ECO4104 Exam 1
What was one of the first plant/factory types to use the "American System" of manufacturing?
a a) Firearms b) Steel c) Oil d) Automobiles e) Chemicals
Which of the following practices does not contribute to the strategic fit of Southwest Airlines?
b a) No in-flight catering b) Use of multiple types of planes c) No use of congested airports d) Re-engineered boarding process e) No first class section on plane
What is an independent outsourcing partner often called?
d a) Downstream firm b) Financial firm c) Partner firm d) Market firm e) Co-firm
The minimum point on a U-shaped average cost curve is known as which of the following?
d a) Efficient marginal cost (EMC) b) Lowest price alternative (LPA) c) Efficient production cost (EPC) d) Minimum efficient scale of production (MES) e) Minimum threshold cost (MTC)
Strong contract law aids the most in which of the following?
a a) Incomplete contracts b) Complete contracts c) Negotiated contracts d) Dual contracts e) None of the above
Which of the following has a downstream relationship with a Toyota Motor Corporation?
c a) Steel manufacturers b) Tire companies c) Dealerships d) Paint producer e) Car parts manufacturer
What economics game theory concept is demonstrated by the Erie Canal public works project?
e a) Nash equilibrium b) Lock-in c) Backwards induction d) Fair division e) Prisoner's dilemma
Which of the following processes is most representative of a less integrated firm on the "buy" end of the make-or-buy continuum?
a a) Arm's length market transactions b) Long-term contracts c) Strategic alliances and joint ventures d) Parent/subsidiary relationships e) Perform activity internally
Which of the following is not generally a potential benefit of diversification?
a a) Control systems rewarding/penalizing division managers based on business unit objective b) Economies of scale and scope c) Economizing on transaction costs d) Diversifying shareholder portfolios e) Identifying undervalued firms
What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?
a a) Market for corporate control b) SEC c) Corporate board d) Corporate governance e) CEO
What caused the market conditions facing the telephone to be uncertain until the 1880's?
a a) Patent conflicts b) Technology problems due to unstable electricity supplies c) Dissimilar technologies limiting interconnections between cities d) Different state laws limiting interstate expansion e) The high cost fo some components needed to manufacture telephones
What was a key factor that aided foreign steel producers in penetrating U.S. markets?
a a) Shifting demand in the economy to "lighter" products b) Invention of the basic oxygen furnace c) Development of the continuous casting process d) U.S. steelmakers' commitment to "light" products e) Development of the electric arc furnace
What do the vertical boundaries of a firm refer to?
a a) The activities the firm itself performs versus purchases from independent firms b) The level of expertise of the firm's workforce c) The breadth of products a firm produces d) The production output level for a firm e) The chain of production processes from raw materials to finished good
Which of the following is a characteristic of economies of scale?
a a) The average cost declines as output increases b) The average cost increases as output increases c) The average cost remains constant as output increases d) The average costs are cheaper when a firm produces a wider variety of goods e) The average cost curve takes the form of a U-shape
Which of the following is not a characteristic of a complete contract?
a a) The contract allows for a party to exploit weaknesses in another party's position as the transaction unfolds b) Elimination of opportunistic behaviors c) Stipulation of each party's responsibilities and rights d) Binding instruction for each party on courses of action as the transaction unfolds e) Must be enforceable
What caused railway transportation to remain the primary transportation source over trucking until World War II?
a a) The country lacked of an interstate highway system b) Rail consolidation was more extensive c) Rail was faster, safer and more reliable d) Railroads could carry goods a further distance e) Companies preferred rail transportation for their goods
What is throughput?
a a) The movement of inputs and outputs through a production process b) Assets that assist in the production or distribution of goods and services c) A condition that determines the horizontal and vertical boundaries of business firms d) An investment in the acquisition of raw materials e) The amount of time for a good to travel between metropolitan areas
Increased economies of scale and scope are helped by which of the following?
a a) Umbrella branding b) Market branding c) Bundling d) Negotiated branding e) Strategic branding
Under what circumstance would it be logical to leave contracts vague and open-ended?
a a) When performance may be ambiguous or difficult to measure. b) When one of the firms in the contract is much larger than the other firm c) If there are many other firms that can provide the same service or product d) When the cost of writing the contract is too high e) If the smaller of the two contracting firms is the upstream firm
What problem preventing complete contracts refers to the limits on the capacity of individuals to process information, deal with complexity and pursue rational aims?
