BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
Answers to Self-Evaluation Questions: Business
Management
CHAPTER 1
QUESTIONS FOR REVIEW
1.
What are the five factors of production? Is one factor more important than the
others? If so, which one? Why?
The five factors of production are labor, capital, entrepreneurs, physical resources, and information
resources. All five factors are crucial. However, their relative importance depends on the product and the
industry. In the software development business, for example, skilled labor and information resources are
especially important, but the business couldn’t survive without capital and physical resources (computers),
and it wouldn’t have been launched without an entrepreneur.
2.
What are input and output markets? How are they related?
Input market: Market in which resources flow to firms from supplier households. Resources include labor,
capital (e.g. some households invest in mutual funds, which in turn purchase stock, which in turn provide
capital for companies), entrepreneurs, information (e.g. consumer buying patterns). Output market: Market
in which firms supply goods and services in response to demand from households.
3.
What is a demand curve? A supply curve? What is the term for the point at
which they intersect?
The curve that describes the range of possible prices that a buyer will pay for a range of
possible quantities demanded by a buyer is the demand curve. The curve that describes
the range of price that a seller can charge for a range of quantities supplied by the seller
is called the supply curve. The point where the demand curve and the supply curve
intersect is the point at which the intentions of buyers and sellers coincide. The price at
this point is known as the equilibrium price.
4.
Explain the differences between the four degrees of competition and give an
example of each. (Do not use the examples given in the text.)

Pure competition: many competitors, easy entry into the industry, identical or
commodity goods, no control over price on the part of individual firms. Examples:
steel, grain, nails.

Monopolistic competition: many competitors (but fewer than pure competition),
limited barriers to entry, similar goods and services, some control over price on the
part of individual firms. Examples: cosmetics, fast food.

Oligopoly: few competitors, high barriers to entry, similar or different goods and
services, some control over price on the part of individual firms. Examples:
personal computers, movie studios.

Monopoly: no competitors, entry controlled by government, no directly
competing goods and services, considerable control over price. Examples: mail
delivery, national defense.
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QUESTIONS FOR ANALYSIS
5.
In recent years, many countries have moved from planned economies to market
economies. Why do you think this has occurred? Can you envision a situation that
would cause a resurgence of planned economies?
The failure of communism—both politically and economically—has led to an increase in the number of
mixed and market economies. Answers will vary as to what would cause a resurgence of planned
economies, but the factors might include a failure of capitalism to effectively distribute society’s resources,
or an unbearable level of crime and corruption.
6.
Cite an instance in which a surplus of a product led to decreased prices. Cite an
instance in which a shortage led to increased prices. What eventually happened in
each case? Why?
Answers will vary. However, the recent Pokemon craze provides a good example of a shortage followed by
a surplus. Three years ago, Pokemon trading cards were bid up to astronomical levels, often 10-20 times
the list price. This year, Pokemon cards and other products are selling for less than half price as stores
attempt to clear out their excess inventory. In fact, any clearance sale illustrates the concept of surplus
driving down prices. The classic example of a shortage driving up prices was the oil shortage of the 70s.
Another example is scalpers selling concert tickets at inflated prices. In all of these cases, the market
eventually determines a price at which all the supply can be sold.
7.
In your opinion, what industries in the United States should be regulated by the
government? Why?
Answers will vary, but students will most likely identify those industries which appear to act as monopolies,
such as the cable industry.
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CHAPTER 2
QUESTIONS FOR REVIEW
1. What is GDP? Real GDP? What does each measure?
GDP, gross domestic product, is the value of all goods and services produced in a year by a nation’s
economy through domestic factors of production. Real GDP is gross domestic product adjusted for
inflation. They each measure economic performance.
2. Why is inflation both good and bad? How does the government try to control it?
Inflation is bad because it can lead to a spiral of rising wages chasing rising prices, which must rise to
cover the cost of increased wages. It is good because it can signal the beginning of a period of growth for
the economy. Government tries to control inflation by adjusting interest rates through monetary policy.
3. What is technology? How does it affect organizations?
Technology includes human knowledge, phyiscal equipment, process systems, and all other ways by which a
firm creates value for its constituents. Technology is one of the economic production factors (next to land,
capital, and equipment) that enables a business to compete, improve the corporate performance, cut costs,
optimize operations, and satisfy the needs of customers, employees, and other stakeholders.
