A competitive firm can earn positive or negative profit in the short run until entry or exit occurs. In the long run, competitive firms are condemned
a) To shut down their operations as price falls to below breakeven price.
b) To make an early appearance in bankruptcy court
c) To earn only an average rate of return
d) To earn a negative economic value added (EVA).
ANS. C
Above-normal profit in open markets is often a temporary phenomenon as this profit attracts capital investments by rivals and new entrants until profits fall back to normal returns. This statement is
a) True
b) False.
ANS. A
Monopoly firms can earn positive profit for a longer period of time than competitive firms, but entry and imitation eventually
a) Erode their profit as well
b) Cause their industry to become perfectly competitive
c) Lead to price wars
d) Produce a Nash Equilibrium.
ANS. A
The field of economics dealing with the strategic behavior of firms, regulatory policy, antitrust policy and market competition is known as
a) Public choice theory
b) Microeconomic theory
c) Applied economic analysis
d) Industrial organization economics.
ANS. D
Industrial organization economics explains mean reversion and the indifference principle in terms of
a) The zero-profit equilibrium
b) The operation the five forces of competition
c) The interaction of supply and demand
d) Marginal analysis.
ANS. B
Many sellers in an industry, few barriers to entry, and high levels of value differentiation are the conditions that characterize
a) Perfect competition
b) Monopolistic competition
c) Oligopoly
d) Monopoly.
ANS. B
The ability of assets to move from lower- to higher-valued uses is the force that moves an industry toward long-run equilibrium. That is, owners of mobile assets will make the same profit no matter where it goes. We call this phenomenon
a) The Paradigm Effect
b) Equilibration
c) Parkinson's Law
d) The Indifference Principle.
ANS. D
.
In the great game of business, both producers and consumers accept the fact that in policy, "You win some lose some." The result is that markets tend to oscillate between competitive parity and
a) Temporary competitive advantage
b) Sustained competitive advantage
c) Normal returns
d) Zero economic value added.
ANS. B
To manage the Paradigm Effect, effective executives must first
a) Accept the Fact of Cognitive Biases.
b) Scan the environment for opportunities
c) Hire one or two "paradigm shifters"
d) Attend a seminar on Behavioral Economics.
ANS. A
.
Recognizing and identifying the significant, emerging trends in the external context (opportunities and threats) and understanding how changes in the external context may affect the firm's strategic actions, and raising the organization's consciousness
a) The goals of the paradigm audit
b) The objectives of evaluating the firm's strengths and weaknesses
c) The objectives of external context analysis
d) The goals of managing in group settings.
ANS. C
.
People who create new paradigms (paradigm shifters) tend to be outsiders (i.e., new rules are written on the edge). For someone identified with an existing paradigm to embrace a new paradigm takes
a) Courage
b) Creative destruction
c) Creativity
d) Science.
ANS. A
.
The process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one is known as
a) Task leadership
b) Devil's advocacy
c) The process of creative destruction
d) Entrepreneurial discovery and continuous improvement.
ANS. C
.
Like perfectly competitive firms, monopolistic competitors not only face strong rivals, but fairly free entry and exit as well. So they tend compete away economic profits by
a) Engaging in "creative destruction"
b) Adding features and benefits cutting prices
c) Eliminating features and benefits that consumers won't notice
d) Engaging in price wars.
ANS. B
.
Which one of the following defines a fellow firm's (or potential new entrants) resources or capabilities that effectively supplant or neutralize the incumbent's resource-based competitive advantage
a) Resources or capabilities that are mobile
b) Resources or capabilities that are non-tradable
c) Resources or capabilities that support temporary competitive advantage
d) Resources or capabilities that are substitutes in production.
ANS. D
.
A competitive firm can earn positive or negative profit in the short run but only until entry or exit occurs. In the long run, competitive firms earn only an average rate of return. This is due to the phenomenon known as
a) Statistical illusion
b) Competitive pressure
c) Mean reversion
d) Competitive disadvantages.