b a) Agency costs b) Bounded rationality c) Performance measurement difficulties d) Asymmetric information e) Contract body of law
Relaxing of government regulation of economic activities occurred during the second half of the 20th century for all of the following except:
b a) Airline industry b) Workplace safety c) Banking industry d) Trucking e) Healthcare industry
How have late 20th and 21st century communications technologies directly created global markets from products and services?
b a) Created paperless communications b) Created seamless and instantaneous communications c) Decreased coordination for interfirm alliances d) Increased worker productivity e) Unflattened the world
What was a key contribution to the dominance of the family-run small business in 1840?
b a) Factories b) Infrastructure c) Raw Materials d) Management e) Laws
Which of the following is not a way managers generally benefit from acquisitions?
b a) Increased compensation b) Consolidation of other senior executives c) Shielding against risk d) Political power e) Social prominence
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?
b a) Infrastructure b) Product innovation c) Obtaining regulatory approval d) Customer relationship e) Manufacturing and communications
Examining which of the following is broadly considered one of the easiest ways to measure diversifying activity?
b a) Joint Ventures b) Mergers and acquisitions c) Internal Business Development d) Strategic Alliances e) Collaborative agreements
Why might a large firm actually be at an advantage over a smaller firm with respect to labor?
b a) Large generally pay a compensating differential to attract workers b) Worker turnover is generally lower c) Large firms enjoy better scale economies when negotiating with health insurance companies for health benefits d) Large firms are generally less attractive to qualified, upward mobile workers e) Large firms often have to draw workers from a greater distance to fill their ranks
What was the major role of private banks in the early 1800s?
b a) Serve as an institution for deposits b) Issue credit c) Reduce the risk of price fluctuation d) Create futures markets e) Sell stocks
What is the minimum efficient scale (MES) of production?
b a) The point on an average cost curve where the cost per unit begins to decline more rapidly b) The minimum point on a U-shaped average cost curve c) The minimum level of production at a plant for it to be considered profitable d) The level of production for a small sized plant e) The threshold at which capacity is constraining for a firm's production
Which of the following led to the development of the financial infrastructure pre- 1910?
b a) The use of "Hollerith" or punched cards to storm information b) The systemization and circulation of credit information c) The telephone allowing consumers to easily apply for credit d) The passage of the Federal Fair Credit practices Act e) None of the above
Which of the following is a reason for a firm to Buy rather than make?
b a) To eliminate competition among upstream suppliers b) Upstream firms aggregate the demands of many buyers and provide economies of scale. c) To prevent downstream competitors from reducing their prices d) Tax advantages for purchasing upstream rather than making internally e) None of the above
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?
b a) Use of internal capital markets b) Economies of scale and scope c) Economizing on transaction costs d) Diversifying shareholder portfolios e) Identifying undervalued firms
Matchmakers between manufacturers and sellers are called:
c a) Agents b) Factors c) Brokers d) Merchants e) None of the Above
Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?
c a) Cost centers have no dedicated "customer" b) Cost centers are easy to judge against market counterparts performing similar functions c) Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization d) Firms are always looking to cut costs when they retain an advantage insulting it from the market e) Managers of costs centers have significant latitude to complete their jobs
If a firm enjoys lower costs due to a complex labor-intensive process, which of the following statements would then be true?
c a) Cutbacks in volume will always raise unit costs b) The firm is unconcerned with labor turnover c) An example of this process could be the practice of anti-trust law d) The firm's average cost rises due to moving down the learning curve e) The process is likely a repetitive manufacturing process such as two-piece aluminum can manufacturing
Which of the following is not a reason a supplier might seek to sell in bulk?
c a) Each sale incurs a fixed cost in writing a contract b) The purchaser is likely to switch over a small price due to the gains over the large number of units ordered c) Each sale involves setting up a different production run d) The cost of delivery is a fixed on a per unit basis e) The supplier fears uneven sales
What does it mean for a manufacturing firm to vertically integrate?
c a) Expand using established product technologies to offer a wider variety of products b) Reorganize management into semi-autonomous divisions c) Produce raw materials and distribute finished goods on their own d) Geographic distance between buyers and sellers e) Use management consultants to optimize processes
What significant transportation event brought about the first significant growth of the Great Lakes region?
c a) Harnessing of the steam engine b) Invention of the screw propeller c) Opening of the Erie Canal d) Integration of railway system e) Invention of the railway system
Consolidation of managers often occurs due to which of the following?
