Strategic Management Exam Practice Tests
Course Introduction
Strategic Management is a comprehensive course that explores the formulation, implementation, and evaluation of strategies that enable organizations to achieve long-term objectives and maintain competitive advantage. Through the analysis of real-world case studies and contemporary business scenarios, students will learn key concepts such as industry analysis, resource-based view, competitive dynamics, corporate diversification, and strategic leadership. The course emphasizes critical thinking and decision-making skills, providing students with the tools necessary to assess complex business environments, develop effective strategies, and drive organizational success in an increasingly dynamic and globalized marketplace.
Recommended Textbook
Economics of Strategy 5th Edition by
David Besanko
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18 Chapters
450 Verified Questions
450 Flashcards
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Page 2
Chapter 1: Basic Microeconomic Principles
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Sample Questions
Q1) Which characteristic does not describe a perfectly competitive market?
A)Firms produce identical or nearly identical products
B)Market price is beyond the control of any individual firm
C)A firm's demand curve is perfectly horizontal at the market price
D)Industry-level price elasticity is finite
E)Firm-level price elasticity of demand facing another perfect competitor is infinite
Answer: D
Q2) At what point can a firm achieve a profit maximizing quantity?
A)MR>MC
B)MC=D
C)MR<MC
D)MR=D
E)MR=MC
Answer: C
Q3) 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)= \( \frac{13}{Q} \)
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Page 3
Chapter 2: Economies of Scale and Scope
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Sample Questions
Q1) Which of the following is not a product specific fixed cost?
A)The cost to manufacture a special die to make an aircraft fuselage
B)The cost of developing graphics software to facilitate video game development
C)The cost of a one-week training program preceding the implementation of a specific management initiative
D)The time and expense required to set up a textbook before printing it
E)The cost of administrative expenses
Answer: E
Q2) 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
Answer: E
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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Page 4
Chapter 3: Agency and Coordination
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Sample Questions
Q1) 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
Answer: B
Q2) Which of the following factors is an effective tool for companies to use to mitigate hidden action and hidden information problems in agency relationships?
A)Monitoring
B)Offshoring
C)Coordination
D)Objectives
E)Confrontation
Answer: A
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Page 5
Chapter 4: The Power of Principles - an Historical Perspective
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Sample Questions
Q1) What caused railway transportation to remain the primary transportation source over trucking until World War II?
A)The country lacked of an interstate highway system
B)Rail consolidation was more extensive
C)Rail was faster, safer and more reliable
D)Railroads could carry goods a further distance
E)Companies preferred rail transportation for their goods
Q2) 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
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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Sample Questions
Q1) The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?
A)Infrastructure
B)Product innovation
C)Obtaining regulatory approval
D)Customer relationship
E)Manufacturing and communications
Q2) Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit and annualized cost of investment to build a hard drive factory I=$30 million.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit,what is your company's "rent?
Q3) When contracts are incomplete,what must be well defined and enforceable to allow for smooth transactions to occur?
A)Contract performance measures
B)Contract roles
C)Contract costs
D)Contract triggers
E)Contract law
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Chapter 6: Organizing Vertical Boundariesvertical
Integration and Its Alternatives
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Sample Questions
Q1) Which of the following in the late 19 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
Q2) What term describes when a firm is using the least-cost production process?
A)Agency efficiency
B)Technical efficiency
C)Lean compliant
D)Economizing
E)Six sigma compliant
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Chapter 7: Diversificationpart Threemarket and Competitive Analysis
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Sample Questions
Q1) Which of the following sources of conglomerate value creation explains GE CEO Jeff Immelt's assertions that both GE's size allows it to "drive common initiatives across the company that accelerate growth,satisfy customers and expand margins" and GE's is able "develop people to grow a common culture that is adaptive,ethical and drives execution"?
A)Use of internal capital markets
B)Economies of scale and scope
C)Economizing on transaction costs
D)Dominant general management logic
E)Identifying undervalued firms
Q2) Which of the following is generally a way that LBOs can help a firm realize its potential value?
A)The synergies created allow for cost savings
B)The transaction reduces the disparity between a firm's actual and potential share price
C)The reduction in the number of shares outstanding makes it possible to give a firm's management a large equity share
D)The acquisition reduces the likelihood of competition in the industry
E)The buyout gives an opportunity to adjust the management structure and makeup
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Chapter 8: Competitors and Competition
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Q1) 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?
Q2) What group/type of preferences describes when tastes differ markedly from one person to the next and result in horizontal differentiation?
A)Search preferences
B)Horizontal preferences
C)Consumer preferences
D)Spatial preferences
E)Idiosyncratic preferences
Q3) Based on Bresnahan and Reiss' study of the relationship between concentration and prices,how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?
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Chapter 9: Strategic Commitment
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Q1) What step of Ghemawat's framework for analyzing commitment intensive choices involves analyzing potential responses to the commitment by competitors and potential entrants in light of the commitments that they have made and the impact of those responses on competition?