ANS. C
.
Eventually, most assumption sets regarding how well the firm's value proposition, business model and strategy fit with external reality become inappropriate for the emerging realities of demographics, market rivalry, and new technologies. According to l
a) The insularity of top management
b) The manufacturing mindset
c) Recent setbacks in value creation
d) The Paradigm Effect.
ANS. D
.
Low to moderate buyer power, fairly strong supplier power, many substitutes, and a moderate threat of new entry. This is the industry attractiveness profile of the selling environment known as
a) Monopoly
b) Oligopoly
c) Perfect Competition
d) Monopolistic Competition.
ANS. D
.
Normal returns means zero economic profit. Normal returns are "normal" in that this is the long-run performance equilibrium of
a) Firms producing normal goods
b) Most of the firms in implementing cost leadership strategy
c) The vast majority of businesses in the economy
d) Firms participating in cartels or trusts.
ANS. C
.
The Nash Equilibrium
a) Is where one player maximizes his payoff and the other player doesn't
b) Is where each player maximizes his own payoff given the action of the other player
c) Is where both players are maximizing their total payoff
d) Is a unique prediction of the like
.
Changes in the general environment a firm could exploit to achieve strategic competitiveness are known as
a) Strengths
b) Weaknesses
c) Opportunities
d) Threats.
ANS. C
.
Making scanning the environment a habit for all key associates, managing in group settings, and levering the unique attributes of new hires are strategies working managers can employ to deal with
a) The complexities of related diversification
b) The Waving Hand Equilibrium
c) The Paradigm Effect
d) Managerial dis-economies of scale.
ANS. C
.
In business, the tendency of a critical mass of managers and associates to resist changes in their strategies and organizational structure and practices despite senior management's efforts to change the firm theory of the business is known as
a) The limits to growth
b) Managerial dis-economies of scope
c) Competitive disadvantage
d) Organizational inertia.
ANS. D
.
According to Pope Leo XIII, writing in 1891, "It is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do". Pope Leo was referring to
a) The majesty of the law
b) The Empowered citizen
c) Subsidiarity
d) Social trust.
ANS. C
.
In the reading, "The Great Game of Business, the goal of business strategy and policy is to transform competitive market structures into monopoly market structures, and convert attractive industry structures to more unattractive industry structures. Thi
a) True
b) False.
ANS. B
.
Little rivalry but intense competition (e.g., advertising, product comparison). A selling environment where a handful of interdependent firms produce and sell similar differentiated products or undifferentiated commodities. This selling environment is k
a) Monopoly
b) Oligopoly
c) Perfect Competition
d) Monopolistic Competition.
ANS. B
.
In the video featuring Max Boot, the author of "War Made New," the author argued that the key to sustainable competitive advantage in both military and civilian organization is
a) New technology
b) Choosing the right enemy or rivals
c) Superior organization and management
d) The German General Staff Model of strategy implementation.
ANS. C
.
When employees in an organization engages in value-creating behavior that is not part of their roles and responsibilities, but within their authority boundary, those employees have decided to
a) Engage in the process of creative destruction
b) Enter what we referred to in class as the Nike Zone
c) Take the initiative for change
d) Seek a charter.
ANS. B
.
In the chartering process, empowered employees take initiative and seek a charter later the employees implement their project to fulfill the charter. These steps are known as
a) Decision management
b) Employee empowerment
c) The allocation of decision right
d) Decision control.
ANS. A
.
The human tendency to search for or interpret information in a way that is consistent with, or supportive of, one's preconception. People also tend to interpret ambiguous evidence as supporting their existing position. These statements describe
a) Cognitive dissonance
b) The Total Confirming Mindset
c) The Theory of Mind
d) Confirmation bias.
ANS. B
.
Positive profit attracts entry, and negative profit leads to exit. The ability of an asset to move from lower- to higher-valued uses is the force that moves an industry toward long-run equilibrium. Such asset mobility leads to
a) Competitive disadvantage
b) The Indifference Principle
c) The Waving Hand Equilibrium
d) Below-normal returns.
