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Test Bank for Economics of Strategy, 6th Edition, David Besanko, David Dranove, Scott Schaefer, Mark Shanley

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Test Bank for Economics of Strategy, 6th Edition, David Besanko, David Dranove, Scott Schaefer, Mark Shanley, ISBN : 9781118543238, ISBN : 9781118441473, ISBN : 9781118273630

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Economics of Strategy 6th Edition, David Besanko, David Dranove, Scott Schaefer, Mark Shanley

Chapter 1: The Power of Principles: A Historical Perspective

1. Which of the following did not contribute to the high transaction related risks for U.S. potato sales in 1840?
a) Infrequency of transactions
b) Changing transaction partners
c) Lack of availability of sales and prices for comparable goods
d) Competition from European merchants
e) Geographic distance between buyers and sellers
2. What was a key contribution to the dominance of the family-run small business in 1840?
a) Factories
b) Infrastructure
c) Raw Materials
d) Management
e) Laws
3. Matchmakers between manufacturers and sellers are called:
a) Agents
b) Factors
c) Brokers
d) Merchants
e) None of the Above
4. What significant transportation event brought about the first significant growth of the Great Lakes region?
a) Harnessing of the steam engine
b) Invention of the screw propeller
c) Opening of the Erie Canal
d) Integration of railway system
e) Invention of the railway system
5. What is throughput?
a) The movement of inputs and outputs through a production process
b) Assets that assist in the production or distribution of goods and services
c) A condition that determines the horizontal and vertical boundaries of business firms
d) An investment in the acquisition of raw materials
e) The amount of time for a good to travel between metropolitan areas
6. What mode of long-distance communication first laid the groundwork for today’s modern communication forms?
a) U.S. Postal Service
b) Private mail service
c) Telegraph
d) Telephone
e) Railroad
7. What was the major role of private banks in the early 1800s?
a) Serve as an institution for deposits
b) Issue credit
c) Reduce the risk of price fluctuation
d) Create futures markets
e) Sell stocks
8. What was one of the first plant/factory types to use the “American System” of manufacturing?
a) Firearms
b) Steel
c) Oil
d) Automobiles
e) Chemicals
9. What economics game theory concept is demonstrated by the Erie Canal public works project?
a) Nash equilibrium
b) Lock-in
c) Backwards induction
d) Fair division
e) Prisoner’s dilemma
10. What was the most significant development to the evolution of business circa 1910?
a) Railroad integration
b) Telegraph communication expansion
c) Banking and accounting standard practices
d) Mass-production technology
e) Advent of steam technology in railroads and shipping

Chapter 2: Economies of Scale and Scope
1. Which of the following is a characteristic of economies of scale?
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) The average costs are cheaper when a firm produces a wider variety of goods
e) The average cost curve takes the form of a U-shape
2. What is the minimum efficient scale (MES) of production?
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
3. Which of the following is generally a way that LBOs can help a firm realize its potential value?
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
4. Which of the following best describes economies of scope?
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
5. What measure, that depends on how much of a firm’s revenues are attributable to product market activities that have shared technological characteristics, production characteristics, or distribution channels, is used to determine how diversified a firm is at a given time?
a) Integration level
b) Rumelt score
c) Conglomerate level
d) Activity share
e) Relatedness
6. Which of the following is not a product specific fixed cost?
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
7. What kind of economies come from reductions in cost due to adoption of technology that has high fixed costs, but lower variable costs?
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
8. Examining which of the following is broadly considered one of the easiest ways to measure diversifying activity?
a) Joint Ventures
b) Mergers and acquisitions
c) Internal Business Development
d) Strategic Alliances
e) Collaborative agreements
9. What force does Manne indicate constrains the actions of managers so that they stay focused on the goals of owners?
a) Market for corporate control
b) SEC
c) Corporate board
d) Corporate governance
e) CEO
10. What kind of economies come from reductions in average costs due to increases in capacity utilization?
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

