Question 1

Related diversification occurs when:

Accepted Answer

A)   a business serves itself first before serving others.
B)   a business serves others first before serving itself.
C)   a business serves itself and allows other to serve it.
D)   a business serves itself and many other common businesses. D

Question 2

Since the terrorist attacks of September 2001, the US has attempted to protect itself by instituting many security features in airports and airlines. Each of these procedures has made it more difficult to fly. The result has been an increase in travel by automobile. Using a transactions cost analysis, how can the airline industry recreate and capture value from the traveling public?

Accepted Answer

The security measures enacted after the terrorist attacks have increased the amount of time required to clear security. Since airline passengers value their time, this increases the opportunity cost of traveling by plane. Recently a number of airlines have reduced the consumer-borne transaction costs of flying by speeding up ticketing procedures. Airlines now allow customers to print boarding passes over the internet. Customers can also check in using electronic terminals, saving valuable time that would be spent waiting in line. These new conveniences increase consumers' willingness to pay for air travel. This increases the quantity of airplane tickets sold and the price of tickets. Some of the increased value created by these new conveniences is captured by the airlines as increased profits.

Question 3

As opposed to corporate strategy, business strategy is focused on:

Accepted Answer

A)   cost control of fixed costs.
B)   demand management.
C)   the choice of industries in which to produce.
D)   the choice of how to compete with other firms in the industry. D

Question 4

A company can translate its assets into value if it effectively uses them in the marketplace. The three types of assets are tangible assets, intangible assets and:

Accepted Answer

A)   fungible assets.
B)   liability assets.
C)   human assets.
D)   machinery and tools.

Question 5

Hardware, software and wetware refer to:

Accepted Answer

A)   fixed costs, variable costs and liabilities.
B)   financial resources, buildings and overhead.
C)   buildings, computers and financial resources.
D)   physical assets, "soft" assets such as its advertising strategies and human resources.

Question 6

Ready-to-eat products like Kraft Lunchables:

Accepted Answer

A)   decrease producer transactions costs.
B)   increase producer transactions costs.
C)   decrease consumer transactions costs.
D)   increase consumer transactions costs.

Question 7

In terms of business strategy, managers will attempt to adopt business strategies that attempt to:

Accepted Answer

A)   maximize transactions costs.
B)   stabilize transactions costs.
C)   Minimize transactions costs.
D)   Invert transactions costs.

Question 8

Dell Computer attempts to collect information about customers before purchase and assemble customized product for the customer. This process tries to:

Accepted Answer

A)   reduce transactions costs for both Dell and the customer.
B)   reduce transactions costs for the customer only.
C)   increase transactions costs for Dell so that it can reduce taxable profits.
D)   increase transactions costs for customers so that IBM can sell send PCs also.

Question 9

Profits will be:

Accepted Answer

A)   high regardless of the degree of rivalry.
B)   high when the degree of rivalry is high.
C)   low when the degree of rivalry is low.
D)   low when the degree of rivalry is high.

Question 10

Wal-Mart, like many companies in the new economy, uses a hub-and-spoke distribution system to:

Accepted Answer

A)   increase costs of stocking and inventory .
B)   change consumer attitudes toward warehouse shopping.
C)   shift consumer demand to the left.
D)   decrease costs of stocking and inventory.

Question 11

Human resources as a source of creating value in a modern company are also referred to as:

Accepted Answer

A)   hardware.
B)   software.
C)   wetware.
D)   dryware.

Question 12

Wal-Mart tends to have the best retailing system, the best distribution system, and the best marketing system of the modern retailers. It also dominates the marketplace for retail sales to a greater extent than any other retailer. What is the source of Wal-Mart's ability to capture value in the marketplace?

Accepted Answer

The answer of Wal-Mart tends to have the best retailing...

Question 13

Bundling of complements to create value strategically usually leads to lower prices for the consumer:

Accepted Answer

A)   greater volume sold, and lower profits.
B)   less sold, and lower profits.
C)   greater volume sold, and greater profits.
D)   less sold, and greater profits.

Question 14

What are the key components for creating market power in order to capture value?

Accepted Answer

The answer of What are the key components for creating...

Question 15

Finding a way to create and capture value is part of:

Accepted Answer

A)   business strategy.
B)   cost control systems.
C)   management control, but not general management.
D)   allowing the market to run a company's future plans.

Question 16

Diversifying to reduce volatility is a:

Accepted Answer

A)   good idea only if shareholders can hold a diversified portfolio.
B)   good idea only if managers cannot hold a diversified portfolio.
C)   good idea only if managers can hold a diversified portfolio.
D)   good idea only if shareholders cannot hold a diversified portfolio.

Question 17

Let Q be the number of printer-computer combinations sold in the market and let MC of both these products equal $0. Let the demand for both the products be given as Q = 12 - (P_p + P_c) where P_p and P_c are the prices of printers and computers. What are the profits of each firm, when they decide to cooperate, and what happens if they decide to go alone?

Accepted Answer

The answer of Let Q be the number of printer-computer...

Question 18

The learning effect is one form of:

Accepted Answer

A)   diversification.
B)   creating value through increasing transactions costs.
C)   creating value through stabilizing transactions costs.
D)   creating value through decreasing transactions costs.

Question 19

A firm can capture value through market power or through superior factors of production. The latter are also called:

Accepted Answer

A)   housing rents.
B)   monopoly rents.
C)   Ricardian rents.
D)   Bushian rents.

Question 20

In the area of agricultural chemicals, the Environmental Protection Agency requires detailed labeling on cans of pesticides and herbicides. Generally speaking, the industry not only doesn't oppose these labeling requirements, but even supports government sponsored education programs on how to use the these chemicals. Why?

Accepted Answer

The answer of In the area of agricultural chemicals, the...

Exam 8: Economics of Strategy: Creating and Capturing Value