ANS. B
.
Competition is a process by which two or more parties attempt to gain the custom of third parties by offering them more favorable terms. This approach to competition is consistent with
a) Industry (External) View or I/O Perspective
b) Resource (Internal) View or Resource-Based View
c) Porter's Five Forces of Competition Model
d) The Neoclassical Revision.
ANS. B
.
To achieve a sustainable competitive advantage, effective executives build and maintain strong competitive positions, invest and re-invest in unique and valuable resources and capabilities that are difficult to
a) Imitate
b) Import
c) Reverse engineer
d) Purchase in the underground economy.
ANS. A
.
The value (in the VRI(NS)O Framework) of a given resource and capability must be re-assessed periodically to ascertain if the firm's business model and strategy is still relevant. If the firm has to change its theory of the business, a once valuable res
a) Convert temporary competitive advantage to long run economic profit
b) Avoid moral hazard and adverse selection
c) Determine the firm's most appropriate generic strategy
d) Avoid value migration.
ANS. D
.
Tangible and intangible resources are rare to the extent that only one or a few organizations in an industry possesses them and controls their use. This statement is
a) True
b) False.
ANS. A
.
The combination of buyer power, supplier power, the availability of substitutes, and the threat of new entry contribute to the
a) The determination of management compensation
b) The performance of individual firms in a given industry
c) The average profitability of firms in an industry
d) The duration of the Waving Hand Equilibrium.
ANS. C
.
The top firms in an oligopoly selling environment swill naturally attempt to gain a sustainable competitive advantage over their rivals. Unfortunately for them, the firms that lack distinctive, immobile resources and capabilities will jockey for positio
a) Oligopolistic Dynamic
b) The Waving Hand Equilibrium
c) Monopolistic rivalry
d) Monopolistic competition.
ANS. B
.
Which one of the following is a term used to explain how the set of opportunities one faces at the current time is influenced by decisions or actions predecessor took in the past "history matters."?
a) Path dependence
b) First-motion advantage
c) Historical competitive advantage
d) Causal ambiguity.
ANS. A
.
Resources & Capabilities are strategic if they are (simultaneously) rare, inimitable, well organized and
a) Developed over a long time period by the same team of managers
b) Valuable
c) Consumer oriented
d) Intangible.
ANS. B
.
Where rivals or potential new entrants cannot understand how resources or capabilities enable a firm to gain an advantage, that advantage may be sustained over time. This attribute of resources or capabilities is known in economics as
a) Path dependence
b) First-mover advantages
c) Causal ambiguity
d) Moral hazard.
ANS. C
.
The approach to understanding competitive advantage that focuses on sustainable competitive advantage derives from formulation and implementation of strategies supported by strategic capabilities is known as
a) The industry (external) view
b) The resource (internal) based view
c) The neoclassical model
d) The Chicago School of Economics.
ANS. B
.
According to the Industry (External) point of view of competitive advantage defines competition the process by which two or more parties attempt to gain the custom of third parties by offering them more favorable terms. This statement is
a) True
b) False.
ANS. B
.
When a valuable resource or capability is founded on such things as interpersonal relationship, culture and other organizational phenomena, they will not be able to imitate that resource in real time, those resources or capabilities can be the foundatio
a) Causal ambiguity
b) Rent seeking behavior
c) Social complexity
d) Behavioral barriers to entry (BTE).
ANS. C
.
Competition exists where there is a large number of buyers and sellers dealing in homogeneous goods and services and where entry and exit are easy and information flows freely. This statement accurately reflects
a) The Neoclassical Restatement
b) The Industry (External) View or I/O Perspective
c) The Resource (Internal) or Resource-Based View
d) The Five Forces of Competitive Advantage Approach.
ANS. B
.
The collection of tangible and intangible physical assets, human capital, trust, and social capital that may provide the basis for a sustainable competitive advantage is known as
a) Social capital
b) Trustworthiness
c) Commercial integrity
d) Cultural excellence.
