Chapter 2: The horizontal boundaries of the firm

How does umbrella branding aid economies of scale and scope?

Increases effectiveness of advertising due to offering a broad product line under one name.

What measure, that depends on how much of a firm's revenues are attributable to product market activities that have shared technological characteristics, production characteristics, or distribution channels is used to determine how diversified a firm is at a given time?

Relatedness

By satisfying which of the following conditions can shareholders prevent management driven acquisitions?

if shareholders could determine which acquisitions will lead to increased profits and which will not

What is the approximate observed median learning curve slope for typical firms?

.8

Diversifying activity is most often measured by looking at which of the following?

Acquisition and merger activity

What institution within a firm must fail on same level for managers to be motivated to acquire another firm for the purposes of increasing their own compensation, shielding themselves against risk, or gaining prominence by running a larger firm?

Corporate governance

What are economies of density as referred to in the airline industry?

Economies of scale along a given route

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?

Economies of scale and scope

Which of the following is a source of diseconomies of scale at a large firm?

Labor costs Spreading specialized resources too thin Conflicts of interest Incentive processes

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs?

Long-run economies of scale

What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?

Market for corporate control

Consolidation of managers often occurs due to which of the following?

Mergers and acquisitions

Which of the following is a characteristic of economies of scale?

The average cost declines as output increases

Which of the following is generally a way the LBOs can help a firm realize its potential value?

The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds

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?

Use of internal capital markets

Which of the following practices does not contribute to the strategic fit of Southwest Airlines?

Use of multiple types of planes

Why might a large firm actually be at an advantage over a smaller firm with respect to labor?

Worker turnover is generally lower