Chapter 3: The Vertical Boundaries of the Firm
1. What do the vertical boundaries of a firm refer to?
a) The activities the firm itself performs versus purchases from independent firms
b) The level of expertise of the firm’s workforce
c) The breadth of products a firm produces
d) The production output level for a firm
e) The chain of production processes from raw materials to finished good
2. Which of the following processes is most representative of a vertically integrated firm on the “make” end of the make-or-buy continuum?
a) Arm’s length market transactions
b) Long-term contracts
c) Strategic alliances and joint ventures
d) Parent/subsidiary relationships
e) Perform activity internally
3. Which of the following processes is most representative of a less integrated firm on the “buy” end of the make-or-buy continuum?
a) Arm’s length market transactions
b) Long-term contracts
c) Strategic alliances and joint ventures
d) Parent/subsidiary relationships
e) Parent/subsidiary relationships
4. Which of the following has a downstream relationship with a Toyota Motor Corporation?
a) Steel manufacturers
b) Tire companies
c) Dealerships
d) Paint producer
e) Car parts manufacturer
5. The biotechnology industry is seeing a broad pattern of disintegration due to the fact that big pharma companies are less and less doing which of the following core functions?
a) Infrastructure
b) Product innovation
c) Obtaining regulatory approval
d) Customer relationship
e) Manufacturing and communications
6. Which of the following is a true argument regarding the make-or-buy decision process?
a) Firms should make an asset, rather than buy it, if that asset is a source of competitive advantage for the firm
b) Firms should buy, rather than make, to avoid the costs of making the product
c) Firms should make, rather than buy, to avoid paying a profit margin to independent firms
d) Firms should buy, rather than make, in general, because market firms are subject to the discipline of the market and must be efficient and innovative to survive
e) Firms should make, rather than buy, because a vertically integrated producer will be able to avoid paying high market prices for the input during periods of peak demand or scarce supply
7. What is a reason that companies might want to “buy” instead of “make” talent from the market when looking to acquire employees with a particular skill set?
a) External training methods are better than internal ones
b) Companies are always willing to pay more for external employees
c) External training is more advanced (up-to-date) than internal
d) Scale economies can result in fixed education costs while in house education methods may be more expensive
e) Externally trained employees are more likely to become better business leaders
8. What is a market firm?
a) Firm representing a particular industry
b) Financial firm
c) Subsidiary of the larger parent firm
d) Large scale firm
e) An independent outsourcing partner
9. What are agency costs?
a) Costs of the sales force
b) Costs associated with slack effort and with the administrative controls to deter it
c) Costs related to general and administrative expenses
d) Costs associated with outsourcing of firm functions
e) Costs attributed to the use of professional service firms
10. Which of the following is a method firms can use to counteract price fluctuations and eliminate income risk?
a) Manufacture all needed inputs internally
b) Acquire upsteam firms in the vertical chain
c) Enter into futures contracts to hedge the price of raw materials
d) Eliminate competitors by under-cutting their price
e) None of the above

