ECON 400 QUIZ ANSWERS FOR FINAL

Which of the following is a complement to professional sports?

Gambling

Which of the following is true about hospital industry profits from 1980 to 2000 and a five forces analysis?

Virtually every factor caused profits to decrease

How does a centralized organization solve coordination problems?

concentrates decision making authority in one or a small group of people

Which of the following is a tool a firm can use to combat agency problems?

monitoring, performance-based incentives, and bureaucracy (a, b, & c)

Which of the following terms best describes a review system in which an employee's supervisor, coworkers and subordinates are all asked to provide information regarding that employee's performance over a period of time?

360-degree peer review system

Which of the following represents consumer surplus in the value creation equation, (B-P) + (P-C)?

B-P

What is the perceived benefit of a product per unit consumed minus the product's monetary price?

Consumer surplus

Why do consumers tend to gravitate towards non-profit firms when evaluating credence goods?

Consumers believe non-profit sllers will be less likely to skimp on quality for profit.

Which of the following is the weakest an example of a "shock"?

Contracting to use another firm's proprietary process

What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?

Cooperative pricing

Benefit proximity refers to which of the following?

Cost leading firms offering products with slightly less benefit

Which of the following is not an example of a way a seller can increase switching costs?

Creating a product line compatible with parts that are made by other manufacturers

Products for which consumers cannot easily evaluate quality even after purchasing and using the product are called:

Credence Goods

What term best describes a targeting strategy in which the firm offers a variety or related products to a particular class of customers?

Customer specialization

Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?

Demand volatility is an especially serious problem when the production involves substantial fixed costs

What type of effect describes how a commitment impacts the present value of the firm's profits, assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor's behavior does not change?

Direct effect

Unraveling is an economic theory that describes which of the following?

Even low quality sellers will disclose their product quality

Which of the following does not tend to affect the threat of entry?

Expectations about pre-entry competition

What is another term for a "win-win" business opportunity?

Gains from trade

What professional sports complement poses the biggest dilemma?

Gambling

Which of the following terms describes a contract based on information that cannot be observed by courts or arbitrators?

Implicit incentive contract

Which of the following is measured by a report card that assesses the components of a product?

Inputs

Which of the following statements is true about a soft commitment?

It is good for competitors

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?

Lemons market

Which of the following is a source for horizontal differentiation?

Location

What term describes the price at which a consumer is indifferent between buying a product and going without it?

Maximum willingness-to-pay

What type of clause is a provision in a sales contract that promises a buyer that it will pay the lowest price the seller charges?

Most favored customer clause

What product characteristic refers to the situation where consumers place higher value on a product if other consumers also use it?

Network effect

Which of the following statements best describes a characteristic of geographic specialization focus strategies?

Offers a variety of products and/or sells to a variety of customer groups within a narrow geography

Which of the following represents producer surplus in the value creation equation, (B-P) + (P-C)?

P-C

What term best describes the characteristic of a process if past circumstances could exclude certain evolutions in the future?

Path dependence

Which of the following is an example of a market where barometric price leadership occurs?

Prime-rate loan

What type of option exists when a decision maker has the opportunity to tailor a decision to information that will be received in the future?

Real option

Which of the following is not a factor that could intensify internal rivalry in the Chicago hospital market?

Relatively small number of doctors

What term describes a framework used in strategy based on resource heterogeneity which posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile?

Resource-based theory of the firm

Motivation bias and survivor bias are most common in which of the following?

Scorecards on horizontally differentiated products

When consumers learn about one seller at a time it is known as a :

Sequential search

When consumers learn about many products at once, it is known as a :

Simultaneous search

Which of the following is a capability?

Sourcing skills

What term describes the optimal allocation of society's resources at a given point in time?

Static efficiency

What term coined by Michael Porter describes a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process fails to achieve either a cost advantage or a benefit advantage?

Stuck in the middle

How did European governments help Airbus aggressively pursue a 50% market share in its early years of operation?

Subsidies

Substitutes erode profits because of which of the following factor?

Substitutes divide demand and drive up internal rivalry

Why do consumers often rely on friend's advice when shopping for experience goods?

They know their friend's tastes

When is a signal informative?

When it is more profitable for the high quality firm to offer it

Which of following factors should be considered when assessing complements and substitutes?

a) Availability of close substitutes and/or complements b) Price-value characteristics of substitutes/complements c) Price elasticity of industry demand d) All of these

which of the following structures involves multiple groups and multiple levels of groupings arising from the need not just to organize individuals into groups into larger groups?

complex hierarchy

How are the coordination problems that exist around the construction of a new home generally solved?

contractor

Which of the following terms describes a phenomenon whereby individuals ignore their own information about the best course of action and instead simply do what everyone else is doing?

herding

which of the following structures best describes a small group of people where the members of the work groups are paid on individual actions?

individual

what type of organizational structure is one in which employees are subject to two or more sets of managers at once?

matrix structure

what type of organizational structure is one in which work groups may be organized by function, geography, or customer based, 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?

network structure

what type of structure is the Japanese keiretsu structure?