ANS. A
.
The observed continuous changes in prices and profits due to the actions of others who have an interest in capturing some of the total surplus value created by private firms is known as
a) Temporary competitive advantage
b) Competitive turbulence
c) Competitive Dynamics
d) A source of sustainable competitive advantage.
ANS. C
.
According to a video and lecture material, product leaders, process leaders and customer service leaders are the three components of
a) Porter's generic strategies
b) The alternative competitive advantages approach
c) Market-based management
d) Oligopolistic interdependence.
ANS. B
.
A generic strategy which attempts to provide many customers with just the features and benefits they value, but at a bargain price.
a) Product leadership
b) Cost focus
c) Integrated differentiation/low cost
d) Selective differentiation.
ANS. C
.
To achieve and sustain a competitive advantage, effective executives build and maintain strong competitive positions, create barriers to entry, or take advantage of naturally high costs of entry. This describes the means to create sustainable competitiv
a) The Industry (external) approach to competitive advantage
b) The Five Forces Model
c) The resource-based approach to competitive advantage
d) The Resource (internal) view.
ANS. A
.
Potential new entrants often face high entry costs due to the economics of the industry. They are important part of the market process. Since they reflect the existence of real scarcities they provide a market test for potential entrepreneurs. These are
a) Structural barriers to entry
b) Obstacles to new competition
c) Behavioral barriers to entry
d) Shared monopolies.
ANS. A
.
According to D. S. Landes, "every situation bears the seed of its own reversal. Nothing good lasts indefinitely, because others will want to share in it." This is known as
a) The process of creative destruction
b) The Law of Nemesis
c) The Paradigm Effect
d) The Myth of Sisyphus.
ANS. B
.
According to the economist Joseph Schumpeter. the "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one" is known as
a) The process of creative destruction
b) The Law of Nemesis
c) The Paradigm Effect
d) The Myth of Sisyphus.
ANS. A
.
Socially complex systems are comprised of many elements that must be coordinated by management and/or which require spontaneous cooperation to produce sustainable competitive advantage. This is complex but
a) Causally indeterminate
b) A common source of competitive advantage in high tech industries
c) Unambiguous
d) Support a culture-based competitive advantage.
ANS. C
.
A firm with valuable, rare, inimitable and non-substitutable resources and capabilities can still kick its advantage away due to
a) Moral hazard
b) Social complexity non understood by managers
c) Out of date technology
d) A poorly designed organization.
ANS. D
.
Customers are the ones with the money and credit. Investors are the ones with the capital & votes. Associates are the ones with the skills and purchased inputs. These parties comprise the group known as
a) Stockholders
b) Constituents
c) People who can say "no." to the firm.
d) Stakeholders.
ANS. D
.
One's ability to attribute mental states (e.g., beliefs, intents, desires, pretending, knowledge etc.) to oneself and to understand that others have beliefs, desires, intentions, and perspectives that are different from one's own is called
a) Theory of the business
b) Foresight
c) Theory of Mind
d) Intuition.
ANS. C
.
Incumbent firms (i.e., established firms) can present a credible threat of aggressive price cutting, and threaten other actions to discourage entry into their industry. Such threats create
a) Behavioral barriers to entry
b) Monopoly short-term rents
c) Structural barriers to entry
d) Perceived high costs of entry.
ANS. A
.
Profitable markets that yield high returns will tend to attract new firms into the market. This is known as
a) Bargaining power of suppliers
b) Bargaining power of buyers
c) The threat of new entrants
d) The threat of intense competition.
ANS. C
.
When channels of distribution, or final users are larger than their suppliers, they may drive hard bargains. This makes buyers more resistant to price increases and increases their consumer surplus at the firm's expense. This statement is
a) True
b) False.
ANS. A
.
Producers of very close functional substitutes pose a threat to other firms in their industry. Namely, consumers have choices, prices fall, costs rise (e.g., for adverts, product development, etc.). This describes the element of the Five Forces of Compe
a) Supplier and buyer power
b) The threat of rivalry
c) The threat of substitutes
d) The threat of new entry.
