Question 1

Substitutes for exploiting economies of scope in diversification include
A) growing and developing independent businesses within a diversified firm and vertical integration.
B) vertical integration and strategic alliances.
C) growing and developing independent businesses within a diversified firm and strategic alliances.
D) strategic alliances and multipoint competition.

Accepted Answer

The two substitutes for exploiting economies of scope in diversification are growing and developing independent businesses within a diversified firm and strategic alliances. Vertical integration is not a substitute but rather a strategy to achieve economies of scope. Multipoint competition is not a substitute for economies of scope but rather a result of diversified firms competing in multiple markets.

Question 2

The only economy of scope that an unrelated firm can try to realize is
A) core competencies.
B) tax advantages.
C) multipoint competition.
D) risk reduction.

Accepted Answer

The only economy of scope that an unrelated firm can try to realize is risk reduction. This means that by diversifying their operations into different industries, the firm can reduce its overall risk of failure. This is because if one part of the firm is struggling, the other parts can compensate for the loss, resulting in a more stable overall business. Core competencies, tax advantages, and multipoint competition all relate to related diversification, which involves expanding into related industries to share resources and capabilities.

Question 3

________ is an example of a less costly-to-duplicate economies of scope.
A) Tax advantages
B) Core competencies
C) Internal capital allocation
D) Multipoint competition

Accepted Answer

Tax advantages are considered less costly-to-duplicate economies of scope because they can often be accessed by multiple firms through similar financial strategies or structures, unlike unique core competencies or strategic internal capital allocations.

Question 4

When diversified firms use the revenues from profitable businesses to subsidize the operations of another business and then set the prices of the subsidized firm's products at a level that is below the subsidized business's cost to produce these items, this is known as ________ pricing.
A) dynamic
B) monopoly
C) predatory
D) beneficial

Accepted Answer

This is an example of predatory pricing, where a firm deliberately sets prices below cost to drive out competition or deter entry of new competitors. The diversified firm may use profits from other businesses to sustain losses in the subsidized business while driving smaller competitors out of the market.

Question 5

Which of the following economies of scope is costly to duplicate?
A) shared activities
B) internal capital allocation
C) risk reduction
D) tax advantages

Accepted Answer

Internal capital allocation is costly to duplicate because it involves the unique ability of a firm to allocate resources efficiently within its divisions, which is difficult for external parties to replicate.

Question 6

Which of the following economies of scope do not have the potential for generating positive returns for a firm's equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock?
A) shared activities
B) diversification to maximize the size of a firm
C) internal capital allocation
D) exploiting market power

Accepted Answer

Diversification to maximize the size of a firm is a strategy that can be easily replicated by outside equity holders through investing in a diversified portfolio of stock. Therefore, it does not have the potential for generating positive returns for a firm's equity holders. The other economies of scope (shared activities, internal capital allocation, and exploiting market power) require the firm's unique capabilities and resources, which cannot be easily replicated by outside investors.

Question 7

Compared to two very risky businesses that have cash flows that are not highly correlated over time and that are operating separately, the risk of a diversified firm operating in those same two businesses simultaneously is
A) somewhat higher.
B) lower.
C) the same.
D) substantially higher.

Accepted Answer

The risk of a diversified firm operating in two businesses simultaneously is lower than that of two separate businesses operating independently as diversification brings reduced risk through the combination of cash flows. When one business experiences a downswing, the other might experience an upswing, and during unfavorable conditions of an industry, the impact on the entire firm would be reduced with the diversified portfolio.

Question 8

Research over the years has demonstrated conclusively that the primary determinant of the compensation of top managers in a firm is
A) not the size of the firm, usually measured in sales, but the economic performance of the firm.
B) both the economic performance of the firm as well as the size of the firm, usually measured in sales.
C) not the economic performance of the firm but the size of the firm, usually measured in sales.
D) neither the economic performance of the firm nor the size of the firm.

Accepted Answer

The answer of Research over the years has demonstrated conclusively...