c a) Increased compensation for senior managers b) Lower costs in the vertical supply chain c) Mergers and acquisitions d) Increased political power of senior managers e) Social prominence of middle managers
How does umbrella branding aid economies of scale and scope?
c a) Increases effectiveness of advertising due to a greater presence b) Increases effectiveness of advertising due to national advertising c) Increases effectiveness of advertising due to offering a broad product line under one name d) Increased cost effectiveness through purchasing as a cooperative e) Increased cost effectiveness through bulk purchasing
Which of the following encouraged firms to develop through internal R&D rather than through M&A in the 20th century?
c a) Lower wage costs for internal labor compared to merged or acquired labor b) Faster results obtained with R&D c) Federal antitrust policies d) Lack of financial capital to engage in M&A e) High transactions costs associated with M&A activity.
Which of the following is a method firms can use to counteract price fluctuations and eliminate income risk?
c a) Manufacture all needed inputs internally b) Acquire upstream firms in the vertical chain c) Enter into futures contracts to hedge the price of raw materials d) Eliminate competitors by under-cutting their price e) None of the above
Which of the following is not a result of the holdup problem?
c a) More difficult contract negotiations and more frequent renegotiations b) Investments to improve ex post bargaining positions c) Reduction in the transaction costs of arm's length market exchanges d) Distrust e) Reduced investment in relationship-specific investments
Which of the following would likely lower antitrust scrutiny?
c a) Predatory pricing tactics b) Utilizing mergers and acquisitions over alliances and joint ventures c) Utilizing alliances and joint ventures over mergers and acquisitions d) Incomplete contracting e) Complete contracting
Which of the following led to overbuilding of railroads in the 1860's and 1870's?
c a) Reduction of taxes on railroads by the federal government b) The success of railroads in Europe c) The availability of financing due to public optimism d) The low cost of labor to construct railroads e) Increases in regulated freight rates by the Interstate commerce Commission
What form of communication was integral to the growth of multistory headquarter buildings?
c a) Telegraph b) Mail c) Telephone d) Morse code e) Intercom
Economies of scale are best described as which of the following?
c a) The average cost remains constant as output increases b) The average cost increases as output increases c) The average cost declines as output increases d) The average costs are cheaper when a firm produces a wider variety of goods e) The average cost curve takes the form of a U-shape
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?
c a) Use of internal capital markets b) Economies of scale and scope c) Economizing on transaction costs d) Diversifying shareholder portfolios e) Identifying undervalued firms
What is a key issue facing managers of the 2000s with respect to production technology?
c a) Using the technology while maintaining an adequate level of complexity vs. simplicity b) Balancing price of the technology with the benefits of its use c) The choice between reformulating strategies and reorganizing or using the technologies for incremental improvements d) Integrating CAD/CAM into their factories e) Ensuring all parties understand the technology
By simultaneously halting air traffic and financial markets, what recent historical event highlighted the interdependence company infrastructure?
d a) 2000 Presidential Election b) 2004 Olympics c) Fall of Enron d) September 11, 2001 e) Hurricane Katrina
What problem preventing complete contracts refers to a lack of transparency/equal access to the details surrounding a contract?
d a) Agency costs b) Bounded rationality c) Performance measurement difficulties d) Asymmetric information e) Contract body of law
The movement of inputs and outputs through a production process is known as which of the following?
d a) Coordination b) Input-output c) Integration d) Throughput e) Systemology
Why is firm specific learning better in general for an organization?
d a) Encourages individuality among workers within the organization b) Keeps unionized workers happy c) Allows workers to acquire skills they can then "shop around" d) Ensures worker knowledge is tied to current employment e) Increases complexity and creativity in the organization
Which of the following is a true argument regarding the make-or-buy decision process?
d a) Firms should make an asset, rather than buy it, if that asset is a source of competitive advantage for the firm b) Firms should buy, rather than make, to avoid the costs of making the product c) Firms should make, rather than buy, to avoid paying a profit margin to independent firms d) 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 e) Firms should make, rather than buy, because a vertically integrated producer will be able to avoid paying high market prices for the input during periods of peak demand or scarce supply
Long term contracts with suppliers can help a firm with which of the following?
d a) Manufacture all needed inputs internally b) Acquire upstream firms in the vertical chain c) Acquire downstream firms in the vertical chain d) Counteract raw material price fluctuations and eliminate income risk e) None of the above
What was the most significant development to the evolution of business circa 1910?
d a) Railroad integration b) Telegraph communication expansion c) Banking and accounting standard practices d) Mass-production technology e) Advent of steam technology in railroads and shipping
What are economies of density as referred to in the airline industry?
