ECON 5312 Chap. 2

5. What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners? a) Market for corporate control b) SEC c) Corporate board d) Corporate governance e) CEO

a) Market for corporate control

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

a) The average cost declines as output increases

8. 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? 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

a) Use of internal capital markets

7. 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? 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

b) Economies of scale and scope

15. By satisfying which of the following conditions can shareholders prevent management driven acquisitions? a) If shareholders could determine which acquisitions will lead to increased profits and which will not b) If shareholders could direct management to undertake only those acquisitions that will increase shareholder value c) If shareholders could provide management with the appropriate steps to conduct when performing acquisitions d) a & b e) None of the above

b) If shareholders could direct management to undertake only those acquisitions that will increase shareholder value

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

b) Use of multiple types of planes

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

b) Worker turnover is generally lower

13. What is the approximate observed median learning curve slope for typical firms? a) .6 b) .7 c) .8 d) .9 e) 1.0

c) .8

9. How does umbrella branding aid economies of scale and scope? 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

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

4. What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs? a) Short-run economies of scale b) Short-run economies of scope c) Long-run economies of scale d) Long-run economies of scope e) Partially automated economies

c) Long-run economies of scale

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

c) Mergers and acquisitions

What are economies of density as referred to in the airline industry? 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

d) Economies of scale along a given route

2. Which of the following is generally a way that LBOs can help a firm realize its potential value? 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

d) The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds

17. Diversifying activity is most often measured by looking at which of the following? a) Joint Ventures b) Collaborative agreements c) Internal Business Development d) Strategic Alliances e) Acquisition and merger activity

e) Acquisition and merger activity

11. Which of the following is a source of diseconomies of scale at a large firm? a) Labor costs b) Spreading specialized resources too thin c) Conflicts of interest d) Incentive processes e) All of the above

e) All of the above

14. What institution within a firm must fail on some level for managers to be motivated to acquire another firm for the purposes of increasing their own compensation, shielding themselves against risk, or gaining prominence by running a larger firm? a) Legal department b) Corporate board c) Mergers and acquisitions program d) Firm bonus schedule e) Corporate governance

e) Corporate governance

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? a) Integration level b) Rumelt score c) Conglomerate level d) Activity share e) Relatedness

e) Relatedness