4. What is outsourcing? What are its benefits and risks?
A strategy to perform certain business processes or acquire resources needed outside a firm’s own
operations.
Benefits: saving costs, receiving independent know-how, avoiding idle capacity, availing of experts in a
particular field, transferring operational responsibilities
Risks: relinquishing operational control, creating dependency, facing reliablility issues, neglecting
management supply chain
QUESTIONS FOR ANALYSIS
5. Why is it important for managers to understand the environment in which their businesses operate?
To forge startegies, schedule resources, assess capacity, improve production (performance), be competitive,
anticipate and handle problems
6. Explain how current economic indicators such as inflation and unemployment affect you personally.
Explain how they will affect you as a manager.
Answers will vary.
Inflation: Shows the increase in prices of products which impacts consumer purchasing power (CPI) and
other personal aspects. It is also, to a certain extent, a gauge of how well the overall economy evolves,
something that has a bearing on our personal lives as well.
Unemployment: Knowing how many people are out of work can provide you with an indication of the
demand of certain skills, the state of employement benefits, the state of the economy (e.g., upswing,
recession, depression), and how effective government manages the economy.
7. At first glance, it might seem as though the goals of economic growth and stability are inconsistent
with one another. How can you reconcile this apparent inconsistency?
Answers may vary. Economic growth to increase employment, output, and wealth creation. Stability to
sustain growth and reduce the threat of inflation.
8. What is the current climate regarding the regulation of business? How might it affect you if you were
a manager today?
In the wake of the Enron and other scandals, the public is calling for increased government regulation and
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stricter enforcement of existing legislation. This increase in control measures would place additional
constraints and burdens on management.
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CHAPTER 3
QUESTIONS FOR REVIEW
1. Why are small businesses important to the U.S. economy?
Small businesses are major contributors to the nation’s GDP and serve as a major source of new and
ongoing employment opportunities. In addition they are a source of innovation and supply many large
businesses with the services, supplies, and raw materials they need.
2. What is the basic difference between a small business owner and an entrepreneur?
A small business is essentially a description of the business entity. Where as, entrepreneurship describes
the proprietor (The person). Entrepreneurs aspire to expand their business, are resourceful, maintain
closer customer relationships, and are willing to take risks.
3. From the standpoint of the franchisee, what are the primary advantages and disadvantages of most
franchise arrangements?
Advantages: Can grow business rapidly, enjoy the support of an already existing enterprise, have access to
management skills, do not have to build the business step-by-step, possible reduced risk of failure.
Disadvantages: Start-up cost, royalty payments to franchisor, many rules to follow.
4. Which industries are easiest for start-ups to enter? Which are hardest? Why?
Services are the easiest industries for small business to enter because they require few resources to get
started. Manufacturing and transportation are among the most difficult because they require enormous
resources.
QUESTIONS FOR ANALYSIS
5. Why might a closely held corporation choose to remain private? Why might it choose to be publicly
traded?
Decision to remain private: Stock is held by only a few people which creates feeling of ownership and
enables them to stay in control.
Decision to be publicly traded: Raising additional captial, dispersion of financial risk, possible incentives
offered by the government to go public.
6. If you were going to open a small business, what type would it be? Why?
Answers will vary. Students should consider the type of industry—whether service, retailing, wholesaling,
etc.—and the nature of the products or services they intend to offer. The competitive environment is also
important, as is the question whether the business will be the purchase of an existing firm, a start-up, or a
franchise.
7. Would you prefer to buy an existing business or start from scratch? Why?
Answers will vary; students should consider the advantages and disadvantages of each method of starting a
venture.
8. Under what circumstances might it be wise for an entrepreneur to reject venture capital? Under what
circumstances might it be advisable to take more venture capital than he or she actually needs?
If the venture capital has strings attached that would interfere with the entrepreneur’s plan or vision for the
firm, it might be wise to seek another source of funds instead. Accepting more venture capital than needed
might make sense if the terms were particularly favorable, such as low interest rate and long life of the
loan, and if the entrepreneur had intentions of expanding that would put the funds to use.
