BE 301 Final Exam Questions with Answers, Exams of Business Economics

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BE 301 Final Exam Questions with Answers

1. B

Marginal Analysis: The analysis of the benefits and costs of the next unit of a good or service is known in economics as: a) Venture analysis b) Marginal analysis c) Cost-benefit analysis d) Break-even analysis.

2. A Barriers to Entry: Obstacles, or costs that would have to be incurred by a firm joining industry incumbents in the battle for customers and profits are known as: a) Barriers to entry b) Sunk cost c) The opportunity cost of captial d) A fixed cost of production.
3. A Less Valuable, and no longer strategic: The value of a given resource or capability must be reassessed periodically to ascertain if the firm's business model and strategy are still relevant. If not reassessed periodically, a once- valuable resource or capability may become: a) less valuable, and no longer strategic b) more valuable, but remain strategic c) less valuable but remain strategic d) more value and more strategic.
4. D Second Law of Demand: In the long run, elasticity, |e|, increases since, all else equal, products attract imitators and customers may get bored. Economists call this: a) The first law of demand. b) Substitution effect

2 / c) Time elasticity of demand d) Second law of demand.

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5. C

Third Law of Demand: All else equal, as price increases, demand curves become more price elastic as purchase becomes larger share of budget. Economists call this: a) The budget constraint effect b)The second law of demand c) The third law of demand d) the equimarginal rule.

6. A Above normal returns on the investments in companies they own, over time: A capitalist firm's residual claimants bear risk and uncertainty since they have a legal claim to economic profit, but that profit can be zero or negative. Residual claimants can diversify their portfolios, but expect: a) Above normal returns on the investments in companies they own, over time b) At least normal returns on the investments they have made, in the short run c) Positive accounting profits in both the short and long run d) Returns equal to the sum of explicit and implicit costs.
7. B Relevant: The text states that only costs and benefits that vary with the conse- quences of a decision, and labeled these costs and benefits as being: a) Sunk b) Relevant c) Variable d) Consequential.
8. B Social Scientists: Managers' responses to problems are likely to depend on their understanding of people's motives and their forecast of people's reactions--their responses depend on their underlying model of behavior. Therefore, it is appropriate to characterize managers as:

4 / a) Members of the moral-cultural elite b) Social scientists

5 / c) Academic economists d) Behavioral experts.

9. B The incentives to use that information productively: According to both the text and lecture, a major management challenge is designing organizations that maximize the likelihood that local decision makers have both the relevant information to make good decisions, and: a) The right to make decisions outside their authority boundary b)The incentives to use that information productively c) The vision, virtues and talents to merit trust d) Ability to use algorithms to make better decisions.
10. D The performance measurement and evaluation system: The organizational ar- chitectural process that specifies the criteria that will be used to judge the contribu- tion of decision agents (employees or associates) within the organization is known as: a) The Authority Boundary b)The Nike Zone c) The reward system d)The performance measurement and evaluation system.
11. C The rule of law: The legal principle that law should govern a nation, as opposed to arbitrary decisions by individual government officials, is known as: a) The rule of Kings b) Common law c) The rule of law d) Equal justice before the law.
12. D Nike Zone: A situation where someone in the organization sees an opportunity to create value, and are authorized to exploit that

6 / opportunity even though it's not part of their "rolls and responsibilities," was discussed in class as:

7 / a) Entrepreneurial discovery b) Continuous improvement c) Comparative advantages d)The Nike Zone.

13. C Tacit Knowledge: This knowledge is the valuable knowledge of the circumstances of time and place. It is idiosyncratic because only one or a few people have it. This knowledge was defined in lecture as: a) Explicit knowledge b) Implicit knowledge c) Tacit knowledge d) General knowledge.
14. D More info is needed: According to the text, a firm is earning negative economic profits, it implies that: a) The firm's accounting profits are zero b)The firm's accounting profits are positive c) The firm's accounting profits are negative d) More information is needed to determine accounting profits.
15. B False: Managers may be victimized by the sunk-cost problem when, according to the text, they ignore relevant costs—those costs that vary with the consequences of their decisions. This statement is: a) True b) False.
16. A True: Colonel Chamberlain got the mutineer soldiers to pick of their muskets and follow him into battle at Gettysburg by applying concepts familiar to psychologists, sociologists, and economists. This statement is: a) True

8 / b) False.

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17. C

Accounting Costs: According to the text, money paid to suppliers for inputs, gener- al operating expenses (e.g., salaries for factory managers), depreciation expenses related to investments in building, and interest payments on borrowed funds qualify as: a) Marginal cost b) Implicit costs c) Accounting costs d)Total fixed costs.

