WPC 480 Midterm 2 UPDATED ACTUAL
Questions and CORRECT Answers
coporate strategy - CORRECT ANSWER - determining boundaries of a firm (scope of a
firm) Where to compete?
Vertical Integration - CORRECT ANSWER - process in which several steps in the
production and/or distribution of a product or service are *controlled and owned by a single
company*
forward integration - CORRECT ANSWER - takes information entered into a given
system and sends it automatically to all downstream systems and processes
buys apart of the economic value chain that happens after manufacturing
backward integration - CORRECT ANSWER - takes information entered into a given
system and sends it automatically to all upstream systems and processes
buying a part of the economic value chain that happens before manufacturing
ex. Hermes
Boundaries of the firm - CORRECT ANSWER - "why does a firm exist and to what extent
should the firm expand?"
transaction cost economies - CORRECT ANSWER - 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 - CORRECT ANSWER - unique assets with high opportunity cost
ex. Auto parts and assembly
Firm vs. Market (make or buy) - CORRECT ANSWER - Firm: more control but less
flexibility
Market: more flexibility but less control
Diversification - CORRECT ANSWER - range of products should a firm offer and what
geographic markets to target
Single Business - CORRECT ANSWER - Leverages its competencies
ex. Coca-Cola, Facebook
Dominat Business - CORRECT ANSWER - dominant and minor business share
competencies
ex. Harley Davidson
related constrained - CORRECT ANSWER - businesses general share competencies
ex. Nike, ExxonMobil
related linked - CORRECT ANSWER - some businesses share competencies
ex. Amazon, Disney
Unrelated (conglomerate) diversification - CORRECT ANSWER - businesses share few, if
any, competencies
ex. Berkshire Hathway--> owns Geico & Duracell
Questions and CORRECT Answers
coporate strategy - CORRECT ANSWER - determining boundaries of a firm (scope of a
firm) Where to compete?
Vertical Integration - CORRECT ANSWER - process in which several steps in the
production and/or distribution of a product or service are *controlled and owned by a single
company*
forward integration - CORRECT ANSWER - takes information entered into a given
system and sends it automatically to all downstream systems and processes
buys apart of the economic value chain that happens after manufacturing
backward integration - CORRECT ANSWER - takes information entered into a given
system and sends it automatically to all upstream systems and processes
buying a part of the economic value chain that happens before manufacturing
ex. Hermes
Boundaries of the firm - CORRECT ANSWER - "why does a firm exist and to what extent
should the firm expand?"
transaction cost economies - CORRECT ANSWER - 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 - CORRECT ANSWER - unique assets with high opportunity cost
ex. Auto parts and assembly
Firm vs. Market (make or buy) - CORRECT ANSWER - Firm: more control but less
flexibility
Market: more flexibility but less control
Diversification - CORRECT ANSWER - range of products should a firm offer and what
geographic markets to target
Single Business - CORRECT ANSWER - Leverages its competencies
ex. Coca-Cola, Facebook
Dominat Business - CORRECT ANSWER - dominant and minor business share
competencies
ex. Harley Davidson
related constrained - CORRECT ANSWER - businesses general share competencies
ex. Nike, ExxonMobil
related linked - CORRECT ANSWER - some businesses share competencies
ex. Amazon, Disney
Unrelated (conglomerate) diversification - CORRECT ANSWER - businesses share few, if
any, competencies
ex. Berkshire Hathway--> owns Geico & Duracell