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CHAPTER 4
QUESTIONS FOR REVIEW
1. How does the balance of trade differ from the balance of payments?
The balance of trade is the total economic value of all products that a country imports minus the total
economic value of all products it exports. The balance of payments is the flow of money into or out of a
country.
2. What are the three possible levels of involvement in international business? Give examples of each.
The three levels are importing/exporting, international business, international business. Examples will vary.
3. How does a country’s the economic system affect the decisions of outside firms interested in doing
business there?
In dealing with mixed and planned economies, firms must be aware of when and to what extent the
government is involved in a given industry.
4. What aspects of the culture in your state or region would be of particular interest to a foreign firm
thinking about locating there?
Answers will vary. Many foreign firms will likely consider the diversity and subcultures among the citizens
of a particular state or region, and the willingness of those citizens to work for or buy from a foreign
company. However, aspects may vary depending on whether the firm plans to set up a production facility in
the area or whether it is looking to increase its customer base.
QUESTIONS FOR ANALYSIS
5. Make a list of all the major items in your bedroom, including furnishings. Try to identify the country
in which each item was made. Offer possible reasons why a given nation might have a comparative
advantage in producing a given good.
Answers will vary.
6. Suppose that you are the manager of a small firm seeking to enter the international arena. What basic
information would you need about the market that you are thinking of entering?
The manager of the small firm will likely be interested in the economic system of the potential market and
thus the ease with which the firm could enter the market. Also important will be the nature of the customer
base and whether those new customers possess the same buying characteristics as the firm’s current
customers. In addition the small firm may need to modify the product and/or the promotional strategy based
on any cultural or social differences. Legal and political hurdles should also be investigated.
7. Do you support protectionist tariffs for the United States? If so, in what instances and for what
reasons? If not, why not?
Answers will vary. Students should comment on the effects of unrestricted imports on the domestic economy
and the effect of tariffs on prices, employment, and competition.
8. Do you think that a firm operating internationally is better advised to adopt a single standard or
ethical conduct or adapt to local conditions? Under what kinds of conditions might each approach be
preferable?
Answers will vary. Students should comment on the possibility that conduct considered unethical in the
home country will damage the firm’s reputation, backfire abroad, or lead to situations in which the legality
of its actions could be called into question.
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CHAPTER 5
QUESTIONS FOR REVIEW
1. What basic factors should be considered in any ethical decision?
Answers will vary but students should note the circumstances of each issue, legal implications, personal
codes of ethics, and the effect of the decision on others.
2. Who are an organization’s stakeholders? Who are the major stakeholders with which most
businesses must be concerned?
Stakeholders include customers, employees, investors, suppliers, and local communities in which the firm
operates. Most businesses will need to consider all these.
3. What are the major areas of social responsibility with which business should be concerned?
The environment, customers, employees, and investors.
4. What are the four basic approaches to social responsibility?
Obstructionist (firm does as little as possible to solve social or environmental problems), defensive
(company meets only minimum legal requirements in its commitments to stakeholders), accommodative
(firm exceeds legal minimum if specifically asked to do so), and proactive (firm actively seeks opportunities
to contribute to the well-being of groups and individuals in its social environment.
5. In what ways do you think your personal code of ethics might clash with the operations of some
companies? How might you try to resolve those differences?
Answers will vary, as will suggested resolutions, which may range from trying to increase the employer’s
sense of social responsibility to quitting the company to work elsewhere.
QUESTIONS FOR ANALYSIS
6. What kind of wrongdoing would most likely prompt you to be a whistle-blower? What kind of
wrongdoing would be least likely? Why?
Answers will vary.
7. In your opinion, which area of social responsibility is most important? Why? Are there areas other
than those noted in the chapter that you consider important?
Answers will vary.
8. Identify some specific ethical or social responsibility issues that might be faced by small-business
managers and employees in each of the following areas: environment, customers, employees, and
investors.
Answers will vary but small business will face the same issues as larger firms discussed in the text.
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CHAPTER 6
QUESTIONS FOR REVIEW
1. What are the four main purposes of setting goals in an organization?
To provide direction and guidance for managers at all levels, to help firms allocate resources, to help
define corporate culture, and to help managers assess performance.
