Question 1

What kind of economies come from reductions in average costs due to increases in capacity utilization?

Accepted Answer

A)   Short-run economies of scale
B)   Short-run economies of scope
C)   Long-run economies of scale
D)   Long-run economies of scope
E)   Fully automated economies

Question 2

Suppose the cost of producing a 30 second commercial for television is $100,000.If airtime on the evening news costs $200,000 and is viewed by 5 million people,what is the advertising cost per potential customer?

Accepted Answer

$.06 per potential c...

Question 3

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs,but lower variable costs?

Accepted Answer

A)   Short-run economies of scale
B)   Short-run economies of scope
C)   Long-run economies of scale
D)   Long-run economies of scope
E)   Partially automated economies C

Question 4

Why is firm specific learning better in general for an organization?

Accepted Answer

A)   Encourages individuality among workers within the organization
B)   Keeps unionized workers happy
C)   Allows workers to acquire skills they can then "shop around"
D)   Ensures worker knowledge is tied to current employment
E)   Increases complexity and creativity in the organization

Question 5

What is the approximate observed median learning curve slope for typical firms?

Accepted Answer

A)   .6
B)   .7
C)   .8
D)   .9
E)   1.0

Question 6

Which of the following is a source of diseconomies of scale at a large firm?

Accepted Answer

A)   Labor costs
B)   Spreading specialized resources too thin
C)   Conflicts of interest
D)   Incentive processes
E)   All of the above

Question 7

Which of the following best describes economies of scope?

Accepted Answer

A)   The average cost declines as output increases
B)   The average cost increases as output increases
C)   The average cost remains constant as output increases
D)   Savings are achieved when a firm produces a wider variety of goods
E)   Savings are achieved when a firm produces a decreased variety of goods

Question 8

How does umbrella branding aid economies of scale and scope?

Accepted Answer

A)   Increases effectiveness of advertising due to a greater presence
B)   Increases effectiveness of advertising due to national advertising
C)   Increases effectiveness of advertising due to offering a broad product line under one name
D)   Increased cost effectiveness through purchasing as a cooperative
E)   Increased cost effectiveness through bulk purchasing C

Question 9

Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?

Accepted Answer

A)   Use of internal capital markets
B)   Economies of scale and scope
C)   Economizing on transaction costs
D)   Diversifying shareholder portfolios
E)   Identifying undervalued firms

Question 10

If a firm enjoys lower costs due to a complex labor-intensive process,which of the following statements would then be true?

Accepted Answer

A)   Cutbacks in volume will always raise unit costs
B)   The firm is unconcerned with labor turnover
C)   An example of this process could be the practice of anti-trust law
D)   The firm's average cost rises due to moving down the learning curve
E)   The process is likely a repetitive manufacturing process such as two-piece aluminum can manufacturing

Question 11

How does carrying inventories contribute to economies of scale?

Accepted Answer

A)   Increases the interest on the expenses to produce the inventory
B)   Inventory depreciates in value while waiting to be used or sold
C)   Increases the storage facilities necessary
D)   Increases competition with rivals for customers
E)   Minimizes the chance of stock-out

Question 12

What are economies of density as referred to in the airline industry?

Accepted Answer

A)   Reducing the size of an aircraft used to increase load factor
B)   Economies achieved by an airline flying from spoke to spoke in a hub-and-spoke network
C)   Economies of scope along a given route
D)   Economies of scale along a given route
E)   Reductions in average cost as traffic volume decreases

Question 13

Which of the following is not a product specific fixed cost?

Accepted Answer

A)   The cost to manufacture a special die to make an aircraft fuselage
B)   The cost of developing graphics software to facilitate video game development
C)   The cost of a one-week training program preceding the implementation of a specific management initiative
D)   The time and expense required to set up a textbook before printing it
E)   The cost of administrative expenses

Question 14

Which of the following benefits of diversification explains the idea that combining unrelated businesses can allow firms to finance projects through cross-subsidization when they previously were unable to finance the same projects externally?

Accepted Answer

A)   Use of internal capital markets
B)   Economies of scale and scope
C)   Economizing on transaction costs
D)   Diversifying shareholder portfolios
E)   Identifying undervalued firms

Question 15

Which of the following is not generally a potential benefit of diversification?