Chapter 4: Integration and its Alternatives
1. What term describes when a firm is using the least-cost production process?
a) Agency efficiency
b) Technical efficiency
c) Lean compliant
d) Economizing
e) Six sigma compliant
2. What term describes when a firm has minimized the extent to which the exchange of goods and services in the vertical chain has been organized to minimize coordination, agency and transaction costs?
a) Agency efficiency
b) Technical efficiency
c) Lean compliant
d) Economizing
e) Six sigma compliant
3. The concept of who gets to control resources, make decisions and allocate profits is known as:
a) Matrix Management Outcome (MMO)
b) The Property Rights Theory (PRT)
c) Complete Contract Theory (CCT)
d) Total Production Model (TPM)
e) Resource Allocation Theory (RAT)
4. Which of the following is true with regard to the difference in production costs between an item produced in a vertically integrated firm and an item exchanged through an arm’s length market transaction as the level of asset specificity increases?
a) The cost difference increases with greater asset specificity
b) Scale-based advantages of outside suppliers are likely to be stronger with greater asset specificity
c) The cost difference declines with greater asset specificity
d) Scope-based advantages of outside suppliers are likely to be stronger with greater asset specificity
e) The costs are negative for all levels of asset specificity
5. Which of the following is true with regard to the difference in exchange costs between an item produced internally firm and an item purchased from an outside supplier through an arm’s length market transaction as the level of asset specificity increases?
a) The cost difference is positive for both low and high levels of specificity
b) The cost difference is negative for both low and high levels of specificity
c) The cost difference is negative for low and positive for high levels of specificity
d) The cost difference is positive for low and negative for high levels of specificity
e) As asset specificity increases, the transaction costs of the market exchange decrease
6. Which of the following conclusions can we make about vertical integration with regard to scale and scope economies?
a) If asset specificity is significant enough, vertical integration will be more profitable than arm’s-length market purchases, even when production of the input is characterized by strong scale economies or when the firm’s product market scale is small.
b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
c) A firm with a larger share of the product market will benefit more from vertical integration than a firm with a smaller share of the product market
d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
e) If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists
7. Which of the following conclusions can we make about vertical integration with regards to product market share and scope?
a) If asset specificity is significant enough, vertical integration will be more profitable than arm’s-length market purchases, even when production of the input is characterized by strong scale economies or when the firm’s product market scale is small.
b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
c) A firm with multiple product lines will benefit more from being vertically integrated in the production of components for those products in which it can achieve significant market scale
d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
e) If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists
8. Which of the following conclusions can we make about vertical integration with regards to asset specificity?
a) If asset specificity is significant enough, vertical integration will be more profitable than arm’s-length market purchases, even when production of the input is characterized by strong scale economies or when the firm’s product market scale is small.
b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
c) A firm with a larger share of the product market will benefit more from vertical integration than a firm with a smaller share of the product market
d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
e) If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists
9. Which of the following conclusions can we make about vertical integration with regard to product market share and scope?
a) Firms should make an asset, rather than buy it, if that asset is a source of competitive advantage for the firm
a) If asset specificity is significant enough, vertical integration will be more profitable than arm’s-length market purchases, even when production of the input is characterized by strong scale economies or when the firm’s product market scale is small.
b) A firm gains more from vertical integration when outside market specialists are better able to take advantage of economies of scale and scope
c) A firm with a larger share of the product market will benefit more from vertical integration than a firm with a smaller share of the product market
d) The more a firm produces, the greater its input and this ultimately decreases the likelihood that in-house production can take as much advantage of economies of scale and scope as an outside market specialist
e) If a firm is considering whether to make or buy an input requiring significant up-front setup costs, and there is a large market outside the firm for the input, then the firm should buy the input from outside market specialists
10. Which of the following in the late 19th century was predicted by the firm-size hypothesis?
a) Forward integration was most likely to occur for products that require specialized investments in human capital
b) Increases in the size of manufacturing firms led to independent wholesale and marketing agents losing scale/scope cost advantages and in turn led to manufacturers forward integrating into marketing and distribution
c) Forward integration was most likely to occur for products that do not require specialized investments in equipment and facilities
d) For industries with small manufacturers, marketing relied on specialized assets
e) For industries with small manufacturers, distribution relied on specialized assets

Chapter 5: Competitors and Competition
1. Which U.S. agency is responsible for preventing anticompetitive conduct?
a) Securities and Exchange Commission
b) Department of Justice
c) Office of Fair Trading
d) Competition Commission
e) Competition Authority
2. Which of the following is the definition of “competitors?”
a) Firms that manufacture similar products
b) Firms located in geographic proximity to each other
c) Firms that sell products to the same group of buyers
d) Firms whose strategic choices directly affect one another
e) Firms that purchase factors from the same suppliers
3. What criterion developed by the DOJ is used to identify all potential competitors within the market?
a) Market competition criterion
b) DOJ competition criterion
c) SSNIP criterion
d) SIC criterion
e) DOJ market criterion
4. Which of the following is not a characteristic of substitute products X and Y?
a) They have the same or similar product performance characteristics
b) They have the same or similar occasions for use
c) They are sold in the same geographic market
d) Customers are indifferent between X and Y
e) A price increase of X while keeping the Y’s price constant leads to a drop in purchases of X and an increase in purchases of Y
5. What empirical method generally is used to measure the degree to which products substitute for each other?
a) Cross-price elasticity
b) Price comparison
c) Relatedness factor
d) Standard Industrial Classification
e) SSNIP
6. What is a catchment area?
a) The area of a firm’s customers as defined by traditional county lines
b) The area a firm’s customers shops due to idiosyncratic reasons
c) The area a firm operates in which it has no competition
d) The area where a firms customer will go to shop in the event the firm were to raise prices
e) The contiguous area from which a firm draws most of its customers
7. What is defined by the number and size distribution of the firms in a market?
a) Herfindahl index
b) Market share
c) Market structure
d) SSNIP
e) Numbers-equivalent of firms
8. What is the term for examining consumers travel patterns?
a) Flow analysis
b) Travel analysis
c) Purchase location analysis
d) Consumer distance analysis
e) None of the above
9. Which of the following market structures generally has a Herfindahl index at .6 and above (usually having light competition, unless threatened by entry)?
a) Perfect competition
b) Monopolistic competition
c) Oligopoly
d) Monopoly
e) N-firm
10. In what type of market structure to sellers set identical prices and are prices generally driven down to marginal costs?
a) Perfect competition
b) Monopolistic competition
c) Oligopoly
d) Monopoly
e) Diversified

