449 Exam 1
5. Suppose an entrepreneur starts a business earning $2M in revenue in 2009 while at the same time incurring $1.8M in costs. If the entrepreneur's best outside alternative employment opportunity is to earn $300K, what are the firms accounting and economic profits? a) $200K, -$100K b) $200K, $100K c) $300K, $100K d) $300K, -$100K e) $200K, $200K
a) $200K, -$100K
2. If a firm is producing as efficiently as it knows how, then how will the total cost function slope? a) Upward b) Downward c) No Slope d) Downward until an output threshold value, then upward e) Upward until an output threshold value, then downward
a) upward
8. Which of the following would be the range of elasticity for a product with an "inelastic" demand? a)η< 1 b)η = 1 c)η > 1 d)η > 2 e) none of the above
a)η< 1
Which of the following best describes marginal cost? a) The per-unit-of-output cost for a product b) The incremental cost of producing one more unit of output. c) A cost invariant to the firm's output d) The sum of all costs associate with the production of a product e) The cost of fixed items such as general and administrative expenses
b) The incremental cost of producing one more unit of output.
3. If TC(Q)=1000Q2+100Q+10, what is the formula for AC(Q)? a) 2000Q+100 b) 2000Q2+100Q c) 1000Q2+100Q+10 d) 1000Q+100+10/Q e) 100Q+10+1/Q
d) 1000Q+100+10/Q e) 100Q+10+1/Q
7. 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
e) MR=MC
10. Which of the following would not be a characteristic of a good with an elastic demand? a) The product lacks unique features that differentiate it from competing products b) The product is a high percentage of a consumer's total expenditures c) The good is an input used to make a product that is sensitive to changes in price d) There are many substitutes available for the good e) The product has high switching costs
e) The product has high switching costs
12. Which characteristic is present in 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) Firms can enter and exit the market very easily e) all of the above
e) all of the above
1) Keeping in mind Apple's competitive advantage, which of the following products was 1) introduced by Apple in 2007? A) iPhone B) iTunes C) iPod D) iPad
A) Iphone
6) Cuisine Pro Inc. is a company that manufactures consumer electronics like 7) refrigerators, washing machines, and dishwashers. Which of the following best illustrates a product-oriented vision for Cuisine Pro? A) To be the pioneering manufacturer of home and kitchen appliances B) To allow everyone to have the luxury of domestic technology C) To help people save time and energy spent on household chores D) To make people's life simple and easy
A) To be the pioneering manufacturer of home and kitchen appliances
19) In the top-down strategic planning approach, all strategic intelligence and 22) decision-making responsibilities rest primarily on the . A) chief executive officer B) functional managers C) external stakeholders D) general manager
A) chief executive officer
Underperformance relative to other firms in the same industry or the industry average results in a(n) ________ for a firm. A) competitive disadvantage B) sustainable competitive advantage C) increased power distance D) diseconomies of scope
A) competitive disadvantage
Industry effects describe the underlying ________ structure of the industry. A) economic B) ethnographic C) psychographic D) demographic
A) economic
11) As a part of strategy formulation, corporate strategy concerns questions relating to: A) where to compete. B) how to implement the business strategy. C) why we should compete. D) how to compete.
A) where to compete.
10) The CEO of True West Products Inc. (TWC) is a company that sells a wide range of 12) products. It has decided to enter the markets of emerging nations like China and Brazil. This means that the cars, consumer electronics, and services such as hotels included under the TWC banner would be made available in these nations. Which of the following strategies does this scenario best illustrate? A) Divisional strategy B) Corporate strategy C) Business strategy D) Functional strategy
B) Corporate strategy
4) To be effective, firms need to: 5) A) isolate top managers from the organizational values. B) back up their visions with strategic commitments that are costly and difficult to reverse. C) pursue visions that are exclusively financial and not aspirational. D) increase their strategic flexibility by developing product-oriented vision statements.
B) back up their visions with strategic commitments that are costly and difficult to reverse.
9) As a part of strategy formulation, a firm's functional strategy primarily concerns 11) questions relating to: A) where to compete. B) how to enter target markets. C) how to implement business strategy. D) when to compete.