2. Identify and explain the three basic steps in strategy formulation.
(1) Setting strategic goals, which are derived from the firm’s mission statement. (2) analyzing the
organization and its environment for strengths, weaknesses, opportunities, and threats. (3) Matching
environmental threats and opportunities against the organization’s strengths and weaknesses.
3. Relate the five basic management skills to the four activities in the management process. For example,
which skills are most important in directing?
Technical skills may be most important in directing and controlling. Human relations skills are especially
important in organizing and directing. Planning utilizes conceptual skills. Decision making and time
management skills are important for all management activities.
4. What is corporate culture? How is it formed? How is it sustained?
Corporate culture is the shared stories, experiences, beliefs, and norms that characterize an organization.
Factors that form culture can range from the firm’s overall philosophy to daily operating methods.
Managing and communicating the organization’s desired culture to everyone within the firm allows it to be
sustained.
QUESTIONS FOR ANALYSIS
5. Select any group of which you are a member (your company, your family, or a club or organization,
for example). Explain how planning, organizing, directing, and controlling are practiced in that
group.
Answers will vary.
6. Identify managers by level and area at your school, college, or university.
Answers will vary although top administrative officials such as president chancellor, principal etc., are top
managers. Lower-level administrators such as department heads or program chairs are middle managers,
while faculty an staff are closest to first-line managers.
7. In what kind of company would the technical skills of top managers be more important than human
relations or conceptual skills? Are there organizations in which conceptual skills are not important?
High-tech firms in environments of rapid change are likely to be managed by top leaders with strong
technical skills, as are centralized organizations without many levels of management. Organizations
completely controlled by the government might not rank conceptual skills in a manager as highly as other
skills.
8. What differences might you expect to find in the corporate cultures of a 100-year-old manufacturing
firm based in the Northeast and a 1-year-old e-commerce firm set in Silicon Valley?
The older firm is more likely to have many established traditions and norms and, as a manufacturing firm,
to rely on technical skills in its top managers and its employees. It is also likely to have many layers of
management. The e-commerce firm will have few established elements of culture and will be defining itself
as it goes along, relying on managers’ and employees’ conceptual and decision-making skills. It will
probably have a relatively flat hierarchy and a fairly free-wheeling atmosphere.
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CHAPTER 7
QUESTIONS FOR REVIEW
1. What is an organization chart? What purpose does it serve?
An organization chart represents the firm’s structure and shows where employees fit into the hierarchy.
Such charts depict the extent of line and staff authority, departmentalization, and span of control at various
levels.
2. Explain the significance of size as it relates to organizational structure. Describe the changes that are
likely to occur as an organization grows.
A large firm is more likely to have specialized jobs and be decentralized. Job specialization becomes
increasingly important as a firm’s size increases and specialized jobs are then grouped into departments. A
decision-making hierarchy is then established.
3. What is the difference between responsibility and authority?
Responsibility is the duty to perform an assigned task, and authority is the power to make the decisions
necessary to complete a task.
4. Why do some managers have difficulties in delegating authority? Why does this problem tend to
plague smaller businesses?
Some managers fear that employees can never do anything as well as the managers themselves can, or that
something will go wrong if someone else takes over a job, or that things will go too well and the manager
will be shown up in front of others. Some managers are too bogged down in day-to-day activities to
delegate, or don’t know how to delegate effectively, or want to keep as much control as possible over the
way things are done. Small-business owners have difficulty because they usually begin their firms by doing
everything themselves and struggle to change.
5. Why is a company’s informal organization important?
The everyday social interactions between and among employees transcend formal jobs and job
interrelationships and can be just as powerful as the formal organization.
QUESTIONS FOR ANALYSIS
6. Draw up an organization chart for your college or university.
Answers will vary. Students should accurately depict the mix of customer (academic department)l and
functional structures.
7. Describe a hypothetical organizational structure for a small printing firm. Describe changes that
might be necessary as the business grows.
Answers will vary, but the shop will probably begin with a centralized structure in which the owner will
either perform or oversee every job. Various types of departmentalization will probably emerge as the firm
grows and it may become more decentralized as authority is delegated downward. The firm may advance
from a functional to a divisional or matrix organization.
