ECO4103 pt. 2

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

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

Consolidation of other senior executives

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

Consolidation of other senior executives

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

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

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 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

How does umbrella branding aid economies of scale and scope?

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

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 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

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)

5. 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

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

The average cost declines as output increases

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

The average cost decreases as output increases

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

The cost of administrative expenses

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

The minimum point on a U-shaped average cost curve

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

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

Umbrella branding

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