C) how to implement business strategy.
2) ________ is best described as a set of goal-directed actions a firm takes to gain and 2) sustain superior performance relative to competitors. A) Credo B) Competency management C) Strategy D) Behavior modification
C) strategy
3) In ________, a firm frames a guiding policy to address the competitive challenge. A) strategy implementation B) strategy control C) strategy formulation D) strategy analysis
C) strategy formulation
If SA Pharmaceuticals obtains an 18 percent return on invested capital, which of the 8) following will help determine if it has a competitive advantage over other pharmaceutical companies? A) Assessing the value based on the shareholders' expectations of return on their capital B) Comparing the return to the return on invested capital obtained by other firms in the industry C) Evaluating the liquidity ratios for other pharmaceutical companies D) Comparing the value to the history of the firm's return of investment over a number of years
Comparing the return to the return on invested capital obtained by other firms in the industry
13) Which of the following statements is true of corporate strategy? 16) A) A corporate strategy must be able to create synergies across business units that are quite different. B) The objective of corporate-level strategy is to ensure that the sum of the values of individual business units is greater than the overall corporate value. C) Formulating a corporate strategy involves general managers answering questions relating to how to compete in order to achieve superior performance. D) Deciding whether to adopt a differentiation or a cost-leadership strategy is part of formulating the corporate strategy.
A) A corporate strategy must be able to create synergies across business units that are quite different.
Orange Synergy Inc. is a company that manufactures a variety of products that run on 3) solar power. The company wants to ensure that solar technology replaces all forms of exhaustible energy sources in the near future. Which of the following statements will make an accurate vision for Orange Synergy? A) All nations around the globe should have access to a sustainable energy source. B) We provide energy-efficient sources and services by investing in research and innovation. C) We make products that run on solar energy. D) The company aims to make working fun and pleasurable for its employees.
A) All nations around the globe should have access to a sustainable energy source.
True Cinemas Inc. and Digi Future Inc. are two companies that own and run movie 13) theaters in malls and other commercial areas. While True Cinemas Inc. pursues a cost-leadership strategy, Digi Future Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario? A) Digi Future and True Cinemas will not be direct competitors to each other and their customer segments will overlap very little. B) True Cinemas and Digi Future will use a similar approach to create value for customers by attempting to offer everything to everybody. C) True Cinemas will charge a premium price for its customers while Digi Future will implement everyday low pricing. D) Digi Future will keep its customer service at an acceptable level while True Cinemas will provide superior customer service.
A) Digi Future and True Cinemas will not be direct competitors to each other and their customer segments will overlap very little.
8) Pioneer Pharma Inc. and GH Medicines Corp. are two competing firms in the 9) pharmaceutical industry.While Pioneer Pharma Inc.'s vision is "to be a preeminent drug manufacturer in the industry," GH Medicines Corp.'s vision is "to make good health a reality for everyone around the world." Which of the following is an implication of these different visions? A) GH Medicines will be more flexible than Pioneer Pharma when adapting to changing environments. B) Pioneer Pharma's vision is more long-term and futuristic than GH Medicines' vision. C) GH Medicines' vision is more product-oriented than the vision of Pioneer Pharma. D) Pioneer Pharma is more likely to have a positive relationship between its vision and firm performance than GH Medicines.
A) GH Medicines will be more flexible than Pioneer Pharma when adapting to changing environments
23) Which of the following methods of developing a strategy best illustrates scenario 26) planning? A) The managers at Vion Autos Inc. formulated a strategy to tackle any increasein the prices of aluminum sheets in the future. B) The CEO of DHP Inc., a large conglomerate, has decided to enter the Asian market based on the competitor's success in the same market. C) A sales personnel of GL Foods Inc. suggested that the company shouldintroduce a baked version of its potato wafers to cater to the needs of the increasing health-conscious population. D) Based on the previous year's profits, the CEO of Kelvon Inc. decided to adopt an expansion strategy in its home market.
A) The managers at Vion Autos Inc. formulated a strategy to tackle any increasein the prices of aluminum sheets in the future.