ANS. B
.
According to the authors of the text, an industry is defined as a group of firms producing the exact same products or services. This statement is
a) True
b) False.
ANS. B
.
The text suggests that an attractive industry as all of the following except
a) Low barriers to entry
b) Low supplier power
c) Low intensity of rivalry
d) Few substitutes for the industry's products or services.
ANS. A
.
In the text, the concept that focuses on the fact that firms possess different bundles of resources is
a) Organization
b) Resource heterogeneity
c) Barriers to entry
d) Inimitability.
ANS. B
.
You are the manager of an enterprise that has adopted a cost-reduction (cost leadership) generic strategy. To succeed, it is critical for you to
a) Be the first firm in you industry to adopt this strategy
b) Maintain cost proximity with your closest rivals
c) Take care to avoid differentiating you products
d) Possess resources and capabilities that are difficult for other cost leaders to imitate.
.
You are leading a business enterprise that has resources or capabilities that are valuable and rare. As a result, investors should understand that their firm, under your management, will
a) Enjoy a sustainable competitive advantage
b) Experience a temporary competitive advantage
c) Have a competitive disadvantage over the long run
d) Enjoy a cost advantage over producers of substitutes.
ANS. B
.
In the text, Chapter 10, firms that implement a value differentiation strategy, elasticity of demand for those firms' goods or services will
a) Increase
b) Decrease
c) Remain unit elastic
d) Be unaffected.
ANS. B
.
Buyer power is enhanced, ceteris paribus, where
a) Buyers are not concentrated as an industry group
b) Switching costs are low
c) Buyers are not significant purchasers of industry outputs
d) Firms sell goods or services that are highly differentiated.
ANS. B
.
In the text, an industry was defined as
a) A group of firms producing goods or services that are close substitutes
b) A group of firms with the same cross-price elasticity of demand
c) A group of firms that share the same valuable and rare strategic resources
d) Firms selling goods or services
.
The set of assumptions regarding how well the firm's value proposition, business model and strategy fit with external reality is known as
a) The Theory of the Business
b) The CVAS (Customer Value Assumption Set)
c) SWOT analysis
d) The Value Chain.
ANS. A
.
You are in an industry where there is a large number of buyers and sellers dealing in homogeneous products or services under conditions of perfect information and free entry and exit. This is called
a) Pure monopoly
b) Oligopoly
c) Monopolistic competition
d) Perfect competition.
ANS. D
.
In the Barings Bank Case (involving Nick's Leeson's disastrous "betting" in Singapore), the economic analysis of the failure of the bank attributed this failure to
a. Poorly designed organizational architecture at Barings
b. Entrenched management in the home office
c. Nick's unrealistic understanding of his property rights
d. An accounting system that was based on nominal rather than real interest rates.
ANS. A
.
In the economic analysis of the turnaround at the O. M. Scott Co., you read that the firm was able to improve performance significantly by changing its
a) Cost accounting system
b) Application of Break-Even Analysis
c) Assessment of its Strengths and Weaknesses
d) Organizational architecture.
ANS. D
.
We learned in class that among the three elements of the "CIA," the investors are the ones with the human capital required for long term success. This statement is
a) True
b) False.
ANS. B
.
When you observe a business firm earning returns in excess of the minimum required by the companies investors, it would be correct to believe that the business enjoys competitive parity. This statement is
a) True
b) False.
ANS. B
.
Revenues fall below total economic costs until a turnaround strategy can be implemented, bankruptcy is declared, or the firm's assets are acquired by a better management team. These are the conditions that define
a) Competitive advantages
b) Temporary competitive dis-advantage
c) Normal returns
d) Competitive Disadvantage.
ANS. D
.
