Multiple Choice Questions

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Multiple Choice Questions Question 1: Vertical and horizontal differentiation are economically similar because: (a) It is always optimal in both cases to “flood the market” with many product varieties (b) They both involve a tradeoff between avoiding rivalry from current competitiors and rivalry from future competitiors (c) They both involve a tradeoff between making products consumers are willing to pay more for, and avoiding price competition from rival firms (d) They both are a common way of avoiding fixed costs Question 2: The product life cycle is likely most important to planning firm strategy if (a) Process R&D is relatively successful in reducing unit costs (b) Product R&D is relatively unable to reduce unit costs (c) Process R&D is relatively unable to reduce unit costs Question 3: Which of the following four are most likely to be a source of sustainable strategic advantage for a firm? (a) Paying higher wages in order to incentivize worker effort (b) Expanding the size of the factory in order to lower unit costs via economies of scale (c) Aligning hiring, pricing and production so that the combination is only efficient if each of the three aspects are copied (d) Selling higher-cost premium products rather than mass market products Question 4: According to Value Capture Theory logic, which of the following would most directly increase the lower bound of a parts supplier in the automobile market? (a) The parts supplier discovers a new type of sparkplug that becomes highly demanded by tractor manufacturers. (b) The parts supplier increases funding to a marketing campaign that increases their brand visibility among automobile manufacturers. (c) The parts supplier enters into a price war with another parts supplier. (d) The parts supplier hires a skilled negotiator to bargain over the profit split with an automobile manufacturer that buys its parts. Question 5: Which of the following tradeoffs is most likely to be a source of sustainable strategic advantage for a firm? (a) A fast casual restaurant decides to open a drive-through window, resulting in slower order delivery to drive-through and sit-down customers.

(b) A pastry shop decides to limit its production to French pastries after hiring the city’s only expert French pastry chef. (c) A hotel chain decides to enter a price war with another hotel chain. (d) A traditional university decides to go entirely online to lower their fixed costs and become more operationally efficient. Question 6: In the value capture framework, the lower bound on a firm’s profits in a market is determined by (a) The skill of a firm’s salespeople (b) Competition for the firm, from other markets or groups of players in the current market (c) The firm’s added value, or the difference between the economic surplus generated when the firm exists and the surplus generated when the firm does not exist (d) A simpler factor: in any market, it is possible for a firm to earn zero Question 7: Loyalty discounts are most likely to be a good pricing strategy in which of the following markets? (a) Gas stations (b) Office software (c) Microbreweries (d) Ultra-luxury clothing stores Question 8: Consider the firm Kellogg’s which produces a variety of brands of breakfast cereals including Special K, Fruit Loops, Rice Crispies and Frosted Flakes. Kellogg’s cereals currently sell only in large retail grocery stores. From Kellogg’s perspective, which of the following c ould represent an increase in the lower bound of Kellogg’s range of profits: (a) The addition of breakfast smoothies to the menu in all Starbucks locations (b) The introduction of new cereal brands by General Mills, another cereal manufacturer (c) The addition of a new line of drinkable yogurt by yogurt manufacturer Yoplait (d) The introduction of supercenters, which are a new retail format combining general merchandise with grocery items, by Wal-Mart Question 9: Price match guarantees are best used when (a) with a price match guarantee, rivals have less incentive to undercut you on price (b) they “lock in” existing customers and make them prefer your product in particular above the product sold by rivals (c) they serve as a form of horizontal differentiation (d) by making it so consumers don’t have to search for a good deal, willi ngness-to-pay goes up

Question 10: In the value capture model, suppose there are two identical firms, 1 buyer, and 1 supplier. Both firms produce the same good, for which the consumer has a willingness to pay of 100 and the supplier has costs of 5. The added value of the buyer in this market is: (a) 95 (b) 0 (c) 100 (d) 5 Question 11: In the value capture framework, the upper bound on a firm’s profits in a market is determined by (a) The skills of a firm’s salespeople (b) The firm’s added value, or the difference between the economic surplus generated when the firm exists and the surplus generated when the firm does not exist (c) Competition for the firm, from other markets or groups of players in the current market that compete to work with the firm Question 12: Which of the following industry is most likely to follow product life cycle? (a) Tourism (b) Personal computer (c) Fashion (d) Insurance Question 13: Coasian bargaining (Coase theorem) posits that ownership is unimportant for achieving an efficient outcome when two firms bargain in the face of externalities. Residual control rights theory suggests that assigning ownership to one firm is critical to solving non-contractibility problems in firm relationships. Why is ownership unimportant in one theory and critical in the other? (a) Coasian bargaining was the foundation for the Resource Based View, which ignores asset ownership. Residual control rights theory was the foundation for the Knowledge Based View, which requires asset ownership to reach efficiency. (b) Firms that undertake Coasian bargaining require the intervention of the court system, which does not require defined ownership by either firm to reach an efficient outcome. Residual control rights assumes that courts do not exist, so ownership must be assigned to guarantee efficiency. (c) Assigning residual control rights is always more difficult than Coasian bargaining, so ownership is necessarily more critical for residual control rights. (d) Coasian bargaining assumes little to no transaction (bargaining) costs, lessening the importance of ownership in reaching efficiency. Residual control rights argues that ownership incentivizes a firm to invest in assets critical to the relationship.

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Question 14: Using Transaction Cost Theory, when would it be most likely that a firm would vertically integrate with a supplier? (a) The supplier has to m ake specialized input for the firm but the demand for the firm’s product is highly variable. (b) A firm works with a supplier to produce a commodity good. (c) A supplier locates their plant equidistant from multiple firms to lower its transportation costs. (d) A supplier decides to sell the firm a set of simple, standardized parts that are made by many suppliers in the market Question 15: According to Williamson ’ s Extension of Transaction Cost Theory, when would it be most likely that a buyer would vertically integrate with a supplier? (a) A buyer works with a supplier to produce a commodity good (b) A supplier decides to sell one buyer a set of simple, standardized parts that are made by many suppliers in the market. (c) A supplier locates their plant equidistant from multiple buyers to lower its transportation costs. (d) A supplier threatens to increase the previously agreed-upon price of a specialized input after demand for a buyer ’ s product unexpected skyrockets

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