Accepted Answer

A)   Control systems rewarding/penalizing division managers based on business unit objective
B)   Economies of scale and scope
C)   Economizing on transaction costs
D)   Diversifying shareholder portfolios
E)   Identifying undervalued firms

Question 16

What is the minimum efficient scale (MES) of production?

Accepted Answer

A)   The point on an average cost curve where the cost per unit begins to decline more rapidly
B)   The minimum point on a U-shaped average cost curve
C)   The minimum level of production at a plant for it to be considered profitable
D)   The level of production for a small sized plant
E)   The threshold at which capacity is constraining for a firm's production B

Question 17

Which of the following benefits of diversification explains the idea that corporate diversification can provide situations where an acquiring firm determines the stock price for firm they intend to acquire is too low?

Accepted Answer

A)   Use of internal capital markets
B)   Economies of scale and scope
C)   Economizing on transaction costs
D)   Diversifying shareholder portfolios
E)   Identifying undervalued firms

Question 18

Which of the following is not a way managers generally benefit from acquisitions?

Accepted Answer

A)   Increased compensation
B)   Consolidation of other senior executives
C)   Shielding against risk
D)   Political power
E)   Social prominence

Question 19

What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?

Accepted Answer

A)   Market for corporate control
B)   SEC
C)   Corporate board
D)   Corporate governance
E)   CEO

Question 20

Which of the following is generally a way that LBOs can help a firm realize its potential value?

Accepted Answer

A)   The synergies created allow for cost savings
B)   The transaction reduces the disparity between a firm's actual and potential share price
C)   The acquisition reduces the likelihood of competition in the industry
D)   The transaction requires debt repayment with future free cash flow leaving management no discretion over the investment of these funds
E)   The buyout gives an opportunity to adjust the management structure and makeup

Exam 2: Economies of Scale and Scope

What kind of economies come from reductions in average costs due to increases in capacity utilization?

Correct AnswerverifiedShow Answer

Suppose the cost of producing a 30 second commercial for television is $100,000.If airtime on the evening news costs $200,000 and is viewed by 5 million people,what is the advertising cost per potential customer?

Correct Answerverified$.06 per potential c...View AnswerShow Answer

What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs,but lower variable costs?

Correct AnswerverifiedC

Why is firm specific learning better in general for an organization?

Correct AnswerverifiedShow Answer

What is the approximate observed median learning curve slope for typical firms?

Correct AnswerverifiedShow Answer

Which of the following is a source of diseconomies of scale at a large firm?

Correct AnswerverifiedShow Answer

Which of the following best describes economies of scope?

Correct AnswerverifiedShow Answer

How does umbrella branding aid economies of scale and scope?

Correct AnswerverifiedC

Which of the following benefits of diversification explains the idea that a firm with many business lines can reduce swings in value because it receives only a small percentage of its revenue from any one of those business lines?

Correct AnswerverifiedShow Answer

If a firm enjoys lower costs due to a complex labor-intensive process,which of the following statements would then be true?

Correct AnswerverifiedShow Answer

How does carrying inventories contribute to economies of scale?

Correct AnswerverifiedShow Answer

What are economies of density as referred to in the airline industry?

Correct AnswerverifiedShow Answer

Which of the following is not a product specific fixed cost?

Correct AnswerverifiedShow Answer

Which of the following benefits of diversification explains the idea that combining unrelated businesses can allow firms to finance projects through cross-subsidization when they previously were unable to finance the same projects externally?

Correct AnswerverifiedShow Answer

Which of the following is not generally a potential benefit of diversification?

Correct AnswerverifiedShow Answer

What is the minimum efficient scale (MES) of production?

Correct AnswerverifiedB

Which of the following benefits of diversification explains the idea that corporate diversification can provide situations where an acquiring firm determines the stock price for firm they intend to acquire is too low?

Correct AnswerverifiedShow Answer

Which of the following is not a way managers generally benefit from acquisitions?

Correct AnswerverifiedShow Answer

What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?

Correct AnswerverifiedShow Answer

Which of the following is generally a way that LBOs can help a firm realize its potential value?

Correct AnswerverifiedShow Answer

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C

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B

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