What customers prefer in the goods and services they consume is constantly shifting for most firms. The firm's value proposition, business model and theory of the business may become out of date. Customer's "vote with their dollars" by shifting to firm'
a) The Paradigm Problem
b) The Kuhn Cycle
c) Value migration
d) Manufacturing Mindset.
ANS. C
.
Residual Claimants can diversify their portfolios, but expect above normal returns on the investment in your firm, over time. In class, above normal returns demanded by investors were the result of
a) Mean Reversion
b) Sustainable Competitive Advantage
c) The prevalence of monopolies
d) Valuable capabilities.
ANS. B
.
The bargaining power of buyers, the bargaining power of suppliers, threat of substitutes, threat of new entry and intensity of rivalry all combine to influence or determine
a) Competitive positioning
b) Projected profit potential
c) The Five Forces of Competition
d) Market success.
ANS. C
.
Firms doing business in perfectly competitive markets try to increase their market power because greater market power
a) Increases demand which leads to greater economies of scale
b) Increases pricing power and the potential for above normal returns
c) Gives the firm the ability to avoid bankruptcy
d) Provides the necessary and sufficient condition for above-normal retur
.
Industry structure is an important determinant of competitive advantage. Industry types include perfect competition, monopolistic competition, monopoly, and
a) Producers of substitutes
b) Cost leaders
c) Oligopoly
d) New entrants.
ANS. C
.
The threat of buyer power means that customers enjoys the ability to capture more consumer surplus at the expense of investor profits. This statement is
a) True
b) False.
ANS. A
.
Firms form or join cartels to improve their performance. Defecting to improve individual performance is rational and common. This is because managers of the firms in the cartel are REMM's, incentives to defect from the agreement are huge, and
a) Defecting managers know that defection is difficult to prove in court
b) Defecting managers may be are rewarded for above-normal returns
c) Defecting managers tend to plead guilty to a lesser charge
d) Defecting managers do not understand how cartels w
.
Firms that lack market power are price takers, who face very elastic) demand functions. If they increase the price they charge for their outputs by even a very small amount
a) Customers continue to buy but look for substitutes
b) Customers write letters complaining about price gouging
c) Customers take their business to other producers immediately
d) Customers with high incomes continue to buy.
ANS. C
.
Firms in competitive markets lack market power. As a result, the managers of such firms may try to increase their market power in order to
a) Increase their pricing power and profit potential
b) Increase price elasticity of demand in their market
c) Gain competitive parity
d) Avoid competitive disadvantage and bankruptcy.
ANS. A
.
Some tangible or intangible resources and capabilities, while few in number, represent the foundation for sustainable competitive advantages, as long as they are valuable, rare, difficult to imitate, non-substitutable and
a) Well-organized
b) Misunderstood by market rivals
c) Readily available in the market for resources and capabilities
d) Patentable.
ANS. A
.
Tangible and intangible assets firms use to conceive of and implement their strategies are called resources in Resource Based View. When such resources meet the criteria set forth in the VRI (NS) discussed in the text and lecture, those resources qualif
a) Key success factors
b) Core components of competitive advantage
c) Substitutes in production
d) Strategic resources.
ANS. D
.
Firms producing goods and services customers accept as performing similar services as the goods and services you have been selling them are known as
a) Potential new entrants
b) Producers of substitutes
c) New entrants
d) Emerging market leaders.
ANS. B
.
Organizations of sellers or buyers that agree to fix selling prices, purchase prices, reduce production, or exclude entry of a new competitor into their market are called cartels. Another descriptive term for this type of selling environment is
a) Bad trusts
b) Oligopolistic competitors
c) Back room deals
d) Shared monopolies.
ANS. D
.
A generic strategy which attempts to provide their loyal customers with just the features and benefits they value, at relatively low cost (but not as low as the cost leader), and the differentiated features they really value is known in the managerial e
a) Features-Benefits optimization
b) The needs focus strategy
c) Stuck in the middle
d) Integrated low cost/differentiation.
ANS. D
.