Chapter 6: Entry and Exit
1. What type of firm is one that is already operating in a particular market?
a) Market leader
b) Entrant
c) Incumbent
d) Market follower
e) Monopolist
2. What is the term defined as the withdrawal of a product from a market?
a) Shut-down
b) Exit
c) Sale
d) Removal
e) Withdrawal
3. Which of the following generally accompanies firms that survive as market entrants?
a) Precipitous growth
b) Lower marginal costs than incumbents
c) Higher average revenue than incumbents
d) Small size allowing fast decision making
e) None of the above
4. What term represents the conduct and performance of firms in the market after entry has occurred?
a) Postentry competition
b) Postentry actions
c) Postentry procedures
d) Postentry diversification
e) Postentry strategic decisions
5. What are the two types of barriers to entry?
a) Legal and strategic
b) Price and Size
c) Structural and strategic
d) Size and Legal
e) Price and Structure
6. What type of entry exists if structural barriers are so high the incumbent need do nothing to deter entry?
a) Deterred Entry
b) Judo Entry
c) Stealth Entry
d) Accommodated Entry
e) Blockaded Entry
7. What type of entry exists if structural entry barriers are low, and either (1) entry-deterring strategies will be ineffective or (2) the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out?
a) Deterred Entry
b) Judo Entry
c) Stealth Entry
d) Accommodated Entry
e) Blockaded Entry
8. What type of entry exists if (1) the incumbent can keep the entrant out by employing an entry-deterring strategy and (2) employing the entry-deterring strategy boosts the incumbent’s profits?
a) Deterred Entry
b) Judo Entry
c) Stealth Entry
d) Accommodated Entry
e) Blockaded Entry
9. How can incumbents legally erect entry barriers around novel and non-obvious products or production processes?
a) Collusive pricing
b) Predatory pricing
c) Patents
d) Formation of a cartel
e) Price fixing
10. Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?
a) DeBeers in diamonds
b) Nike in shoes
c) Pepsi in beverages
d) Subway in sandwich fast food
e) Levis in denim jeans

