ECON Midterm

Diversification benefits

-increases in exports -development of tech and skills -reduce price volatility and long term price declines -use of domestic resources

Based on Bresnahan and Reiss' study of the relationship between concentration and prices, how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?

3

MES of production

A manufacturing execution system (MES) is software designed to optimize the manufacturing process by monitoring, tracking, documenting, and controlling the entire production lifecycle

Which of the following is NOT a relationship-specific asset supporting a specific transaction?

A standard rental moving truck

Strategic Fit

A state in which an organization's strategy is consistent with its external opportunities and circumstances and its internal structure, resources, and capabilities.

Which of the following is a reason other than concentration that price- cost margins vary across industries?

Accounting practices, regulation, production differentiation, nature of sales transactions

What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination, agency and transaction costs?

Agency efficiency

Which of the following is not a benefit of tapered integration

Allows the firm to produce most efficiently in all circumstances

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 does NOT explain why business growth was limited in the 1840s?

Antitrust laws were beginning to be enforced

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

A firm experiences economies of scale over a range of outputs when:

Average cost is declining in output

Suppose we have two firms (Firm 1 & Firm 2) enter into a transaction where Firm 1 is upstream of firm 2 in a vertical chain. What term best describes the organization of the transaction where Firm 2 owns the assets of Firm 1.

Backward Integration

What does economizing mean in the context of vertical integration

Balancing technical and agency efficiencies in the production process

What kind of competition is generally described as price competition?

Bertrand competition

In the framework for strategy, which broad issue is concerned with what the firm should do, its size and what business it should be in?

Boundaries of the firm

What term determines when a firm sells a combination of goods and services at a price below what the individual items would cost?

Bundling

Which of the following would be the most helpful tool in determining if two products are close substitutes?

Calculating cross-price elasticity

What term best describes the paradox which says despite the conclusion says despite the conclusion that predatory pricing to deter entry appears irrational, many firms are commonly perceived as slashing prices to deter entry?

Chain-store paradox

Which of the following is not a benefit that Toys "R" Us gained through its alliance with McDonald's Japan?

Changes to Japan's Large-Scale Retail Store Law requiring MITI

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

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

What are agency costs?

Costs associated with slack effort and with the administrative controls to deter it

What empirical method generally is used to measure the degree to which products substitute for each other?

Cross- price elasticity

Which Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?

DeBeer diamonds

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

Dealerships

Which U.S. agency is responsible for preventing anticompetitive conduct?

Department of Justice

What term describes features that need to relate to each other in a precise fashion otherwise they lose a significant portion of their economic value?

Design Attributes

What type of entry exists if (1) the incumbent can keep the entrant out by employing an entry determining strategy and (2)employing the entry-deterring strategy boosts the incumbents' profits?

Deterred Entry

What term is defined as a firm selling goods as at price below their normal price (and generally below cost) usually as an export in international trade?

Dumping

Which of the following is a good justification for a firm to diversify?

Economies of scope

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 conditions would NOT tend to cause a market to approach perfectly competitive prices?

Excess capacity

What is the term defined as the withdrawal of a product from a market?

Exit

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

Federal antitrust policies

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

What firm is generally regarded as being the first to extensively use mass production processes?

Ford

Which of the following in the late 19th century was predicted by the asset specificity hypothesis?

Forward integration was most likely to occur for products that require specialized investments in human capital

The reduction of co-ordination and hold-up problem depends on:

Governance arrangements

Which of the following is a potential risk of a brand umbrella?

If a new product under the umbrella fails, consumers may become disenchanted with the entire brand.

Why is the holdup problem a potential issue in choosing to rely on the market for production?

If one party is fearful of losing money on relationship-specific assets, they can be exploited by the other in contract negotiations

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 type of strategic alliance involves two more firms creating and together owning a new independent organization?

Joint venture

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

Which of the following is a method a monopolist firm might use to prevent into a market?

Limit pricing

Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?

Limit pricing

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 is defined by the number and size distribution of the firms in a market?

Market structure

If average cost curve is U-shaped, we can say that:

Medium-sized firms will have lower costs than small and large firms

Which one of the following market structures generally has a Herfindahl index at .6 and above (usually having light competition, unless threatened by entry?

Monopoly

What type of market do the actions of individual firms materially affect the overall market?

Oligopoly

The process by which governance develops is known as

Path Dependence

A business unit was disintegrated from a parent company to become an independent market firm. However, because the managers were not used to making decisions independently, they struggled and relied on managers from the former parent company. What is this an example of?

Path dependence

In what type of market structure to sellers set identical prices and are prices generally driven down marginal cost?

Perfect competition

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

Of the following industries listed, which one is generally thought of as having the highest search cost?

Physician service

Which of the following generally accompanies firm that survives as market entrants?

Precipitous growth

mass production

Process of making large quantities of a product quickly and cheaply

What concept describes the situation where the owner of an asset grants another party the right to use the asset, but the owner retains all controlling rights that are not explicitly stipulated in the contract?

Residual rights of control

Gaizhi process

Restructuring whereby small firms are leased and sold.

Suppose there is a company that manufactures wooden chairs. Which of the following firms would be "downstream" of the manufacturer?

Retail store that sells the chair

Firm profit is determined by:

Revenue - cost

What is a reason that companies might want to "buy" instead of "make" talent from the market when looking to acquire employees with a particular skill set?

Scale economies can result in fixed education costs while in house education methods may be more expensive

What is the minimum efficient scale (MES) of a firm's average cost curve?

Smallest output level where average cost remains constant as output increases

Which of the following describes when a manufacturer produces some of an input quantity itself and purchases the remainig portion from independent firms?

Tapered integration

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

Telephone

What is a catchment area?

The area of a firms customers are defined by traditional county lines

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

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

The average cost declines as output increases

What are influence costs?

The cost of activities aimed at affecting the distribution of benefits in an organization

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

A firm experiences economies of scope when:

The firm can achieve savings by increasing variety of goods produced

Which of the following reasons describes why the airline industry sees little entry and exit from the market?

The fixed costs to enter the market are very large, established airlines already have customer loyalty, Larger regulatory hurdles

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

Why are the current health care systems on the rise being built around the integration of clinical information technology and disease management systems?

They both require asset specificity and coordination

What is the accounting concept inventory turnover as developed by Sears in the late 19th century?

To link profits to fluctuations in sales volume

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 is NOT a reason business groups may thrive in developing markets?

Well-trained managers are easy to locate

When is predatory pricing pricing a most effective entry barrier?

When a firm has a reputation for toughness or competes in multiple markets

Which of the following conditions may make predatory pricing by incumbents rational?

When entrants are uncertain about market conditions

When is reputation a most effective entry barrier?

When incumbents have long-standing relationships with suppliers and customers

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

When performance may be ambiguous or difficult to measure.

When are sunk costs a most effective entry barrier?

When the incumbent has incurred them and the entrant has not

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

Worker turnover is generally lower

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

contract law

Economies of Density

cost of hauling more is very low when vehicles don't always run full

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

The Revenue Destruction Effect in oligopolies occurs when

firms independently maximize their own profits

Fill in the blanks: "A firm wit a smaller share of the product market will benefit _____ from vertical integration than a firm with a large share of the market. Firms with multiple product lines will benefit____ from being vertically integrated in the production of shared components."

less; more

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

mass-production technology

Brokers

match buyers and sellers

Economies of Scope

savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology

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

telephone

Throughput

the amount of material or items passing through a system or process.

Contract Law

the body of law that governs contract enforcement

Corporate Governance

the system of governing a company so that the interests of corporate owners and other stakeholders are protected

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

workplace safety