Firm
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Q1) 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
Q2) Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines?
A)Site specificity
B)Physical asset specificity
C)Dedicated assets
D)Human asset specificity
E)The fundamental transformation
Q3) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.If your average variable cost C=$20/unit,annualized cost of investment to build a hard drive factory I=$30 million,and market price (bailout market price in the event Dell does not buy)Pm=$22/unit,what is your company's RSI (relationship specific investment)?
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Page 7
Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Q1) Which of the following is a characteristic of an implicit contract?
A)It is an understanding between parties in a business relationship
B)It is generally enforceable in court
C)The threat of losing future business makes implicit contracts not viable
D)They are typically used in firms that have little relationship with one another
E)It is an alternative agreement method to the Keiretsu understandings between members
Q2) What Japanese term describes a labyrinth of firms with long-term semi-formal relationships up and down the vertical chain?
A)Kaizen
B)Keiretsu
C)Kanban
D)Karõshi
E)Mochibun kaisha
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Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Q1) Which of the following benefits of diversification explains the idea that combining unrelated businesses can allow firms to finance projects through cross-subsidization when they previously were unable to finance the same projects externally?
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
Q2) Which of the following benefits of diversification explains the idea that mergers are more likely when there is an expectation of positive changes in market share?
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
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Chapter 8: Competitors and Competition
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Q1) Which of the following is not a characteristic of substitute products X and Y?
A)They have the same or similar product performance characteristics
B)They have the same or similar occasions for use
C)They are sold in the same geographic market
D)Customers are indifferent between X and Y
E)A price increase of X while keeping the Y's price constant leads to a drop in purchases of X and an increase in purchases of Y
Q2) What term describes the differentiation of a product when it is unambiguously better or worse than competing products?
A)Horizontal differentiation
B)Vertical differentiation
C)Idiosyncratic differentiation
D)Spatial differentiation
E)Non-price differentiation
Q3) In a two firm market,let the marginal cost of producing a product be $20,the market demand be given by the function Q=60-P/2 and the market quantity be equal to Q +Q .What is the Cournot equilibrium quantity each firm would produce in this market?
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Chapter 9: Strategic Commitment
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Q1) Which of the following is a way that Airbus significantly enhanced the credibility of its commitment to enter super jumbo jet market?
A)By announcing entrance into the market
B)By entering a market they had not been in previously
C)By projecting changes in air travel included increased congestion in the traditional hub-and-spoke system
D)By war gaming how the A380 would accommodate growing numbers of passengers and relive airport slot congestion
E)By securing over 60 early orders for the Airbus A380
Q2) Suppose a firm has $50 million to invest in a new market.Given market uncertainties,the firm forecasts a high-scenario where the present value of the investment is $200 million and a low-scenario where the present value of the investment is $20 million.Suppose that by waiting a year,the firm can learn with certainty which scenario will arise.Assume a 10% annual discount rate.If the firm waits one year and learns that the high-scenario will happen,what is the firm's expected net present value of the investment?
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11
Chapter 10: The Dynamics of Pricing Rivalry
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Q1) 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?
Q2) 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
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Chapter 11: Entry and Exit
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Q1) Which of the following is not an exit barrier for firms in an industry?
A)Sunk costs
B)Labor agreements or commitments to purchase raw materials
C)Obligations to input suppliers
D)Excess capacity
E)Government restrictions
Q2) Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?
A)DeBeers in diamonds
B)Nike in shoes
C)Pepsi in beverages
D)Subway in sandwich fast food
E)Levis in denim jeans
Q3) What term describes a market where a monopolist cannot raise price above long run average cost?
A)Blockaded
B)Perfectly contestable
C)Accommodated
D)Deterred
E)Predatory
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Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) Why are suppliers in a competitive upstream market said to have "indirect power"?
A)They can sell their services to the lowest bidder
B)They are always concentrated
C)Their customers are always locked into relationships with them
D)The price they charge never depends on supply and demand in the upstream market
E)The can sell their services to the highest bidder
Q2) Which of the following is not a way teams "collude" within professional sports markets?
A)Agreeing on ticket prices
B)Agreeing on rules and schedules
C)Employing the same pool of referees
D)Sharing national broadcast revenues
E)Agreeing on rookie drafts
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) What type of good is one whose quality can be assessed only after the customer has used it for a while?
A)Apparel
B)Search good
C)Experience good
D)Office furniture
E)Airline tickets
Q2) Which of the following is a resource?
A)Brand promotion skills
B)Yield management capabilities
C)Ability to manage sourcing and procurement functions
D)Workers with firm-specific expertise or know-how
E)Ability to integrate order-taking, procurement, manufacturing and out-bound logistics
Q3) Which of the following is a capability?
A)Patents and trademarks
B)Brand-name reputation
C)Installed base
D)Organizational culture
E)Sourcing skills
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Chapter 14: Sustaining Competitive Advantage
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Q1) What term refers to the costs incurred by buyers when they change to a different supplier?
A)Switching costs
B)Buyer costs
C)Reputation costs
D)Learning costs
E)Customer costs
Q2) What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it?
A)Value creation effect
B)Product linkage
C)Product externality
D)Complementary effect
E)Network effect
Q3) Which of the following is not a Legal Restriction?
A)Patent
B)Copyright
C)Trademark
D)Intellectual property
E)Operating rights
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Q1) 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
Q2) Which of the following is a possible explanation for the reason that American steelmakers continued to invest in less efficient OH technology instead of newer more efficient BOF technology throughout the 1950s?
A)The replacement effect
B)Strategic intent
C)Strategic stretch
D)Efficiency effect
E)The sunk cost effect
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) 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
Q2) Which of the following terms describes an incentive contract that can be enforced by an outside third party such as a judge or an arbitrator?
A)Explicit incentive contract
B)Implicit incentive contract
C)Risk sharing contract
D)Compensation contract
E)Pay-for-performance
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18
Chapter 17: Strategy and Structure
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Q1) Which of the following terms best describes the division of an organization into formal groupings?
A)Complex hierarchy
B)Coordination
C)Control
D)Hierarchy of authority
E)Departmentalization
Q2) What type of organizational structure is one in which work groups may be organized by function,geography,or customer base,but where relationships between work groups are governed more by often-changing implicit and explicit requirements of common tasks than by the formal lines of authority that characterize other structures?
A)Unitary functional structure
B)Multidivisional structure
C)Matrix structure
D)Network structure
E)Individual structure
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Chapter 18: Environment, power, and Culture
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Q1) What does Andrew Pettigrew identify to be the key issue that plagued Imperial Chemical Industries that stymied the organizational adaptation that was necessary to keep it successful in the 1970s?
A)Contracts
B)Cultural inertia
C)Pricing
D)Entry-deterring behaviors
E)Employment practices
Q2) Which of the following terms best describes a transfer between two or more parties or resources,or rights to control resources,which occurs outside the terms of a market context?
A)Power exchange
B)Social exchange
C)Authority exchange
D)Knowledge exchange
E)Formal exchanges
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