A)Positioning analysis
B)Sustainability analysis
C)Flexibility analysis
D)Judgment analysis
E)Final Commitment analysis
Q2) Which of the following statements is true about a soft commitment?
A)It is bad for competitors
B)It is good for competitors
C)In Cournot competition, capacity expansion is an example of a soft commitment
D)In Betrand competition, a commitment to reduce prices is an example of a soft commitment
E)Tough commitments are always in the best interest of a firm
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11
Chapter 10: The Dynamics of Pricing Rivalry
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Q1) 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
Q2) Which of the following practices can help firms facilitate cooperative pricing?
A)Price leadership
B)Advance announcement of price changes
C)Price following
D)Most favored customer clauses
E)Uniform delivered prices
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12
Chapter 11: Entry and Exit
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Q1) When is reputation a most effective entry barrier?
A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions
Q2) Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?
A)Limit pricing
B)Price leading
C)Predatory pricing
D)Quality pricing
E)Capacity expansion
Q3) What type of firm is one that is already operating in a particular market?
A)Market leader
B)Entrant
C)Incumbent
D)Market follower
E)Monopolist
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Page 13
Chapter 12: Industry Analysispart Fourstrategic Position and Dynamics
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Q1) Which of the following is not a significant entry barrier in the commercial airframe manufacturing market?
A)High development costs
B)Learning curve in production
C)Raw materials and labor
D)Airlines prefer to purchase from the same manufacturer
E)Airlines are reluctant to purchase from startups
Q2) Who are the most powerful suppliers in professional sports?
A)Players unions
B)Referees
C)Owners
D)Politicians
E)Cities
Q3) Which of the following is not a part of the five-forces framework?
A)Supplier Power
B)Internal rivalry
C)Regulation
D)Buyer Power
E)Substitutes and Complements
Page 14
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Chapter 13: Strategic Positioning for Competitive Advantage
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Q1) Which of the following is a concept developed by Michael Porter that describes,in broad terms,how it positions itself to compete in the market it serves?
A)Value chain
B)Generic strategy
C)Benefit leadership
D)Cost Leadership
E)Focus
Q2) What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market?
A)Industry effect
B)Competitive advantage
C)Business unit effect
D)Competitive position
E)Market profitability economics
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Page 15
Chapter 14: Sustaining Competitive Advantage
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Q1) 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
Q2) What best describes the reason superstar athletes (resources)capture most of the extra-value they create for a firm in the form of higher salaries rather than the firm capturing the extra value itself?
A)The athletes are not value-creating
B)The athletes are isolating mechanisms
C)The athletes are not cospecialized
D)The athletes are not scarce
E)The athletes are imperfectly mobile
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Q1) Which of the following terms best describes the ability of a firm to maintain and adapt the capabilities that are the basis of its competitive advantage?
A)Riskiness of R&D
B)Correlated research strategies
C)Evolutionary economics
D)Dynamic efficiency
E)Dynamic capabilities
Q2) 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
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Chapter 16: Performance Measurement and Incentives in Firms
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Q1) What term best describes a payment above and beyond the expected outcome of a gamble which must be offered to a risk-averse individual to willingly accept the gamble?
A)Certainty equivalent
B)Risk equivalent
C)Risk premium
D)Risk preference payment
E)Certainty payment
Q2) What type of performance measurement based process was used to determine Jack Welch's successor,Jeffrey Immelt,as CEO of GE?
A)Ratings compression
B)Merit ratings system
C)360-degree peer review system
D)Promotion tournament
E)Management-by-objective system
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Page 18
Chapter 17: Strategy and Structure
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Q1) In which of the following situations identified by Baron and Besanko will a matrix never be optimal regardless of any additional circumstances?
A)When spillovers are positively correlated and activities are profit complements
B)When activities are profit complements but spillovers are negatively correlated
C)If activities are profit substitutes and spillovers are positively correlated
D)If spillovers are negatively correlated and activities are profit substitutes
E)None of the above
Q2) Which of the following structures involves multiple groups and multiple levels of groupings arising from the need not just to organize individuals into groups,but to organize groups into larger groups?
A)Complex hierarchy
B)Coordination
C)Control
D)Hierarchy of authority
E)Departmentalization
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19
Chapter 18: Environment, power, and Culture
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Q1) What does Gary Miller identify as the focus for actors around which a consensus can form within an organization?
A)Contracts
B)Incentives
C)Formal controls
D)Norms and Social conventions (culture)
E)Exclusive deals
Q2) Which of the following statements is least true regarding the costs that regulation imposes on firms?
A)Regulation costs include lower prices for goods that consumers pay
B)Regulation costs include costs of compliance
C)Regulation costs include increased business costs due to noncompliance
D)Regulation costs include the costs of strategic options that must be forgone because of regulations
E)Regulation costs include potential distortions to a market that may result from the imperfections of a given regulatory regime
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