Question 1

Which of the following issues makes it difficult for to managers to reign in dedicated "cost centers" in a firm?

Accepted Answer

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

Question 2

Suppose you manufacture 10 million hard drives per year specifically for Dell laptop computers.Suppose your average variable cost C=$20/unit and annualized cost of investment to build a hard drive factory I=$30 million.If Dell agrees to purchase the 10 million hard drives at a price P*=$25/unit,what is your company's "rent?

Accepted Answer

The answer of Suppose you manufacture 10 million hard drives...

Question 3

What are influence costs?

Accepted Answer

A)  Costs associated with slack effort and with the administrative controls to deter it 
B)  The cost of activities aimed at affecting the distribution of benefits in an organization 
C)  Costs related to the negotiation of external contracts 
D)  Costs of recruiting ("buying") outside employees with a particular skill set 
E)  The costs of advertising to customers

Question 4

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?

Accepted Answer

A)  Design attributes 
B)  Critical components 
C)  Contract factors 
D)  Coordination factors 
E)  Relationship attributes

Question 5

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?

Accepted Answer

A)  Infrastructure 
B)  Product innovation 
C)  Obtaining regulatory approval 
D)  Customer relationship 
E)  Manufacturing and communications

Question 6

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

Accepted Answer

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

Question 7

Which of the following is a true argument regarding the make-or-buy decision process?

Accepted Answer

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

Question 8

Which of the following processes is most representative of a vertically integrated firm on the "make" end of the make-or-buy continuum?

Accepted Answer

A)  Arm's length market transactions 
B)  Long-term contracts 
C)  Strategic alliances and joint ventures 
D)  Parent/subsidiary relationships 
E)  Perform activity internally

Question 9

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?

Accepted Answer

A)  External training methods are better than internal ones 
B)  Companies are always willing to pay more for external employees 
C)  External training is more advanced (up-to-date) than internal 
D)  Scale economies can result in fixed education costs while in house education methods may be more expensive 
E)  Externally trained employees are more likely to become better business leaders

Question 10

What do the vertical boundaries of a firm refer to?

Accepted Answer

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

Exam 3: The Vertical Boundaries of the Firm