Which of the following statements accurately describes firm effects? 15) A) They attribute firm performance to the actions managers take within a chosen industry. B) They refer to the external circumstances surrounding all the firms in an industry. C) They attribute firm performance to the industry in which the firm competes. D) They refer to the value-creation potential of a large, diversified enterprise.
A) They attribute firm performance to the actions managers take within a chosen industry.
For a firm that operates in an industry where competition is high, which of the 11) following practices will result in inferior performance? A) Trying to be everything to everybody by combining different competitive strategies B) Choosing a distinct but different strategic position in the industry C) Working toward increasing the difference between value creation and cost D) Focusing on creating value for customers rather than destroying rivals
A) Trying to be everything to everybody by combining different competitive strategies
True Help is a non-profit organization that works toward rehabilitating the homeless. The 4) credo of the organization is "help us help you." For an organization like True Help, which of the following statements would make an appropriate mission? A) One day, everyone in this nation will have a home to protect themselves. B) We help the homeless gain and sustain financial independence by providing employment opportunities. C) Help us help you find a home. D) Our mission is to turn this not-for-profit organization into a for-profit organization so that the stakeholders are benefited.
B) We help the homeless gain and sustain financial independence by providing
14) The regional head for First Electronics Inc. in New Dalvia has decided to sell the 17) company's products directly through company-owned stores because the distribution system in the market is primitive. In six other markets, however, the company will continue to operate through a franchise system. Thus, this decision made by the regional head at New Dalvia will be considered as a . A) functional strategy B) business strategy C) tactical strategy D) corporate strategy
B) business strategy
15) Due to political instability in the country of United Mapa, the strategic leaders at the 18) headquarters of FT Supplies Inc. have decided to divest the company's business from the foreign market in United Mapa. This decision would be applicable to all the business units of FT Supplies Inc. operating in United Mapa. Thus, this is a A) divisional strategy B) corporate strategy C) business strategy D) functional strategy
B) corporate strategy
20) A traditional top-down strategic planning process typically begins with: 23) A) functional managers formulating functional strategies for their respective departments. B) strategic leaders adjusting a company's vision and mission based on environmental analysis. C) employees who have close contact with customers taking autonomous actions. D) employees at the operational level identifying problems within an organization.
B) strategic leaders adjusting a company's vision and mission based on environmental analysis.
5) Visionary companies are able to outperform their competitorsbecause: A) their visions are exclusively financial. B) they provide more aspirational visions. C) they isolate internal stakeholders in defining their visions. D) their vision statements are more product-oriented.
B) they provide more aspirational visions.
16) Carrvour Inc. is a company that manufactures steel, cement, cars, and consumer electronics under a single brand. The top management at Carrvour has decided to enter the banking and insurance industry based on its assessment of the profit potential in that industry. Which of the following strategies does this best illustrate? A) Divisional strategy B) Business strategy C) Corporate strategy D) Functional strategy
C) Corporate strategy
7) Which of the following statements is true of customer-oriented visions? 8) A) Customer-oriented visions identify how a customer need will be met. B) Customer-oriented visions reduce a company's ability to adapt to a changing environment. C) Customer-oriented vision statements are not the same as listening to your customer. D) Customer-oriented visions define a business in terms of goods or services provided.
C) Customer-oriented vision statements are not the same as listening to your customer.
Which of the following statements about strategy is NOT true? 12) A) Grandiose statements of desire, on their own, are not strategy. B) Strategy is as much about deciding what not to do, as it is about deciding what to do. C) Operational effectiveness and competitive benchmarking should be treated as strategy. D) Strategy is about creating superior value, while containing the cost to create it.
C) Operational effectiveness and competitive benchmarking should be treated as strategy.
19) Which of the following is NOT an example of a software company's external 19) stakeholder? A) Alliance partners B) Creditors C) Project managers D) Customers
C) Project managers
26) In Strategy Highlight 2.2, what type of strategy did Diana, the Starbucks store manager in 31) southern California, use to develop the new iced beverage for her store? A) She used scenario planning. B) She created a dominant strategy plan. C) She used an emergent strategy. D) She used a rational planning approach to strategy planning.