At the level of the individual competitor in a market economy, which one of the following types of firm discussed in class faces a downward sloping demand function?
a) Both perfectly competitive and monopoly firms
b) Neither perfectly competitive nor monopoly firms
c) A perfectly competitive firm, but not a monopolist.
d) A monopoly firm but not a perfectly competitive firm.
ANS. D
.
The study of strategic or interactive decisions making which entails mathematical models of conflict and cooperation between intelligent rational decision-makes is known as
a) Industrial organization
b) The Theory of the Business
c) Game theory
d) Decision science.
ANS. C
.
Which of the following types of firms a guaranteed to make above-normal returns?
a) Both perfectly competitive and monopoly firms
b) Neither perfectly competitive nor monopoly firms
c) A perfectly competitive firm, but not a monopolist.
d) A monopoly firm but not a perfectly competitive firm.
ANS. B
.
What is the main difference that distinguishes monopolies from perfect competitors?
a) The number of customers served by that type of firm
b) Monopoly firms are more efficient than perfectly competitive firms
c) Monopoly firms are more likely to earn above-normal returns over time
d) Monopoly firms enjoy government protection from intens
.
In this type of industry or selling environment, firms produce a product or service with very close substitutes so that they very elastic demand, they have many rivals and no cost advantages with no entry or exit barriers. This is the selling environmen
a) Monopoly
b) Monopolistic competition
c) Oligopoly
d) Perfect competition.
ANS. D
.
Normal returns means zero economic profit. Normal returns are "normal" in that this is the long-run performance equilibrium of the vast majority of businesses. Individual firms operating in perfectly competitive industries are known as price takers. As
a) Unit elastic demand functions
b) Inelastic demand functions
c) Perfectly elastic demand functions
d) Demand functions that are downward sloping to the right.
ANS. C
.
Customers are the ones with the money and credit. Investors are the ones with the capital & votes. Associates are the ones with the skills & inputs. These parties were referred to in class as
a) Stockholders
b) Constituents
c) People who can say "no." to the firm.
d) Stakeholders.
ANS. D
.
Which one of the following concepts is a form of moral hazard caused by the difficulty or cost of monitoring employees' behavior after the firm has hired them?
a) Principal-agent failure
b) Shirking
c) Selection bias
d) Cognitive bias.
ANS. B
.
The prisoners' dilemma is an example of
a) A sequential game
b) A simultaneous-move game
c) A shirking game
d) A dating game.
ANS. B
.
Which of the following is true?
a) Moral hazard is primarily an issue prior to a transaction.
b) Adverse selection is primarily an issue after a transaction
c) Moral hazard is a result of information asymmetry
d) Resolving moral hazard resolves adverse selection.
ANS. C
.
In a simultaneously move games, players do not observe the rival's decision before making their move. This statement is
a) True
b) False.
ANS. A
.
Which one of the following is the field of economics that deals with the problem of transforming short-run competitive advantage into a sustainable competitive advantage through the control of heterogeneous (superior), immobile resources and capabilitie
a) Industry Structure Theory
b) Structure-Conduct-Performance Paradigm
c) Resource (Internal) or Resource-Based View
d) Industry (External) View.
ANS. C
.
In this industry structure (selling environment), individual firms produce a product or service with very close substitutes so that they very elastic demand, each has many rivals, and exit barriers are low. This is known as
a) Monopoly
b) Oligopoly
c) Perfect Competition
d) Monopolistic Competition.
ANS. C
.
The text authors argue that it is much easier to get out of bad situation when parties are involved in repeated "prisoners' dilemma" games. One general rule of thumb for getting out of bad situations is to be unclear about your intentions. This statemen
a) True
b) False.
ANS. B
.
The discipline that studies the effects of psychological (mass psychology), social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and the resource allocation i
a) Social psychology
b) Cognition science
c) Behavioral economics
d) Keynesian economics.
ANS. C
.
A selling environment where a large number of independent firms produce and sell differentiated products or services. This selling environment is known as
a) Monopoly
b) Oligopoly
c) Perfect Competition
d) Monopolistic Competition.