8. Compare and contrast the matrix and divisional approaches to organization structure. How would
you feel personally about working in a matrix organization in which you were assigned
simultaneously to multiple units or groups?
A divisional organization consists of corporate divisions that operate as autonomous units under the larger
corporate umbrella. In a matrix structure, however, group members report to two or more managers,
usually one line and one staff manager. The matrix structure is typically used to address certain problems
or staff particular projects. Answers to the second question will vary but students should address the issue
of having more than one manager.
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CHAPTER 8
QUESTIONS FOR REVIEW
1. What are the advantages and disadvantages of internal and external recruiting? Under what
circumstances is each more appropriate?
Internal recruiting advantages

No need to teach the culture and the nature of the business

Builds morale and motivation for other employees who see peers being promoted
Internal recruiting disadvantages

May lead to fewer new ideas

Creates other openings in the company that need to be filled

May create resentment among other employees who are not promoted
External recruiting advantages
 Brings new ideas and expertise

Increases workforce diversity
 May bring new information about the competition and the marketplace
External recruiting disadvantages

May create training costs and temporary efficiency loss

May decrease morale among current employees

May create friction regarding salary differences if the outsider is more highly paid
Internal recruiting is more appropriate when there are many qualified internal candidates, while external
recruiting is more appropriate when there is a need for fresh thinking and greater diversity.
2. Why is the formal training of workers so important to most employers? Why don't employers simply
let people learn about their jobs as they perform them?
Employers need to ensure that workers are performing their jobs correctly and efficiently in order to
prevent costly errors. Also, in order to be socially responsible to employees, suppliers, shareholders, and
customers, firms must train their workers in the latest technology, the most efficient production processes,
and the nature of the industry.
3. What different forms of compensation do firms typically use to attract and keep productive workers?
Individual incentives may include bonuses, merit pay, or pay-for-performance. Company-wide incentives
include profit-sharing plans, gain-sharing plans, and pay-for-knowledge plans. Mandatory benefits include
Social Security and workers compensation insurance, while optional benefits include health and life
insurance, stock purchase plans, retirement programs, and family-friendly benefits such as flextime,
subsidized cafeterias, subsidized or free childcare, sick days, vacations, employee recognition awards, etc.
4. Why do workers in some companies unionize, whereas workers in others do not?
Compensation, working conditions, and the demographics of the workforce influence whether or not
workers opt to unionize.
QUESTIONS FOR ANALYSIS
5. What are your views on drug testing in the workplace? What would you do if your employer asked
you to submit to a drug test?
Answers will vary, but should include discussion of the impact of drug abuse on the workplace and issues of
employee privacy.
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6. Workers at Ford, GM, and Chrysler are represented by the United Auto Workers (UAW). However,
the UAW has been unsuccessful in its attempts to unionize U.S. workers employed at Toyota, Nissan,
and Honda plants in the United States. Why do you think this is so?
These workers, with company headquarters in Japan, may feel they have satisfactory wages, adequate
benefits, satisfactory working conditions, and reasonable job security.
7. What training do you think you are most likely to need when you finish school and start your career?
Answer will vary.
8. How much will benefit considerations affect your choice of an employer after graduation?
Answers will vary.
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CHAPTER 9
QUESTIONS FOR REVIEW
1. Describe the psychological contract you currently have or have had in the past with an employer. If
you have never worked, describe the psychological contract you have with the instructor in this class.
Answers will vary but should focus on contributions and inducements as described in the chapter.
2. Do you think that most people are relatively satisfied or dissatisfied with their work? Why are they
mainly satisfied or dissatisfied?
Answers will vary.
3. Compare and contract Maslow’s hierarchy of needs with the two-factor theory of motivation.
The two are somewhat similar in describing hierarchical needs, although Maslow posits five to Herzberg’s
two. In each case, lower level needs must be met first. In Maslow’s hierarchy, met needs cease to be
motivating. In the two-factor model, hygiene factors affect motivation only if they are absent or fail to meet
expectations.
4. How can participative management programs enhance employee satisfaction and motivation?
They allow employees to offer opinions and suggestions about how they do their jobs and about how the
firm is operated, and they allow employees to feel more committed to organizational goals they have helped
to shape.
