UF ECO 4104 Midterm 1 Practice Problems

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

Acquisition and merger activity

If a firm enjoys lower costs due to a complex labor-intensive process, which of the following statements would then be true?

An example of this process could be the practice of anti-trust law

What is a market firm?

An independent outsourcing partner

Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?

Arm's length market transactions

What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?

Asymmetric information

What problem preventing complete contracts refers to the limits on the capacity of individuals to process information, deal with complexity and pursue rational aims?

Bounded rationality

Matchmakers between manufacturers and sellers are called:

Brokers

Which of the following is not a method to protect intellectual property?

Charging higher prices to limit access to IP

Which of the following did not contribute to the high transaction related risks for U.S. potato sales in 1840?

Competition from European merchants

Which of the following is not a way managers generally benefit from acquisitions?

Consolidation of other senior executives

When contracts are incomplete, what must be well defined and enforceable to allow for smooth transactions to occur?

Contract law

Which of the following is not generally a potential benefit of diversification?

Control systems rewarding/penalizing division managers based on business unit objective

Long term contracts with suppliers can help a firm with which of the following?

Counteract raw material price fluctuations and eliminate income risk

How have late 20th and 21st century communications technologies directly created global markets from products and services?

Created seamless and instantaneous communications

Which of the following has a downstream relationship with a Toyota Motor Corporation?

Dealerships

Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?

Diversifying shareholder portfolios

Which of the following is not a reason a supplier might seek to sell in bulk?

Each sale involves setting up a different production run

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 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?

Economizing on transaction costs

Which of the following is a method firms can use to counteract price fluctuations and eliminate income risk?

Enter into futures contracts to hedge the price of raw materials

Which of the following did not contribute to the dominance of the family-run small business in 1840?

Factories, Laws, Raw Materials, & Management

Which of the following encouraged firms to develop through internal R&D rather than through M&A in the 20th century?

Federal antitrust policies

What was one of the first plant/factory types to use the "American System" of manufacturing?

Firearms

Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?

Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization

Which of the following is a true argument regarding the make-or-buy decision process?

Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive

Which of the following benefits of diversification explains the idea that corporate diversification can provide situations where an acquiring firm determines the stock price for firm they intend to acquire is too low?

Identifying undervalued firms

Strong contract law aids the most in which of the following?

Incomplete contracts

Why is firm specific learning better in general for an organization?

Increases complexity and creativity in the organization

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 was a key contribution to the dominance of the family-run small business in 1840?

Infrastructure

What was the major role of private banks in the early 1800s?

Issue Credit

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 is a benefit of alliances and joint ventures over mergers and acquisitions?

Lower likelihood of antitrust scrutiny

What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?

Manager/worker slacking

What is an independent outsourcing partner often called?

Market firm

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

Market for corporate control

What was the most significant development to the evolution of business circa 1910?

Mass-production technology

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

Mergers and acquisitions

Examining which of the following is broadly considered one of the easiest ways to measure diversifying activity?

Mergers and acquisitions

How does carrying inventories contribute to economies of scale?

Minimizes the chance of stock-out

The minimum point on a U-shaped average cost curve is known as which of the following?

Minimum efficient scale of production (MES)

What significant transportation event brought about the first significant growth of the Great Lakes region?

Opening of the Erie Canal

What caused the market conditions facing the telephone to be uncertain until the 1880's?

Patent Conflicts

Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?

Perform activity internally

What economics game theory concept is demonstrated by the Erie Canal public works project?

Prisoner's dilemma

What does it mean for a manufacturing firm to vertically integrate?

Produce raw materials and distribute finished goods on their own

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?

Product innovation

Which of the following is not a result of the holdup problem?

Reduction in the transaction costs of arm's length market exchanges

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

Which of the following best describes economies of scope?

Savings are achieved when a firm produces a wider variety of goods

By simultaneously halting air traffic and financial markets, what recent historical event highlighted the interdependence company infrastructure?

September 11, 2001

Which of the following types of fit (used to aide in coordination along all dimensions of production) explains a situation where the steps of a particular process must occur in a particular order?

Sequence fit

What was a key factor that aided foreign steel producers in penetrating U.S. markets?

Shifting demand in the economy to "lighter" products

What form of communication was integral to the growth of multistory headquarter buildings?

Telephone

What mode of long-distance communication first laid the groundwork for today's modern communication forms?

Telephone

What do the vertical boundaries of a firm refer to?

The activities the firm itself performs versus purchases from independent firms

Which of the following led to overbuilding of railroads in the 1860's and 1870's?

The availability of financing due to public optimism

Which of the following facets of modern financial infrastructure came as a result of deregulation in the 1970s and 1980s?

The availability of large investment funds facilitating M&A to flourish

Economies of scale are best described as which of the following?

The average cost declines as output increases

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

The average cost declines as output increases

What is a key issue facing managers of the 2000s with respect to production technology?

The choice between reformulating strategies and reorganizing or using the technologies for incremental improvements

Which of the following is not a characteristic of a complete contract?

The contract allows for a party to exploit weaknesses in another party's position as the transaction unfolds

Which of the following is not a product specific fixed cost?

The cost of administrative expenses

What caused railway transportation to remain the primary transportation source over trucking until World War II?

The country lacked of an interstate highway system

What is the minimum efficient scale (MES) of production?

The minimum point on a U-shaped average cost curve

What is throughput?

The movement of inputs and outputs through a production process

Which of the following led to the development of the financial infrastructure pre- 1910?

The systemization and circulation of credit information

Which of the following is generally a way that 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

The movement of inputs and outputs through a production process is known as which of the following?

Throughput

Increased economies of scale and scope are helped by which of the following?

Umbrella branding

Which of the following is a reason for a firm to Buy rather than make?

Upstream firms aggregate the demands of many buyers and provide economies of scale.

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

Use of multiple types of planes

Which of the following would likely lower antitrust scrutiny?

Utilizing alliances and joint ventures over mergers and acquisitions

Under what circumstance would it be logical to leave contracts vague and open-ended?

When performance may be ambiguous or difficult to measure.

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

Worker turnover is generally lower

Relaxing of government regulation of economic activities occurred during the second half of the 20th century for all of the following except:

Workplace safety