C) She used an emergent strategy.
17) T & R Autos Inc. is a large conglomerate that operates in 12 different countries. The corporate executives at the headquarters have decided that the company's objective for the next two years will be to increase its customer equity. Based on this guideline received from the top management team, the product leader of the home appliances division has decided to adopt a cost leadership strategy in all his 12 units. Thus, the decision made by the product leader best illustrates a . A) functional strategy B) corporate strategy C) business strategy D) grand strategy
C) business strategy
5) A firm that achieves superior performance relative to other firms in the same industry 5) or the industry average has a(n) ________. A) equity leverage B) power position C) competitive advantage D) balanced scorecard
C) competitive advantage
The first step in the strategic management process is to: 1) A) develop functional and business level strategies. B) put the guiding policies of a firm into practice. C) define a firm's vision, mission, and values. D) understand the strategies of the competitors.
C) define a firm's vision, mission, and values.
20) Pure Food Inc., a multinational company, relies on its media partner Radio Ex to 20) regularly advertise its offers, sales, and new products. Radio Ex is invested in this relationship because it generates most of its revenue from advertising Pure Food's products. In this scenario, Radio Ex is Pure Food Inc.'s ________. A) stockholder B) internal stakeholder C) external stakeholder D) workforce
C) external stakeholder
18) Stakeholder strategy is an integrative approach to managing a diverse set of 18) stakeholders effectively in order to ________. A) single-mindedly focus on the stockholders alone B) minimize the difference between value creation and cost C) gain and sustain competitive advantage D) minimize the joint value created
C) gain and sustain competitive advantage
25) Teddiez Inc. is a company that manufactures and sells stuffed toys. It sources its 6 materials from another country to keep costs low. Asales personnel in one of its retail stores noticed that there was increasing concern regarding the potential toxicity of the materials in the dolls. In response, she found an economical, organic, and non-toxic cloth filling that the company could use. When her manager learned about this, he presented the prospect and got it approved from the top management team. This is an example of the: A) reverse engineering process. B) top-down strategic planning approach. C) planned emergence approach. D) scenario planning process.
C) planned emergence approach.
22) The executives at Red Couture Inc. are developing strategic plans to address plausible 25) future situations like rise in the prices of cotton and synthetic fabrics by 20 percent, appreciation in the value of dollar, increase in the cost of labor by 30 percent, and increase in demand for the company's products. By doing so, the company will be well- prepared with its planned responses if any of these situations occurs in the future. Thus, Red Couture is employing strategy. A) top-down strategic planning B) reverse engineering C) scenario planning as the approach to the development of D) pattern recognition
C) scenario planning as the approach to the development of
18) How are the two approaches namely strategic planning and scenario planning different from strategy-as-planned-emergence approach? A) Unlike strategic planning and scenario planning, strategy as a planned emergence model does not begin with a strategic plan. B) Unlike strategic planning and scenario planning, strategy as a planned emergence model is a rational top-down planning approach. C) Strategy as a planned emergence model was introduced before strategic planning and scenario planning. D) Relative to strategic planning and scenario planning, strategy as a planned emergence model is a less formal and less stylized approach to the development of strategy.
D) Relative to strategic planning and scenario planning, strategy as a planned emergence model is a less formal and less stylized approach to the development of strategy.
12) In a large company, who is most responsible for devising the corporate strategy? 15) A) The lower-level employees in the company B) The head of the production department in the company C) The human resource manager in the company D) The CEO of the company
D) The CEO of the company
Which of the following forces tends to be more important in determining a firm's 16) performance? A) The entry barriers in the industry B) The underlying economic structure C) The number and size of other firms in the industry D) The actions of managers within the firm
D) The actions of managers within the firm
24) Scenario planning typically begins with managers: 29) A) building a portfolio of future strategic options. B) executing a dominant strategic plan. C) developing different strategic plans to address possible future scenarios. D) brainstorming to identify multiple plausible futures.
D) brainstorming to identify multiple plausible futures.
