Worksheet 1 + Unit 1 Flashcards
Which of the following is a characteristic of economies of scale?
The average cost declines as output increases
What is the minimum efficient scale (MES) of production?
The minimum point on a u shaped average cost curve
Which of the following is generally a way that LBOs can help a firm realize its potential value?
The transaction requires debt repayment with future free cash flow leaving management no discretion
over the investment of these funds
Which of the following best describes economies of scope?
Savings are achieved when a firm produces a wider variety of goods
What measure, that depends on how much of a firm’s revenues are attributable to product market
Relatedness
Which of the following is not a product specific fixed cost?
The cost of administrative expenses
What kind of economies come from reductions in cost due to adoption of technology that has high
fixed costs, but lower variable costs?
Long-run economies of scale
Examining which of the following is broadly considered one of the easiest ways to measure
diversifying activity?
Mergers and acquisitions
What force does Manne indicate constrains the actions of managers so that they stay focused on the
goals of owners?
Market for corporate control
What kind of economies come from reductions in average costs due to increases in capacity
utilization?
Short-run economies of scale
What are economies of density as referred to in the airline industry?
Economies of scale along a given route
Which of the following is not generally a potential benefit of diversification?
Control systems rewarding/penalizing division managers based on business unit objective
Which of the following benefits of diversification explains the idea that mergers are more likely when
there is an expectation of positive changes in market share?
Economies of scale and scope
How does carrying inventories contribute to economies of scale?
Minimizes the chance of stock-out
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?
Use of internal capital markets
Which of the following is not a reason a supplier might seek to sell in bulk?
Each sale involves setting up a different production run
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?
Diversifying shareholder portfolios
Which of the following practices does not contribute to the strategic fit of Southwest Airlines?
Use of multiple types of planes
What type of research looks at the changes in market valuations in response to the announcement of
diversifying acquisitions to assess the success of diversification?
Event studies
Which of the following is a source of diseconomies of scale at a large firm?
Capital intensive production processes
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?
Identifying undervalued firms
Why might a large firm actually be at an advantage over a smaller firm with respect to labor?
Worker turnover is generally lower
Which of the following is not a way managers generally benefit from acquisitions?
Consolidation of other senior executives
What is the approximate observed median learning curve slope for typical firms?
0.8
Why is firm specific learning better in general for an organization?
Ensures worker knowledge is tied to current employment
What institution within a firm must fail on some level for managers to be motivated to acquire another
firm for the purposes of increasing their own compensation, shielding themselves against risk, or gaining
prominence by running a larger firm?
Corporate governance
If a firm enjoys lower costs due to a complex labor-intensive process, which of the following
statements would then be true?
An example of this process could be the practice of anti-trust law
By satisfying which of the following conditions can shareholders prevent management driven
acquisitions?
If shareholders could determine which acquisitions will lead to increased profits and which will not
How does umbrella branding aid economies of scale and scope?
Increases effectiveness of advertising due to offering a broad product line under one name
Economies of scale are best described as which of the following?
The average cost declines as output increases
Consolidation of managers often occurs due to which of the following?
Mergers & acquisitions
Increased economies of scale and scope are helped by which of the following?
Umbrella branding
Diversifying activity is most often measured by looking at which of the following?
Acquisition and merger activity
The minimum point on a U-shaped average cost curve is known as which of the following?
Minimum Efficient Scale of production (MES)