Chapter 7: The Dynamics Competing Across TIme
1. What term refers to situations in which firms can sustain prices in excess of those that would arise in a non-cooperative single-shot price or quantity-setting game?
a) Dedicated pricing
b) Strategic pricing
c) Marginal pricing
d) Cost-plus pricing
e) Cooperative pricing
2. What term describes a policy in which a firm is prepared to match whatever change in strategy a competitor makes?
a) Response strategy
b) Always cooperate strategy
c) Always aggress strategy
d) Tit-for-tat strategy
e) Trigger strategy
3. What term describes a decision that has a long-term impact and is difficult to reverse?
a) Dedicated investment
b) Strategic commitment
c) Critical choice
d) Market investment
e) Firm commitment
4. Given the following payoff diagram:
Firm 2
Aggressive Passive
Firm 1 Aggressive 40,10 55,15
Passive 50, 25 70, 20
How much can firm 1 improve its outcome by committing to a strategy thus transforming the simultaneous move game to a sequential move game?
a) 5
b) 10
c) 15
d) 20
e) 20
5. What type of cooperation-inducing strategy is defined as one so compelling that that a firm would expect all other firms to adopt it?
a) Backward induction
b) Focal point
c) Always aggress
d) Coordination
e) Folk
6. What is a grim trigger strategy in a two firm repeated game?
a) A strategy where a firm will always aggress regardless of how the other firm acts
b) A strategy where a firm will always cooperate regardless of how the other firm acts
c) A strategy in which a firm is prepared to match whatever changes in strategy the competitor makes
d) A strategy in which a firm initially cooperates and then aggresses for the rest of the game as soon as the opponent aggresses
e) A strategy in which a firm is prepared to aggress when its opponent cooperates and cooperate when its opponent aggresses
7. What tactical term best describes the capacity relationship between Toyota and Honda such that Toyota’s response is to reduce production output of the Rav 4 if Honda were to first announce a large increase in the production of the CR-V that drove down prices?
a) Tough commitment
b) Strategic complement
c) Soft commitment
d) Strategic substitute
e) Duopoly
8. What type of effect describes how a commitment impacts the present value of the firm’s profits, assuming the firm adjusts its own tactical decisions in light of this commitment and that its competitor’s behavior does not change?
a) Tactical effect
b) Financial effect
c) Direct effect
d) Strategic effect
e) Indirect effect
9. Why might a firm not be able to react quickly to competitors’ pricing moves?
a) Lags in detecting competitors’ prices
b) Infrequent interactions with competitors
c) Ambiguities in identifying which firm among a group of firms in a market is cutting price
d) Difficulties distinguishing drops in volume due to price cutting by rivals from drops in volume due to anticipated decreases in market demand
e) All of the above
10. Which of the following statements is true about how the volatility of demand conditions affects the sustainability of cooperative pricing?
a) Price cutting is easier to detect when demand conditions are volatile
b) Pricing coordination becomes easier in a volatile demand condition because firms are chasing a moving target
c) Price cutting is harder to detect when demand conditions are stable
d) Demand volatility is an especially serious problem when the production involves substantial variable costs
e) Demand volatility is an especially serious problem when the production involves substantial fixed costs

Chapter 8: Industry Analysis
1. Which of the following is not a potential limitation of the five-forces framework?
a) It pays little attention to factors that might affect demand
b) It focuses on a whole industry rather than on individual firms that may occupy unique positions that insulate them from some competitive forces
c) The framework does not explicitly account for the role of government, except when government is a supplier or buyer
d) The framework provides a structured way to systematically work through wide-ranging and often complex issues
e) The framework is a qualitative analysis method
2. Which of the following is not a part of the five-forces framework?
a) Supplier Power
b) Internal rivalry
c) Regulation
d) Buyer Power
e) Substitutes and Complements
3. Which of the following best describes the term, internal rivalry?
a) Divisions competing within a firm for resources
b) Differing product lines from one manufacturer competing
c) Firms jockeying for share within a market.
d) Firms competing for resources to produce goods
e) Suppliers dividing factors between competing firms
4. Which of the following conditions does not tend to heat up price competition?
a) Many sellers in the market
b) Products are differentiated/buyers have high switching costs
c) Some firms have excess capacity
d) The industry is stagnant or declining
e) There are large/infrequent sales orders
5. In which of the following ways can entry erode incumbents’ profits?
a) Entrants divide market demand among fewer sellers
b) Entrants decrease market concentration
c) Entrants usually grow the market for all parties
d) Entrants increase market concentration
e) Entrants reduce internal rivalry
6. Which of the following does not tend to affect the threat of entry?
a) Expectations about pre-entry competition
b) Government protection of incumbents
c) Consumers highly valuable reputation/consumers are brand loyal
d) Experience curve
e) Network externalities
7. Which of following factors should be considered when assessing complements and substitutes?
a) Availability of close substitutes and/or complements
b) Price-value characteristics of substitutes/complements
c) Price elasticity of industry demand
d) All of the above
e) None of the above
8. Substitutes erode profits because of which of the following factor?
a) Substitutes compete for similar inputs driving up production costs
b) Substitutes divide demand and drive up internal rivalry
c) Firms producing substitutes use similar worker skills dividing the labor pool
d) Manufacturers of substitutes enter markets later and have lower sunk costs
e) None of the above
9. Why are suppliers in a competitive upstream market said to have “indirect power”?
a) They can sell their services to the lowest bidder
b) They are always concentrated
c) Their customers are always locked into relationships with them
d) The price they charge never depends on supply and demand in the upstream market
e) The can sell their services to the highest bidder
10. What term refers to the ability of individual customers to negotiate purchase prices that extract profits from sellers?
a) Substitutes and Complements
b) Competition
c) Customer power
d) Seller power
e) Buyer power

