WPC 480 Midterm 2 Questions With Complete Solutions

WPC 480 Midterm 2 Questions With
Complete Solutions

Boundaries of the firm "why does a firm exist and to what extent should the firm

expand?"




transaction cost economies helps explain and predict boundaries of the firm




helps managers decide

-which activities to perform in house (Internal Cost)

-services and products to obtain from the external market (External Cost)




asset specificity unique assets with high opportunity cost


ex. Auto parts and assembly




Firm vs. Market (make or buy) Firm: more control but less flexibility




Market: more flexibility but less control

, WPC 480 Midterm 2 Questions With
Complete Solutions
Diversification range of products should a firm offer and what geographic markets to

target




Single Business Leverages its competencies


ex. Coca-Cola, Facebook




Dominat Business dominant and minor business share competencies


ex. Harley Davidson




related constrained businesses general share competencies


ex. Nike, ExxonMobil




related linked some businesses share competencies


ex. Amazon, Disney




Unrelated (conglomerate) diversification businesses share few, if any, competencies


ex. Berkshire Hathway--> owns Geico & Duracell

, WPC 480 Midterm 2 Questions With
Complete Solutions

Operational Economies of Scope shared activities and leveraging core competencies




Financial Economies of Scope Internal Capital Markets (info provide more efficient

budgeting)




Restructuring--> executives can restructure the business portfolio




Boston Consulting Group Matrix helps guide portfolio planning


each category warrants a different investment strategy




4 Strategies:

1. Question Mark

2.Dog

3. Cash Cow

4. Star




question mark strategy earning are low/unstable or growing