QUESTIONS FOR ANALYSIS
5. Some evidence suggests that recent college graduates show high levels of job satisfaction. Levels then
drop dramatically as they reach their late twenties, only to increase gradually once they get older.
What might account for this pattern?
Answers will vary but high levels may stem from satisfaction with getting one’s first job after college. Drop
in satisfaction could result from perceived inequities among co-workers or between workers and
management, from adjustment to day-to-day activity of the job which may be tedious, from spending longer
than expected in an entry-level job, from frustrated ambition, from changing career plans, or from
increased family and/or financial responsibilities that compensation doesn’t adequately cover.
6. As a manager, under what sort of circumstances might you apply each of the theories of motivation
discussed in this chapter? Which would be easiest to use? Which would be hardest? Why?
Answers will vary.
7. Suppose you realize one day that you are dissatisfied with your job. Short of quitting, what might you
do to improve your situation?
Answers will vary, although students should realize that analyzing the cause of dissatisfaction is a
necessary first step to overcoming it.
8. List five U.S. managers who you think would also qualify as great leaders.
Answers will vary.
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CHAPTER 10
QUESTIONS FOR REVIEW
1. What are the key similarities and differences between consumer buying behavior and organizational
buying behavior?
Similarities—both deal with the way people purchase and consume products.
Differences—demand in the organizational setting is derived demand and tends to be inelastic.
Organizational buyers are professional, specialized, and expert, and organizational buying is sometimes a
group process that often results in frequent, long-lasting buyer-seller relationships.
2. Why and how is market segmentation used in target marketing?
Market segmentation is a method of analyzing customers that helps identify that portion of the buying public
the marketer can target for a particular product or service. The product can then be tailored in its package,
price, promotion, and distribution to best meet the needs of the target market, people with similar wants and
needs.
3. How do the needs of organizations differ according to the different organizational markets of which
they are members?
Industrial markets require products that are converted into other products or products that are consumed
during production. Resellers deal primarily with goods that are purchased for resale; their needs also
include maintenance and housekeeping. Government and institutional markets purchase large amounts
4. How are data mining and data warehousing useful in finding new information for marketing
research?
Answer Data mining tracks the buying habits of consumers over a long period of time and allows firms to
analyze a wealth of data in order to make marketing decisions. Wal-Mart’s data warehouse, for example,
contains five years of customer sales histories as well as data about weather patterns, local events, and
other relevant information. Wal-Mart discovered, for example, that Frito-Lay snacks sell well displayed
next to a table of Star Wars toys.
QUESTIONS FOR ANALYSIS
5. Select an everyday product (books, CDs, skateboards, dog food, or shoes, for example). Show how
different versions of your product are aimed toward different market segments. Explain how the
marketing mix differs for each segment.
Answers will vary but students should focus on product and package characteristics, price levels,
promotional tools, and distribution options. They should also discuss demographics and psychographics of
the target market and the way they influence marketing mix decisions.
6. Select a second everyday product and describe the consumer buying process that typically goes into
its purchase.
Answers will vary but should include need recognition, search for information, evaluation of information,
purchase decision, and postpurchase evaluation.
7. Consider a service product, such as transportation, entertainment, or healthcare. What are some
ways that more cutomer value might be added to this product? Why would your improvements add
value for the buyer?
Answers will vary depending on the service. Answers might include offering relationship marketing
techniques, such as, frequent user programs.
8. If you were starting your own small business (say, marketing a consumer good that you already know
something about), which of the forces in the external marketing environment do you think would
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have the greatest impact on your success?
Answers will vary depending on the nature of the product and business.
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CHAPTER 11
QUESTIONS FOR REVIEW
1. What are the various classifications of consumer and industrial products? Give an example of a good
and a service for each category other than those discussed in the text.
Consumer products: convenience (examples are bread, milk for goods and Seven-Eleven stores for
services); shopping (cars and houses for goods and furnace repair for service); and specialty (customized
jewelry for goods and developing business software for service). Industrial products: expense items (ink
used in producing newspapers for goods and shampoo in a beauty salon for service); capital items (forklifts
used in a warehouse for goods and the work of a landscaping designer for service).
2. List the four stages in the product life cycle and discuss some of the ways in which a company can
extend product life cycles.