Chapter 9: Strategic Positioning for Competitive Advantage
1. What term describes the situation when a firm earns a higher rate of economic profit than the average rate of economic profit of other firms competing within the same market?
a) Industry effect
b) Competitive advantage
c) Business unit effect
d) Competitive position
e) Market profitability economics
2. What is the perceived benefit of a product per unit consumed minus the product’s monetary price?
a) Value creation
b) Competitive advantage
c) Consumer surplus
d) Maximum willingness-to-pay
e) Value chain
3. What term describes the price at which a consumer is indifferent between buying a product and going without it?
a) Value creation
b) Competitive advantage
c) Consumer surplus
d) Maximum willingness-to-pay
e) Value chain
4. What is one way to measure a firm’s willingness-to-pay?
a) Marginal profit per unit of production
b) Value added analysis
c) Cost-benefit analysis
d) Input-output analysis
e) Sales-per-cost analysis
5. What type of curve can be used to describe the set of price-quality combinations that yields the same consumer surplus to an individual?
a) Frontier curve
b) Learning curve
c) Level curve
d) Implicit curve
e) Indifference curve
6. Select the letter corresponding to the best answer. For a given consumer, any price-quality combination along the indifference curve yields the _______________.
a) Same consumer surplus
b) Same maximum willingness-to-pay
c) High consumer surplus
d) Low consumer surplus
e) Same competitive advantage
7. The steepness (slope) of an indifference curve indicates which of the following?
a) The tradeoff a consumer is willing to make between price and quality
b) The change in price holding product benefit constant
c) The change in benefit holding price constant
d) The tradeoff between consumer surplus and producer surplus
e) None of the above
8. When multiple firms’ price-quality positions line up along the same indifference curve offering a consumer the same amount of consumer surplus, what term describes the situation?
a) Price-quality parity
b) Price matching
c) Maximum willingness-to-pay
d) Consumer surplus parity
e) Consumer surplus
9. Which of the following represents producer surplus in the value creation equation, (B-P) + (P-C)?
a) B
b) P
c) C
d) B-P
e) P-C
10. Which of the following represents consumer surplus in the value creation equation, (B-P) + (P-C)?
a) B
b) P
c) C
d) B-P
e) P-C

Chapter 10: Information and Value Creation
1. What term best describes a firm informing customers about a product’s benefits?
a) Advertising
b) Certification
c) Disclosure
d) Notice
e) Broadcasting

2. Which of the following best describes the consumer’s shopping problem?
a) Having enough money to purchase all necessary goods and services
b) Finding the seller that offers the highest value of B – P
c) Determining the quality of products
d) Locating sellers that provide the required products
e) Selecting between brand products and non-brand products.

3. When consumers learn about one seller at a time it is known as a :
a) Simultaneous search
b) Parallel search
c) Serial search
d) Sequential search
e) Divided search

4. When consumers learn about many products at once, it is known as a :
a) Simultaneous search
b) Parallel search
c) Serial search
d) Sequential search
e) Divided search

5. Products for which consumers can easily obtain the information required to compare alternatives are called:
a) Experience goods
b) Search goods
c) Retail goods
d) Consumer goods
e) Credence Goods

6. Products for which consumers cannot easily compare product characteristics and value information from others are called:
a) Experience goods
b) Search goods
c) Retail goods
d) Consumer goods
e) Credence Goods

7. Products for which consumers cannot easily evaluate quality even after purchasing and using the product are called:
a) Experience goods
b) Search goods
c) Retail goods
d) Consumer goods
e) Credence Goods

8. Unraveling is an economic theory that describes which of the following?
a) Low quality products will be quickly discovered and abandoned by buyers
b) High seller concentration leads to the development of many substitute products
c) Few sellers improve product quality once they have scale in production
d) Even low quality sellers will disclose their product quality
e) Consumers ultimately switch products regardless of quality

9. Which of the following serves as a voluntary signal of quality?
a) Warrantee
b) Independent reviews
c) Truth in Advertising
d) Free product financing
e) Public claims

10. When is a signal informative?
a) When it is lightly advertised by the firm
b) When it is more profitable for the high quality firm to offer it
c) When there are many firms advertising substitute products
d) When it is offered by the low quality firm
e) When the first firm that signals is the low quality firm

AND MUCH MORE