18. D Control natural phenomena to make improvements if possible: This scientific method seeks to 1) understand natural phenomena, 2) make predictions about the future and 3): a) Understand what motivates people to make economic decisions b) Explain the causes of bad decisions in government and business c) Reduce uncertainty, converting it to risk d) Control natural phenomena to make improvements if possible.
19. D The CVP Triangle/Algorithm: In the reading titled, "The IBM Story: Not Asking the Right Questions," illustrated the importance and value of the: a) The Goldman Algorithm b)The Five Forces of Competitive c) Marginal Analysis d)The CVP Triangle/Algorithm.
20. C Organizational Architecture: Judicious delegation of decision rights to those with tacit knowledge, and accurate measurement and evaluation of individual and unit contribution to the firm's success are two of the components of a firm's: a) Governance structure b) Standing operating procedures

10 / c) Organizational Architecture d)Value chain.

21. A Taking account of the historical, sunk costs, in pricing the deal rather than the opportunity cost going forward: The Helweg Floors case described a situation where a sales person, Milt Friedman, filled an order by a customer to install flooring by taking lumber out of inventory for the job and using the cost of the lumber when it entered inventory. This was an error caused by Milt: a) Taking account of the historical, sunk costs, in pricing the deal rather than the opportunity cost going forward b) Underestimating the full cost of capital, labor and depreciations of wood working equipment c) Failing to consider the amount time it would take to fill the order d)Ignoring the possibility that another more profitable order might enter the back log since the shop is running a full capacity.
22. B Margin Drivers: On-going entrepreneurial discoveries and continuous improve- ments to generate a steady stream of new and improved products at ever-lower costs were referred to in lecture as: a) Value Drivers b) Margin Drivers c) Primary activities d) Cost Drivers.
23. C Change the performance measurement and reward system for Bob's depart- ment: In the case discussed in class: "Bob Cochran's Big Deal," Bob was unusually proud of completing this particular acquisition was that it had occurred despite the efforts of several other major publishing companies to acquire this specialty-publish- ing house. As a result, Bob probably overpaid for the acquired firm. As discussed in class, to avoid this in the future, Bob's manager should: a) Send Bob to the local business school for a class in mergers and

11 / acquisitions b) Promote Bob to a position where he no longer makes acquisitions

12 / c) Change the performance measurement and reward system for Bob's department d) Replace Bob with a less aggressive manager.

24. A Price Elasticity of Demand: The significance of a good in consumer budgets, the availability of close substitutes, and the length of the time period for consumer adjustments in consumption of the good are the three factors discussed in class as effecting: a) Price elasticity of demand b) Cross-price elasticity of demand for complements c) Income elasticity of demand for individuals d) Income elasticity of demand for different demographic groups.
25. A True: In the reading "The Rational Actor Model," the rational agent or actor is as- sumed to take account of available information, probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in choosing the self-determined best choice of action. This statement is: a) True b) False.
26. B Shut Down Production: Market prices can fall due to greater competition or shifting industry demand. When price per unit falls to equal average total unit cost, profit is zero. The breakeven price is the average avoidable cost per unit. When price falls below that, it's economic to: a) Renegotiate supply contracts b) Shut down production c) Continue to produce but cut back on labor d) Consider a merger with a more profitable firm.
27. C Indifference Curves: These functions show all combinations of two goods (e.g., food and clothing, bonus money and integrity) that yield the same

13 / level of utility. They have negative slopes, indicating that in a world of scarcity, there must be tradeoffs between goods. These functions are known as:

14 / a) Demand functions b) Supply curves c) Indifference curves d) Budget constraints.

28. B Own-price elasticity of demand: Economists measure the responsiveness of per- centage change quantity demanded to percentage changes in price as: a) The intercept of the demand function in Price/Quantity Space b)The own-price elasticity of demand c) The hypotenuse of the price-quantity triangle d)The right hand leg of the CVP triangle.
29. C Economies of scope: The reduction in average total cost realized by producing two or more product or service lines using the same facilities and leveraging buying power and production competencies across divisions is known as: a) Economies of scale b) Cost leadership c) Economies of scope d) Cost containment.
30. B In the long-run: All else equal, demand for a product is more elastic: a) When it has few substitutes b) In the long-run c) When the expenditure on the product represent a small portion of the budget d)When the product is broadly defined.
31. B False: If average product is decreasing, then marginal product must be increasing. This statement is:

15 / a) True b) False.

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32. D

Horizontal or flat and parallel to the quantity axis: A firm experiencing constant economies of scale will have a long-run average cost curve that is: a) Upward sloping b)Vertical in the range of the minimum efficient scale c) Downward sloping d) Horizontal or flat and parallel to the quantity axis.

33. B Are known in economics as normal goods: For some goods and services, as individuals enjoy an increase in their incomes, demand increases. Such goods: a) Tend to be consumed by people who prefer savings to consumption b) Are known in economics as normal goods c) Tend to be subject to high sales taxes at the state and local level d) Are called inferior goods in economics.
34. D Some of the factors that cause parallel, horizontal shifts in demand curves: D Changes in income, changes in number of buyers, changes in the prices of comple- ments and the prices of substitutes, and expectations about future price movements are: a) Some of the factors affecting price elasticity of demand b) Some of the factors that cause parallel, horizontal shifts in supply functions c) Factors affecting cross price elasticity of demand d) Some of the factors that cause parallel, horizontal shifts in demand curves.
35. A True: Related diversification takes place when a business expands its activities into product lines that are similar to those it currently offers. This statement is:

17 / a) True b) False.

