MGT437 Mid terms_Oct252022 w answers

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University of Toronto, Mississauga *

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Economics

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May 15, 2024

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Page 1 of 15 NAME (PRINT): Last/Surname First /Given Name STUDENT #: SIGNATURE: UNIVERSITY OF TORONTO MISSISSAUGA FALL 2022 MID TERM EXAMINATION MGT437H5F Strategy and Governance Francis Olatoye Duration - 2 hours Aids: None The University of Toronto Mississauga and you, as a student, share a commitment to academic integrity. You are reminded that you may be charged with an academic offence for possessing any unauthorized aids during the writing of an exam. Clear, sealable, plastic bags have been provided for all electronic devices with storage, including but not limited to: cell phones, SMART devices, tablets, laptops, calculators, and MP3 players. Please turn off all devices, seal them in the bag provided, and place the bag under your desk for the duration of the examination. You will not be able to touch the bag or its contents until the exam is over. If, during an exam, any of these items are found on your person or in the area of your desk other than in the clear, sealable, plastic bag, you may be charged with an academic offence. A typical penalty for an academic offence may cause you to fail the course. Please note, once this exam has begun, you CANNOT re-write it. The exam is closed book. It consists of 20 multiple-choice questions, each worth 2% and 4 short-answer questions each worth 15%. For the multiple-choice questions, there is ONLY one correct answer per question. This exam will contribute 30% towards your final grade for this course. This is out of a possible 100 marks for the course. Instructions: 1. Multiple choice questions – Circle out the right answer. No need for shading or tick. 2. Short Answers: Answer question 1 & 2 and 2 other questions. Answer 4 questions in all. Provide your written response in the space provided.

Page 2 of 9 Multiple Choice Questions (2 points each) 1. How does umbrella branding aid economies of scale and scope? 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 2. Why is firm specific learning better in general for an organization? 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 3. Which of the following issues makes it difficult for to managers to reign in dedicated “co st centers” in a firm? a. Cost centers have no dedicated “customer” b. Cost centers are easy to judge against market counterparts performing similar functions c. Firms are unwilling to endure the ill will generated by firing unproductive elements in an organization d. Firms are always looking to cut costs when they retain an advantage insulting it from the market e. Managers of costs centers have significant latitude to complete their jobs 4. What are influence costs? a. Costs associated with slack effort and with the administrative controls to deter it b. The cost of activities aimed at affecting the distribution of benefits in an organization c. Costs related to the negotiation of external contracts d. Costs of recruiting (“buying”) outside employees with a particular skill se t e. The costs of advertising to customers 5. What problem preventing complete contracts refers to the limits on the capacity of individuals to process information, deal with complexity and pursue rational aims? a. Agency costs b. Bounded rationality c. Performance measurement difficulties d. Asymmetric information e. Contract body of law 6. Which of the following asset specificity forms describes why glass container production requires molds custom tailored to particular container shapes and glass making machines? a. Site specificity b. Physical asset specificity c. Dedicated assets

Page 3 of 9 d. Human asset specificity e. The fundamental transformation 7. Long term contracts with suppliers can help a firm with which of the following? a. Manufacture all needed inputs internally b. Acquire upstream firms in the vertical chain c. Acquire downstream firms in the vertical chain d. Counteract raw material price fluctuations and eliminate income risk e. None of the above 8. Which of the following is true with regard to the difference in exchange costs between an item produced internally by the 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 9. 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 10. 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 11. Which of the following factors requires the least consideration when assessing supplier power relative to the downstream industry it sells to? a. Competitiveness of the output market b. Purchase volume of downstream firms c. Availability of substitute inputs d. Threat of forward integration by suppliers e. Ability of suppliers to price discriminate 12. What entity as a supplier has the most substantial power over manufacturers in the commercial aircraft market? a. Raw materials suppliers b. Airlines c. Aircraft leasing companies d. Unions e. Passengers

Page 4 of 9 13. 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 14. Which of the following factors requires the least consideration when assessing supplier power relative to the upstream industry in which it buys raw materials? a. Number of competitors in downstream market b. Purchase volume of raw materials c. Availability of substitute inputs d. Number of upstream suppliers e. Ability of suppliers to price discriminate 15. Which of the following represents total surplus in the value creation equation, (B-P) + (P-C)? a. B + C b. P + C c. B – C d. P – C e. None of the above 16. Which of the following is not a common characteristic of capabilities? a. They are valuable across multiple products or markets b. They are tacit c. They are easy to reduce to simple algorithms or procedure guides d. They are embedded in what Richard Nelson and Sidney Winter call organizational routines – well-honed patterns of performing activities inside an organization e. They can persist even though individuals leave the organization 17. Which of the following is false with respect to the strategy of cost leadership? a. A firm following a strategy of cost leadership is following a generic strategy narrow in scope b. A firm can follow a cost leadership strategy through achieving benefit parity by making products with the same B, but at a lower C than its rivals c. A firm can follow a cost leadership strategy through achieving benefit proximity by offering a B that is not much less than those of competitors d. A firm following a strategy of cost leadership creates more value than its competitors by offering products that have a lower C than those of its rivals e. A firm can follow a cost leadership strategy by offering a product that is qualitatively different from that of its rivals

Page 5 of 9 18. What kind of strategy is one by which a firm maintains price parity with its competitors and profits from its benefit or cost advantage primarily through high price-cost margins, rather than through a higher market share? a. Pricing strategy b. Share strategy c. Margin strategy d. Focus strategy e. Generic strategy 19. Which of the following best describes a focus strategy? a. When a firm either offer a narrow set of varieties, serve a narrow set of customers, or do both b. When a firm sells products manufactured with raw materials from monopoly suppliers c. When a firm is the only one selling specific products d. When a firm faces many competitors and charges a lower price e. None of the above 20. Which of the following is not an isolating mechanism that falls under the heading of early- mover advantage? a. Learning curve b. Reputation and buyer uncertainty c. Buyer switching costs d. Network effects e. Superior access to inputs or customers

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