BUS 800 Lecture Notes - Lecture 9: Capital Market, Horizontal Integration, Invisible Hand
5 Jun 2018
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Copyright © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
MULTIPLE CHOICE QUESTIONS
31. Corporate strategy is concerned with
a) Where a firm chooses to compete i.e., in which industries.
b) How a firm chooses to compete in a specific industry.
c) Why a firm chooses to compete or not.
d) a and b.
32. Corporate strategy is concerned with
a) the scope of a firm’s products.
b) the scope of a firm’s activities.
c) the scope of a firm’s structure and corporate governance system.
d) the firm's geographical scope.
33. What is the difference between a firm’s geographical scope and its vertical scope?
a) The first describes the regions of the world where the firm is present and the second the
stages of the industry value chain which the firm performs itself.
b) The first describes the number of countries and the second the number of horizontal
businesses where the firm is present.
c) The two are highly inter-related.
d) It's not always clear what the difference is.
34. The starting point for strategy is usually
a) What business(es) are we in?
b) How much profit do we want to make?
c) Who are the customers?
d) Should we be doing something else?
35. As a firm progresses, it is invariably the case that it expands its scope
a) in terms of its product, geographic and vertical scope.
b) in terms of its geographic and vertical scope.
c) in terms of its geographic and product scope.
d) This is not true. Some firms narrow some aspects of their scope, or voluntarily even break
up.
36. The main concepts to determine the scope of a firm's activities are
a) economies of scope.
b) transaction costs.
c) corporate complexity.
d) all of the above.
37. Economies of scope and economies of scale both relate to lower average cost but
a) economies of scale refer to cost-advantage from higher volume of a single product.
b) economies of scope refer to cost-advantage from spreading a common cost over multiple
products.
c) a and b.
d) none of the above.
38. The existence of economies of scope is likely to lead a company to
a) reduce the number of industries and/or products it's directly involved in.
b) expand the scope of its activities in some relevant way.
c) create a brand.
d) not worry too much about fixed costs.
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Corporate Strategy 7 - 2
Copyright © 2015 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited
39. Although economies of scope refer to spreading cost, this is NOT the case for brand
extension
a) because a brand doesn't cost anything - it's an asset.
b) because although the brand costs money, this does not appear in the accounts.
c) because the brand is to do with the marketing department, not production cost.
d) it is still true for brand extension, since creating and maintaining a brand does cost a lot
e.g., in advertising.
40. A company in a mature industry which is good at cost reduction is exhibiting
a) economy of scale through better use of fixed assets.
b) potential for economy of scope based on organisational or managerial capability.
c) potential for economy of scope based on intangible resources.
d) no potential for economy of scope.
41. Adam Smith, the famous economist, called the market mechanism
a) a necessary evil.
b) the invisible hand.
c) the visible hand.
d) the iron fist in the velvet glove.
42. A significant determining factor on whether a firm conducts an activity internally is
a) whether the transaction costs of buying in the activity in the market exceed the
administrative cost of doing it themselves.
b) whether transaction costs in the market of buying in the activity exceed the administrative
cost buying it in.
c) how reliable their workforce is, compared with an external supplier's reliability.
d) none of the above.
43. Increased corporate complexity because of expanded scope is caused by
a) the need for managers to understand a wider range of businesses.
b) the need for managers to operate differently to succeed in different businesses.
c) the extent of the linkages between the various businesses.
d) all of the above.
44. A strategy of unrelated diversification is
a) always a mistake.
b) likely to be less risky than related diversification.
c) not always as unrelated as it may seem e.g. the businesses may share some common
attributes which can be exploited.
d) always the last resort.
45. The most often-cited benefits of diversification are
a) growth, risk reduction and value creation.
b) risk reduction and economies of scope.
c) value creation and cost reduction.
d) cash balancing and risk reduction.
46. The managers of firms in low-growth, cash-generative industries often opt for
diversification because
a) shareholders expect managers to go for growth.
b) low growth does not look good for managers with an eye on their next job.
c) managers must do something positive.
d) they are often advised to do so by business consultants.
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