10) Exis Inc. and Stelma Inc. are two companies that have been manufacturing typewriters 10) for almost 30 years. Due to the reduced demand for typewriters today, both companies' average return on invested capital is approximately -5 percent. The current industry average is 2 percent. In this scenario, Exis Inc. and Stelma Inc. most likely have: A) economies of scope instead of economies of scale. B) competitive advantage over other firms in their industry. C) strategic alliance with each other. D) competitive parity with each other.
D) competitive parity with each other.
21) Top-down strategic planning works best when the: 24) A) events in the future are highly unpredictable. B) lower-level employees in an organization are highly empowered. C) past cannot be used to predict the future. D) environment does not change much.
D) environment does not change much.
27) Top-down strategic planning as an approach to the strategic management process will 32) be most effective when the: A) environment is constantly changing. B) probability of black swan events is high. C) top management wants to decentralize decision making. D) size of the firm is large.
D) size of the firm is large.
4) Through ________, a firm puts its guiding policy into practice by employing a set of coherent actions. A) strategy formulation B) strategy analysis C) strategy contro D) strategy implementation
D) strategy implementation
Lower-level employees focus mainly on when a firm is using top-down or 33) scenario planning as an approach to the strategic management process. A) strategy analysis C) strategy formulation B) strategy initiation D) strategy implementation
D) strategy implementation
Derek, a retired CEO, invests capital in a start-up company that creates mobile 17) applications. He mentors the entrepreneur and the employees of the company because he wants the company to perform well and survive in the market. Thus, Derek is the start-up company's ________. A) headhunter B) stakeholder C) employee D) category captain
Stake Holder
7) Which of the following scenarios illustrates a firm that has a sustainable competitive advantage? A) SM Inc. almost doubled its sales to 8500 units this year compared to its previous year's sales of 5000 units, though the industry average is 10,000 units. B) Newon Inc. generated a revenue of $300,000 this financial year, which is close to the industrial revenue average of $320,000. C) TrueLink Corp. was able to hold its market share of 68 percent in the social networking industry for more than three years. D) Max Electrova Inc. was able to outperform its competitors with its new production system, in terms of revenue, for a brief period of four months.
TrueLink Corp. was able to hold its market share of 68 percent in the social networking industry for more than three years
6. Which of the following best describes marginal revenue? a) How sales revenue varies as a function of how much product is sold b) The incremental sales from producing one more unit of output c) Rate of change in total revenue that results from the sale of ΔQ additional units of output d) The total sales for a given product based on plant output e) Percentage change in quantity divided by percentage change in price
c) Rate of change in total revenue that results from the sale of ΔQ additional units of output
1. The basic law of demand says that all other things being the same, _______________________. a) The lower the price of a product, the less of it consumers will purchase b) The higher the price of a product, the less of it consumers will purchase c) The lower the price of a product, the more of it consumers will purchase d) The higher the price of a product, the more of it consumers will purchase e) The greater the number of units of a product sold in the past, the more of it consumers will purchase that product in the future
c) The lower the price of a product, the more of it consumers will purchase
11. Which of the following would be the range of elasticity for a product with an "elastic" demand? a)η< 1 b)η = 1 c)η > 1 d)η > 2 e) none of the above
c)η > 1
9. In what special situation might the law of demand not hold? a) In a perfectly competitive market b) When there is a high price elasticity of demand c) When MR=MC d) If high prices confer prestige
d) If high prices confer prestige
6) Cadia Foods Inc. was the first company to start selling energy drinks in its country—a 6) product that gained popularity among diverse groups. Soon, other companies started to sell their own brands of energy drinks, thereby giving Cadia Foods ample competition. In response, Cadia Foods decided to limit its variety of energy drinks to only two. However, it ensured that these two flavors were free of calories and low in cost. With this innovation, Cadia Foods Inc. consistently outperformed its competitors for ten years. In this scenario, Cadia Foods Inc. has maintained a ________ through its innovative strategy. A) fiduciary responsibility C) consistent power position B) balanced scorecard D) sustainable competitive advantage
sustainable competitive advantage