Question 9

________ are substitutes for exploiting economies of scope in diversification.
A) Tax havens
B) Tax shelters
C) Tax freedom
D) Strategic alliances

Accepted Answer

Strategic alliances are substitutes for exploiting economies of scope in diversification. Strategic alliances can be used to combine resources and skills of two or more companies for mutual benefit, allowing for diversification without having to invest in new resources and capabilities. This can lead to cost savings and increased efficiency for both companies involved in the alliance. Tax havens and tax shelters are not related to exploiting economies of scope in diversification, and tax freedom is not a substitute for this strategy.

Question 10

At the beginning of 2001, Peach Computers competed exclusively in the computer industry and generated approximately 96% of its revenue from the sales of computers and computer-related software and approximately 4% of its revenues were generated from sales of other peripherals. Further, of these revenues, 60% was from sales in the U.S., 30% was from sales in Europe, 7% was from sales in Asia and 3% was from other areas. In October 2001, Peach entered the personal electronics industry by introducing a new MP3 player known as the PeachPit. In developing and selling the PeachPit, Peach Computers was able to use many of the same R&D facilities, suppliers, production facilities, and distribution and sales outlets as the computers and software Peach Computers traditionally sold. By 2003, the PeachPit MP3 Player, accessories for the unit, and sales of songs on Peach Computers' NectarTunes website accounted for 35% of Peach Computers' revenues.
-In 2001, Peach Computers' diversification strategy was best characterized as
A) related-linked diversification.
B) dominant-business diversification.
C) single-business diversification.
D) related-constrained diversification.

Accepted Answer

The answer of At the beginning of 2001, Peach Computers...

Question 11

A common way of thinking about strategy across different businesses within a firm is known as the firm's
A) core competency.
B) competitive advantage.
C) economy of scope.
D) dominant logic.

Accepted Answer

Dominant logic refers to the common way of thinking about strategy across different businesses within a firm. It is the underlying framework or approach to decision-making that guides the firm's strategic actions. Core competency, competitive advantage, and economy of scope are concepts that relate to specific aspects of a firm's strategy, but do not capture the overall approach to strategy across different businesses within the firm.

Question 12

Which of the following economies of scope is less costly to duplicate?
A) employee compensation
B) core competencies
C) multipoint competition
D) exploiting market power

Accepted Answer

Employee compensation can be duplicated more easily and at a lower cost compared to other economies of scope such as core competencies and exploiting market power, which require significant investments and resources to establish and maintain. Multipoint competition may also require significant investments in marketing and distribution channels, making it more expensive to duplicate compared to employee compensation.

Question 13

In general, as a source of capital a diversified firm has ________ information about a business that it owns compared to external sources of capital.
A) more and better
B) the same
C) less and inferior
D) more but biased

Accepted Answer

A diversified firm has access to internal information about the businesses it owns, which includes information that is not available to external sources of capital. This gives the diversified firm more and better information compared to external sources of capital.

Question 14

Which of the following economies of scope is costly-to-duplicate?
A) employee compensation
B) core competencies
C) shared activities
D) risk reduction

Accepted Answer

Core competencies are unique strengths and abilities that are difficult and costly for competitors to replicate. Unlike employee compensation, which can be replicated by other firms through different compensation packages, core competencies are a competitive advantage that is much more difficult to imitate. Shared activities and risk reduction are also potential economies of scope, but they are not necessarily costly-to-duplicate like core competencies.

Question 15

________ exists when two or more diversified firms simultaneously compete in multiple markets.
A) Multipoint competition
B) Dynamic competition
C) Multipoint cooperation
D) Dynamic cooperation

Accepted Answer

Multipoint competition refers to the situation where two or more diversified firms simultaneously compete in multiple markets. This happens when companies with diversified operations engage in competition across multiple geographic locations or product lines. This type of competition is often characterized by competitive moves and countermoves as each firm tries to gain an advantage over the other in multiple markets.

Question 16

For multipoint competition to lead to mutual forbearance,
A) the threat of retaliation must be substantial and the firms pursuing this strategy must have strong linkages among their diversified businesses.
B) the threat of retaliation must be low and the firms pursuing this strategy must have strong linkages among their diversified businesses.
C) the threat of retaliation must be low and the firms pursuing this strategy must have weak linkages among their diversified businesses.
D) the threat of retaliation must be substantial and the firms pursuing this strategy must have weak linkages among their diversified businesses.

