MGT 247 FINAL EXAM practice questions

A small firm is developing a product whose principal input is benzoic acid, which is produced using a standardized process and there are many suppliers of the input. How should the firm get access to benzoic acid?

Direct Purchasing from 3rd party supplier

Fiat has designed a new electric car. Fiat needs frequent shipments of a specialized part used to produce the electric motor. Which scenario would most likely cause Fiat to acquire the supplier of the specialized part?

Fiat faces high uncertainty about the quality of the part and can only test it after the car is already built,

Which firms are most likely to be disrupted?

Firms whose marketing departments are very responsive to their existing customers

_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

Forward vertical integration

A firm that ends up buying a business with which it has no synergies is most likely to:

Have overpaid - bid more than it is worth to them

GM has designed a new electric car. It has asked your firm, Electro Co., to make the many of the transmission parts. GM has asked you to co-locate your facility next to the GM plant. You feel that transmission design that GM has asked for will not be useful for other automotive manufactures. GM has also been reluctant to sign a long-term contract. Which of the following best describe the issue that Electro Co. faces.

High transaction costs due to both physical and site specificity

Which of the following is a drawback of vertical integration?

It increases the potential of legal repercussions.

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

15. Which of the following argues most strongly for a firm to outsource manufacturing?

There are many low-cost contract-manufactures and monitoring their quality is easy

Which of the following statements is true of transaction costs

Transaction costs are necessary to explain and predict the boundaries of a firm.

Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?

a conglomerate

Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate?

a joint venture

Which of the following best illustrates physical-asset specificity

a machine solely designed to give a candy its trademarked shape

5. Costco can effectively reduce the costs of serving two markets by selling both to consumers and small restaurants from the same store. This is an example of:

a. Economies of scope

7. Which of the following are benefits of a functional organizational structure?

a. Fits with a cost-leadership strategy b. Centralized decision making enhances coordination and control d. Allows for functional specialization

13. Within a firm, culture norms, values, and beliefs can impact:

a. How successfully the firm can integrate an acquisition b. The ability to attract certain types of employees c. How information flows throughout the organization d. All of the above ANSWER = D

14. Which of the following is the least cause for concern for a firm considering diversifying?

a. Operational cost savings or other synergies may not be realized b. Capacity-constrained competitors will retaliate by lowering prices in the firm's current market c. Diversifying may raise the management cost of the firm d. Expanding the scope of the firm may increase firm risk ANSWER = B

10. Which of the following is not a reason why incumbents often have difficulty making the transition to a new technology following a sharp technological disruption?

a. Threat of substitutes

8. Why might a firm place an R&D division in a location with many leading universities?

a. To capture knowledge spillovers

The 'informal' organization includes all of the following:

a. culture b. communication c. norms, values, and beliefs

12. The 'informal' organization includes all of the following:

a. culture b. communication networks c. norms, values, and beliefs

A primary advantage of organizing economic activity within firms is the

ability to coordinate highly complex tasks to allow for specialized division of labor.

17. Which of the following typically exhibits higher integration costs?

acquiring a large firm

Which of the following conditions is most likely to support an unrelated diversification strategy?

b. The firm operates in a country with many types of market failures

Specialty Steel, Inc. needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S. make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of

backward integration

11. Large diversified businesses often face what is known as the "diversification discount." This means that investors

believe that the value of these firms is less than the value of the sum of their parts.

9. Which of the following is a disadvantage of a divisional structure?

c. Can create duplication which can increase costs

6. Which of the following is most likely to lead to benefits from expanding firm scope?

c. Expanding into businesses to control scarce complementary assets

7. Which of the following is not a benefit of a functional organizational structure?

c. Independent decision making at division level allows for quick reactions market changes

12. The 'informal' organization includes all of the following except:

control systems

The 'informal' organization includes all of the following except:

control systems

GreenCure Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, GreenCure Pharma invested $100 million in the project. This investment made by GreenCure Pharma will result in a

credible commitment

4. When transaction costs are high, we would expect to see:

d. Greater merger activity

We say that synergy exists when

d. the value created by the combined businesses exceeds the value the units create when working independently.

The opposite of diversification is typically called:

divestment

Which of the following best illustrates site specificity?

equipment necessary for mining bauxite and aluminum smelting

Which of the following INCREASES the likelihood that an acquisition will be successful?

form an alliance before merging

_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.

information asymmetry

Hitoro Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

licensing

Investments in specialized assets tend to incur high opportunity costs because the

threat of one of the partners pursuing his or her self-interest is high.

Which of the following is an example of an internal transaction cost?

the cost of maintaining a production unit

Which of the following is an example of an external transaction cost

the cost of searching for a contract manufacturer

A drawback of short-term contracting as an alternative to making a component in-house is that

the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

decisions relating to "what stages of the industry value chain to participate in" determine a firm's

vertical integration