The four stages are introduction, growth, maturity, and decline. Companies can extend the cycle by finding
new uses and new users for a product, by changing the frequency of product use, and/or by entering the
international market.
3. Explain how brand names and packaging can be used to foster brand loyalty.
They create an image for the product that consumers can identify and also suggested uniform quality which
encourages repeat purchasing.
4. How do cost-oriented pricing and breakeven analysis help managers measure the potential impact of
prices?
These tools measure the potential impact of various prices on the firm’s pricing objectives before final
prices are set. They are usually used together to allow the firm to identify prices that meet its objectives.
5. What is the overall goal of price skimming? Of penetration pricing?
Price skimming allows the marketer to recoup development costs and/or earn high profits early since price
is set high in the beginning. This strategy may be especially effective for products with few substitutes or
competitors; competitors will be attracted to enter the market with less expensive products. Penetration
pricing is an attempt to create awareness and stimulate trial purchases by setting prices low. once
consumer loyalty has been built, prices can be raised without losing customers.
QUESTIONS FOR ANALYSIS
6. How would you expect the branding, packaging, and labeling of convenience, shopping, and specialty
goods to differ? Why? Give examples to illustrate your answers.
Convenience goods must be branded, packaged, and labeled in ways that are easy to understand to assist
the consumer with product identification and handling. Shopping items may not have descriptive packaging
and labeling since consumers know exactly what they want to buy; branding may be important, however,
since customers will not accept substitutes for certain brands. Specialty items are placed in more elaborate
packages to create the desired image; branding is very important since consumers are paying large sums to
buy exactly what they want, while labeling may be less important since customers are very specific about
what they want.
7. Suppose that a small publisher selling to book distributors has fixed operating costs of $600,000 each
year and variable costs of $3.00 per book. How many books must the firm sell to break even if the
selling prices if $6.00? If the company expects to sell 50,000 books next year and decides on a 40percent markup, what will the selling price be?
Breakeven point = Fixed costs/Selling price–Variable costs. In the example, $600,000/($6 - $3) = 200,000
books. If the firm expects to sell 50,000 books, total costs will be $6000,000 + (50,000 X $3) = $750,000,
giving an average cost per book of $15. The firm may calculate its markup on cost or on selling price.
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
Markup on cost will yield a selling price of $15 + ($15 X .40) = $21. Markup on selling price yields $15 +
(selling price X .40) = $25.
8. Suppose your company produces industrial products for other firms. How would you go about
determining the prices of your products? Describe the method you would use to arrive at a pricing
decision.
The company needs to consider its pricing objectives, its fixed and variable costs, its competitors’ products
and substitutes, and the extent and strength of customer demand.
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CHAPTER 12
QUESTIONS FOR REVIEW
1. From the manufacturer’s point of view, what are the advantages and disadvantages of using
intermediaries to distribute products? From the end user’s point of view?
Manufacturers can benefit from selling in large quantities to intermediaries who, in turn, repackage items
into smaller quantities for consumers. Intermediaries can enhance the speed of delivery, critical for
perishable items, and can assist in marketing manufacturers’ items. On the other hand, they prevent
manufacturers from controlling their images through the distribution process and may give preferential
treatment to competitors. End users enjoy the simplification that intermediaries provide in consumer
purchasing, as well as the wide array of products and brands. Costs may increase, however, and the
difference is passed on to consumers.
2. Identify the eight channels of distribution. In what key ways do the four channels used only for
consumer products differ from the channels used only for industrial products?
Channel 1 involves direct sales to consumers, Channel 2 includes a retailer. Channel 3 involves both a
retailer and a wholesaler, and Channel 4 includes an agent or broker who enters the system before the
wholesaler and retailer. Channel 5 includes only an agent between the producer and the customer. Channel
6, which is used extensively for e-commerce, involves a direct sale to an industrial user. Channel 7, which is
used infrequently, entails selling to business users through wholesalers. Channel 8 includes retail
superstores that get products from producers or wholesalers (or both) for reselling to business customers.
The first four are aimed at getting products to consumers, the fifth is for consumers or business customers,
and the last three are aimed at getting products to business customers.