ANS. C
.
Changes in the general environment a firm could render the firm's theory of the business obsolete are known as
a) Strengths
b) Weaknesses
c) Opportunities
d) Threats.
ANS. D
.
Managing problematic aspects of the human brain begins with professional managers accepting the fact that cognitive biases exist. This statement is
a) True
b) False.
ANS. A
.
Universally recognized scientific achievements that, for a time, provide model problems and solutions for a community of practitioners (e.g., theories of the business developed and used by managers) are known as
a) Paradigms
b) Entrepreneurial discoveries
c) Mental mindsets
d) Paradigm shifters.
ANS. A
.
A problem solving system a set of rules that offer guidance on how managers can understand and improve their business. This defines
a) An algorithm
b) A paradigm
c) A framework
d) The scientific method.
ANS. B
.
Paradigms are common rules are everywhere. Paradigms are useful they tell us
a) What the firm's competitive strategy should be
b) How to create organizations that can produce a steady stream of new and improved good or services.
c) Why some industries are, on average, more profitable than others.
d) What we should view as importan
.
Which one of the following is an organizational control on agent behavior that regulates agent behavior before the behavior actually takes place, prohibiting actions that would violate policy, rules, cultural norms, etc.?
a) Regulation of conduct
b) Posterior Restraints
c) The liability standard
d) Prior restraints.
ANS. D
.
Effective executives take care to ensure that decision makers have relevant skills and information to make good decisions. They also delegate authority based on
a) The contingencies of any given situation
b) The skill sets and moral judgement of the employee
c) The employee's number of year of experience
d) The executive's personal judgment.
ANS. A
.
To manage the paradigm effect, effective executives should 1) make scanning the environment a habit for all key associates, 2) Manage in group settings, 3) lever the unique attributes of new hires, and 4)
a) Hire process consultants from the local university
b) Accept the Fact of Cognitive Biases
c) Subscribe to several blogs and news magazine
d) Act as the formal leader in several work groups to gain experience in maintenance leadership.
ANS. B
.
Stable, valued, recurring patterns of behavior among rational actors that facilitate collective actions toward the goals of economic organizations are known in economics as
a) Social capital
b) Organizational cultures
c) Economic institutions
d) Organizational architecture.
ANS. C
.
When management and staff cannot say for sure which individual or combination of resources or capabilities account for their competitive advantage, rivals and potential new entrants may find it difficult duplicate this resource. This attribute of resour
a) Path dependence
b) First-mover advantages
c) Causal ambiguity
d) Moral hazard.
ANS. C
.
A systematic pattern of deviation from the norm of rationality in judgment, whereby inferences about other people and situations may be drawn in an illogical fashion is known as
a) Paradigm effects
b) Behaviorism
c) Rational ignorance
d) Cognitive bias.
ANS. D
.
Resources and capabilities that are valuable but readily available to all firms are not rare, and cannot be the source of sustainable competitive advantage. Such resources or capabilities are referred to in managerial economics as
a) Fungible
b) Migratory
c) Tradeable
d) Short-supplied.
ANS. C
.
Sources of In-imitability include all of the following except
a) Unique Historical Conditions
b) Tradability
c) Causal Ambiguity
d) Social Complexity.
ANS. B
.
People who create new ways of doing business they tend to be outsiders. It takes courage for someone identified with an existing paradigm. Such people are known as
a) Behavioral economists
b) Game Changers
c) Paradigm Shifters
d) Agents of creative disruption.
ANS. C
.
Organizational architecture is comprised of all of the following elements except
a) Social capital
b) Assignment of decision rights
c) Performance measurement and evaluation systems
d) Reward system.
ANS. A
.
These are characteristics of a competitive industry, except
a) Many substitutes
b) No barriers to entry
c) Homogenous product
d) Little or no information on rivals' products
ANS: D
1) Which of the products below is towards the spectrum of perfectly competitive industry?
a) Nike shoes
b) Eggs
c) Purdue Chicken
d) R