d a) Reducing the size of an aircraft used to increase load factor b) Economies achieved by an airline flying from spoke to spoke in a hub-and-spoke network c) Economies of scope along a given route d) Economies of scale along a given route e) Reductions in average cost as traffic volume decreases
Which of the following best describes economies of scope?
d a) The average cost declines as output increases b) The average cost increases as output increases c) The average cost remains constant as output increases d) Savings are achieved when a firm produces a wider variety of goods e) Savings are achieved when a firm produces a decreased variety of goods
Which of the following is generally a way that LBOs can help a firm realize its potential value
d a) The synergies created allow for cost savings b) The transaction reduces the disparity between a firm's actual and potential share price c) The acquisition reduces the likelihood of competition in the industry d) The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds e) The buyout gives an opportunity to adjust the management structure and makeup
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?
d a) Timing fit b) Size fit c) Color fit d) Sequence fit e) Price fit
What mode of long-distance communication first laid the groundwork for today's modern communication forms?
d a) U.S. Postal Service b) Private mail service c) Telegraph d) Telephone e) Railroad
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?
d a) Use of internal capital markets b) Economies of scale and scope c) Economizing on transaction costs d) Diversifying shareholder portfolios e) Identifying undervalued firms
Which of the following did not contribute to the high transaction related risks for U.S. potato sales in 1840?
d. a) Infrequency of transactions b) Changing transaction partners c) Lack of availability of sales and prices for comparable goods d) Competition from European merchants e) Geographic distance between buyers and sellers
Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?
e a) Arm's length market transactions b) Long-term contracts c) Strategic alliances and joint ventures d) Parent/subsidiary relationships e) Perform activity internally
What is a benefit of alliances and joint ventures over mergers and acquisitions?
e a) Better organizational structure b) Scale savings c) Less vertical integration d) Less horizontal integration e) Lower likelihood of antitrust scrutiny
When contracts are incomplete, what must be well defined and enforceable to allow for smooth transactions to occur?
e a) Contract performance measures b) Contract roles c) Contract costs d) Contract triggers e) Contract law
Which of the following did not contribute to the dominance of the family-run small business in 1840?
e a) Factories b) Laws c) Raw Materials d) Management e) All of the above
What is a market firm?
e a) Firm representing a particular industry b) Financial firm c) Subsidiary of the larger parent firm d) Large scale firm e) An independent outsourcing partner
What primary agency cost problem plagued the partnership between Sony's hardware and software from 1998-2008 with regards to digital music?
e a) High infrastructure costs b) Contract disputes c) High transaction costs d) Overlapping distribution channels e) Manager/worker slacking
How does carrying inventories contribute to economies of scale?
e a) Increases the interest on the expenses to produce the inventory b) Inventory depreciates in value while waiting to be used or sold c) Increases the storage facilities necessary d) Increases competition with rivals for customers e) Minimizes the chance of stock-out
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?
e a) Integration level b) Rumelt score c) Conglomerate level d) Activity share e) Relatedness
Diversifying activity is most often measured by looking at which of the following?
e a) Joint Ventures b) Collaborative agreements c) Internal Business Development d) Strategic Alliances e) Acquisition and merger activity
Which of the following is a source of diseconomies of scale at a large firm?
e a) Labor costs b) Spreading specialized resources too thin c) Conflicts of interest d) Incentive processes e) All of the above
Which of the following is not a method to protect intellectual property?
e a) Patents that are specific and complete b) Complete contracts regarding IP with all suppliers c) Non-disclosure agreements for employees d) Limiting access to IP to a few key employees e) Charging higher prices to limit access to IP
Which of the following facets of modern financial infrastructure came as a result of deregulation in the 1970s and 1980s?
e a) Separation of commercial and investment banking b) Enhanced role of central banks c) Increased regulation of securities markets d) Supply of debt and equity funding for firms that could not fund themselves through retained earnings e) The availability of large investment funds facilitating M&A to flourish
Which of the following is not a product specific fixed cost?
e a) The cost to manufacture a special die to make an aircraft fuselage b) The cost of developing graphics software to facilitate video game development c) The cost of a one-week training program preceding the implementation of a specific management initiative d) The time and expense required to set up a textbook before printing it e) The cost of administrative expenses
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?
e a) Use of internal capital markets b) Economies of scale and scope c) Economizing on transaction costs d) Diversifying shareholder portfolios e) Identifying undervalued firms