36. D

18 / Acquire troublesome retailers through a program of vertical integration: A good solution to the post-investment hold-up problem would be to: a) Form trade associations among manufacturers and retailers b) File regulatory action to outlaw these conflicts c) Have the courts of law issue cease and desist orders against retailer opportunism d) Acquire troublesome retailers through a program of vertical integration.

37. D There is increasing marginal productivity: When a firm is experiencing decreas- ing marginal costs, it implies that: a) There are diminishing marginal productivity b)There are increasing average costs c) There is constant marginal productivity d)There is increasing marginal productivity.
38. A Houses are, for you, a normal good: Soon you will graduate from college and get a job. After a few years your income rises from $40,000 to $100,000 per year. You have been renting an apartment but after the pay increase you buy a house. This implies that: a) Houses are, for you, a normal good b) Houses are, for you, inferior goods c) Renting and owning are complementary goods for you d)You need more information about the trend in housing prices.
39. B Items from Dollar Stores, a low price retailer: Which one of the following goods would display an inverse income elasticity of demand? a) Automobiles built by Lexus b) Items from Dollar Stores, a low price retailer c) Shoes sold at Nordstrom's d) Bread made by Wheatfields, a local high-end baker.
40. B

19 / Demand for salty snacks would fall: Buyers typically view soft drinks to be

20 / complementary goods to salty snacks. If Pepsi increased the price of Pepsi-Cola, what would you expect to happen, all else equal, in the salty snacks business? a) Demand for salty snacks would rise to twice the current price. b) Demand for salty snacks would fall c) Demand for salty snacks would fall to zero d) Demand for salty snacks would rise.

41. C Movement along an individual demand curve: All else equal, changes in the price of goods causes: a) A shift in the entire demand function b) A shift in the supply function c) Movement along an individual demand curve d) Movement along an individual supply function.
42. A True: The plant size or output level at which long-run average cost first reaches its minimum point is known as minimum efficient scale. This statement is: a) True b) False.
43. A Benefits: Features are the physical attributes of products or services. The utility customers receive from buying and using the firm's goods and services are known as: a) Benefits b)Value drivers c) Needs d) Demands.
44. D A variety based focus strategy: When you produce and deliver only a sub- set of an industry's technically feasible products or services (i.e., you

21 / serve all the customers, but only some of their needs) you are implementing what is known as:

22 / a) A needs based focus strategy b)Value differentiation c) Integrated low cost/differentiation strategy d) A variety based focus strategy.

45. B Average Cost: Total cost divided by the total number of inputs produced per time period is called: a) Marginal cost b) Average cost c) Total cost d)Variable cost.
46. A Needs based focus strategy: You serve most or all the needs of a particular group of customers, so for some of the customers, you deliver virtually all of their product or service needs. You are implementing: a) A needs based focus strategy b)Value differentiation c) Integrated low cost/differentiation strategy d) A variety based focus strategy.
47. D Marginal cost of adding units of the variable factor just equals the marginal benefit: Effective executives who think economically, will only add variable factors (e.g., people attending a meeting, farm workers tilling the land) when the marginal benefit of adding another unit of the variable factor exceeds their marginal cost. They stop adding units of a variable factor when: a) They reach the point of decreasing returns b)Variable costs are minimized c) Marginal benefits are maximized d)The marginal cost of adding units of the variable factor just equals the marginal benefit.
48. B

23 / Value Differentiation: When you observe that many customers appear to be un-

24 / der-served by the features and benefits of goods and services considered average or standard, the appropriate generic strategy to implement would be: a) Market segmentation b)Value differentiation c) Cost Leadership d) Operational Excellence.

49. C Working hard on the right things: How hard to work is an extent decision, so marginal analysis can be used to design incentives to encourage hard work. Working hard is important; more important is: a) Working effectively with others b)Working to advance the goals of managers c) Working hard on the right things d)Working until everyone else has stopped working.
50. A Economics of Scope: Managers often diversify into other business to create a business portfolio of related firms. They do this on the belief that the cost of production in one or more of the businesses in the portfolio would be lower than if they were operating as separate, free-standing firms. This effect of diversification is known as: a) Economics of scope b) Managerial dis-economies of scale c) M-form dividend d)The Conglomerate Effect.
51. A Marginal Cost: Average cost can be a poor indicator of performance or guide to decisions. Usually, for making decisions at the margin, it is better to use: a) Marginal cost b) Total cost

25 / c) Sunk cost d) Explicit cost.