Accepted Answer

For multipoint competition to lead to mutual forbearance, the threat of retaliation must be substantial, which means that the firms must have the resources and capabilities to respond effectively to any aggressive moves made by their competitors. Additionally, the firms pursuing this strategy must have strong linkages among their diversified businesses, which can help them coordinate their actions and prevent them from engaging in destructive price wars that could harm everyone involved. Thus, option A is the best choice.

Question 17

Which of the following statements regarding the rarity of diversification is accurate?
A) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare.
B) A particular economy of scope can only be rare if no other firms are exploiting that economy of scope.
C) A particular economy of scope can be rare even if many other firms are exploiting that economy of scope.
D) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare but only if the firm is pursuing unrelated diversification.

Accepted Answer

If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare, as it is not widely utilized by competitors, making it a potential source of competitive advantage.

Question 18

Diversified firms that are exploiting core competencies as an economy of scope but are not doing so with any shared activities are sometimes called ________ diversified firms.
A) seemingly unrelated
B) unrelated
C) semi-related
D) link-related

Accepted Answer

Seemingly unrelated diversified firms are those that have no shared activities or synergies across their multiple businesses, but still exploit their core competencies for an economy of scope. This type of diversification is often seen in conglomerates that have businesses in diverse industries with little or no overlap. It is different from related diversification, where the firm leverages synergies and shared activities between its businesses, and unrelated diversification, where the firm has no commonalities between its businesses.

Question 19

If all of a firm's businesses share the same core competencies, then that firm has implemented a strategy of ________ diversification.
A) single-business
B) related-linked
C) related-constrained
D) dominant-business

Accepted Answer

A related-constrained diversification strategy involves businesses that share core competencies, leveraging similar resources and capabilities across different business units.

Question 20

At the beginning of 2001, Peach Computers competed exclusively in the computer industry and generated approximately 96% of its revenue from the sales of computers and computer-related software and approximately 4% of its revenues were generated from sales of other peripherals. Further, of these revenues, 60% was from sales in the U.S., 30% was from sales in Europe, 7% was from sales in Asia and 3% was from other areas. In October 2001, Peach entered the personal electronics industry by introducing a new MP3 player known as the PeachPit. In developing and selling the PeachPit, Peach Computers was able to use many of the same R&D facilities, suppliers, production facilities, and distribution and sales outlets as the computers and software Peach Computers traditionally sold. By 2003, the PeachPit MP3 Player, accessories for the unit, and sales of songs on Peach Computers' NectarTunes website accounted for 35% of Peach Computers' revenues.
-By 2003, Peach Computers' diversification strategy was best characterized as
A) unrelated diversification.
B) related-constrained diversification.
C) related-linked diversification.
D) dominant-business diversification.

Accepted Answer

The answer of At the beginning of 2001, Peach Computers...

Quiz 7: Corporate Diversification

Substitutes for exploiting economies of scope in diversification include

The only economy of scope that an unrelated firm can try to realize is

________ is an example of a less costly-to-duplicate economies of scope.

When diversified firms use the revenues from profitable businesses to subsidize the operations of another business and then set the prices of the subsidized firm's products at a level that is below the subsidized business's cost to produce these items, this is known as ________ pricing.

Which of the following economies of scope is costly to duplicate?

Which of the following economies of scope do not have the potential for generating positive returns for a firm's equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock?

Compared to two very risky businesses that have cash flows that are not highly correlated over time and that are operating separately, the risk of a diversified firm operating in those same two businesses simultaneously is

Research over the years has demonstrated conclusively that the primary determinant of the compensation of top managers in a firm is

________ are substitutes for exploiting economies of scope in diversification.

A common way of thinking about strategy across different businesses within a firm is known as the firm's

Which of the following economies of scope is less costly to duplicate?

In general, as a source of capital a diversified firm has ________ information about a business that it owns compared to external sources of capital.

Which of the following economies of scope is costly-to-duplicate?

________ exists when two or more diversified firms simultaneously compete in multiple markets.

For multipoint competition to lead to mutual forbearance,

Which of the following statements regarding the rarity of diversification is accurate?

Diversified firms that are exploiting core competencies as an economy of scope but are not doing so with any shared activities are sometimes called ________ diversified firms.

If all of a firm's businesses share the same core competencies, then that firm has implemented a strategy of ________ diversification.