network structure

Which of the terms best describes the effect that results from supervisors giving all their subordinates average (or above average) grading to avoid making sharp distinctions between those subordinates when evaluating them?

ratings compression

What term best describes an agent who is indifferent between a sure thing and a gamble of equal expected value?

risk neutral

which of the following structures best describes a small group of people where a collection of individuals work together to set and pursue common objectives?

self-managed team

What is a benefit of the de-centralized organization coordination solution?

takes advantage of localized information

which of the following is a dimension along which departmentalization can occur?

tasks, inputs, outputs, geography (all of the above)

which of the following statements is least true regarding the views of strategy that Nelson and Winter offer differing from Chandler?

their views suggest that structure is a set of principles or guidelines for coordinating a firm's decisions in a manner inconsistent with its activities in the environment

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?

unitary functional structure

in which of the following situations identified by baron and besanko will a matrix never be optimal regardless of any additional circumstances

when spillovers are positively correlated and activities are profit complements

Which set of advice below should a manager disregard when seeking pricing stability that is least likely to suffer from antitrust legislation?

Always share analyses of probably competitive reactions

Which of the following is not a barrier to entry in professional sports markets?

Because the number of potential billionaire owners has risen dramatically, the purchase prices have dropped

What term refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers?

Buyer power

What term best describes clusters of activities that a firm does especially well in comparison with other firms?

Capabilities

What term best describes the payment which must be offered to a risk-averse individual to willingly accept a gamble?

Certainty equivalent

When multiple firms' price-quality positions line up along the same indifference curve offering a consumer the same amount of consumer surplus, what term describes the situation?

Consumer surplus parity

What term best describes when quiet periods in markets are punctuated by fundamental "shocks" or "discontinuities" that destroy old sources of advantage and replace them with new ones?

Creative destruction

Which of the following is not a reason for customer survey bias in quality measures?

Customers often lie in consumer surveys

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?

Dynamic capabilities

What type of isolating mechanisms increase the economic power of a competitive advantage over time once a firm has acquired that advantage?

Early-mover advantages

What term best refers to a wage payment made to an agent that exceeds his opportunity cost of working and discourages the agent from shirking?

Efficiency wage

Which of the following terms describes a nation's position with regard to the elements (e.g. human resources, infrastructure) of production that are necessary to compete in a particular industry?

Factor conditions

Which of the following commitment strategies involves soft commitment postures, strategic complements for the stage 2 tactical variables, a refrain commitment action and an acceptance of the status quo out of fear thus waiting to follow the leader?

Fat-Cat Effect

Which of the following terms describes when firms with high scores tend to have more than their share of luck in rankings?

Mean reversion

Which of the following terms best describes the principle stating that when allocating effort among a variety of tasks, employees will tend to exert more effort toward those tasks that are rewarded

Multitask principle

Which of the following is another term for "teaching to the test?"

Multitasking

Which of the following management actions reflects agency problems due to the fact that information held by the agent is hard to observe?

Paying for services that seem excessive to the shareholders

Which of the following terms describes the situation created by a large dominant firm where smaller firms can find buyers as long as they sustain a lower price?

Price umbrella

Which of the following is measured by a report that assesses how a product is produced?

Process

What type of performance measurement based process was used to determine Jack Welch's successor, Jeffrey Immelt, as CEO of GE?

Promotion tournament

What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following?

Regression to the mean

What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota's response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?

Strategic substitute

Which of the following is not an isolating mechanism that falls under the heading of early-mover advantage?

Superior access to inputs or customers

Which of the following is the most likely substitute for commercial aircraft travel between Chicago and Tokyo?

Teleconferencing

Why are suppliers in a competitive upstream market said to have "indirect power"?

The can sell their services to the highest bidder

Which of the following is not a potential limitation of the five-forces framework?

The framework provides a structured way to systematically work through wide-ranging and often complex issues

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?

The increase in demand caused by the increase in quality and the incremental profit earned on each additional unit sold

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?

The replacement effect

Which of the following terms best describes a phenomenon whereby a profit-maximizing firm sticks with its current technology or product concept even though the profit-maximizing decision for a firm starting from scratch would be to choose a different technology or product concept?

The sunk cost effect

The steepness (slope) of an indifference curve indicates which of the following?

The tradeoff a consumer is willing to make between price and quality

What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?

Tit-for-tat strategy

What type of pricing involves a firm quoting a single delivered price for all buyers with the firm absorbing any freight charges itself?

Uniform delivered pricing

What is one way to measure a firm's willingness-to-pay?

Value added analysis

Which of the following terms is a concept, developed by Michael Porter, which describes the activities within firms and across firms that add value along the way to the ultimate transacted good or service?

Value chain

Which of the following is not a principal/agent relationship?

shareholder/IRS auditors of a company

Which of the following is false with respect to the strategy of cost leadership?

A firm following a strategy of cost leadership is following a generic strategy narrow in scope

Conflicts of interest in the certifier market often can lead to which of the following?

Certification bias

Which of the following conditions does not tend to heat up price competition?

Products are differentiated/buyers have high switching costs

What entity as a supplier has the most substantial power over manufacturers in the commercial aircraft market?

Unions