3. Identify and explain the differences between the three distribution strategies.
In intensive distribution, products are placed in as many locations as possible; competition is intense and
prices can be relatively low. In exclusive distribution, products are placed in specific locations that are
geographically dispersed; price tends to be high and competition somewhat low. Selective distribution
places products in select locations.
4. Explain the different roles play by merchant wholesalers and agents/brokers.
Merchant wholesalers own or take title to the products they sell. Agents/brokers merely represent
manufacturers and bring buyers and sellers together.
5. Explain how the activities of e-agents (Internet shopping agents) or brokers differ from those of
traditional agents/brokers.
E-agents assist users in finding products and prices on the Internet but do not take possession of products.
6. Identify the five modes of transportation used in product distribution. What factors lead companies
to choose one over the others to deliver products to end users?
Trucks, railroads, planes, water carriers, pipelines. Choice factors include cost, nature of product, distance
it must travel, speed with which it must be received, and customers’ wants and needs.
QUESTIONS FOR ANALYSIS
7. Give three examples (other than those in the chapter) of products that use intensive distribution. Do
the same for products that use exclusive distribution and selective distribution. For which category
was it easiest to find examples? Why?
Products distributed intensively include soft drinks, newspapers, disposable items like pens. Exclusive
distribution is used for foreign sports cars, designer jewelry, brand-specific clothing. Products that are
selectively distributed include certain types of software, domestic automobiles, health food items. Intensively
distributed products are easiest to find examples of because we come into daily contact with them and they
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
need frequent replenishing.
8. Consider the various kinds of nonstore retailing. Give examples of two products that typify the
products sold to at-home shoppers through each form of nonstore retailing. Explain why different
products are best suited to each form of nonstore retailing.
Direct mail marketing: Insurance and magazine subscriptions are suited because consumers can review
selling information and respond easily. Mail-order or catalog marketing: clothing and gifts are suited
because the products can be shown and described and returned if necessary. Telemarketing: telephone
service and cable television are suited because sales reps can describe features and benefits and answer
questions. Direct selling: personal care products and housewares are suited because they can be
demonstrated by someone the consumer already knows and trusts.
9. If you could own a firm that transports products, would you prefer to operate an intermodal
transportation business or one that specializes in a single mode of transportation (say, truck or air)?
Explain your choice.
Answers will vary.
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CHAPTER 13
QUESTIONS FOR REVIEW
1. What are the differences between push and pull strategies? Why would a firm choose one over the
other?
A firm implements a push strategy by aggressively marketing products to wholesalers and retailers, who
then persuade consumers to buy the products. It may be preferred when product supply exceeds demand and
marketers are trying to increase demand and reduce inventory. A pull strategy appeals directly tyo
consumers who demand products directly from the retailer. It may be preferred when the marketer wants to
create demand among consumers in hopes they will pressure wholesalers and/or retailers to stock the
products.
2. Compare the advantages and disadvantages of different advertising media.
Newspapers provide excellent coverage but have poor reproduction quality and are highly impermanent.
Television provides wide geographic coverage and reaches huge numbers of consumers but is expensive
and tends to confuse viewers with many and short commercials. Direct mail allows a marketer to select its
audience and personalize its message but if often regarded as junk mail. Radio ads reach a large audience
and are inexpensive, but they are over quickly and may require repeat exposure to be effective. Magazines
have relatively long shelf lives and benefit from pass-along readership but ads must be prepared in advance
and can appear in unfavorable locations in the magazine. Outdoor ads benefit from high repeat exposure
but can present only limited amounts of information. The Internet allows quick access to online subscribers
but many consumers may be annoyed at numerous ads or excessive detail.
3. What are the advantages of personal selling over other promotional tools?
Face-to-face communication allows the marketer to create a strong company image and to address
prospective customers’ questions and problems immediately as well as providing demonstrations of
products.
4. Which promotional tools have proven most useful in mounting global advertising campaigns? Why?
Worldwide advertising is one of the best tools for creating product awareness from country to country.
5. Is publicity more or less available to small firms than to larger firms? Why?
Marketers of any size can benefit from publicity but must be aware that it can be negative and is often
difficult to control.
QUESTIONS FOR ANALYSIS
6. Take a look at some of the advertising conducted by locally based businesses in your area. Choose two
campaigns: one you think effective and one you think ineffective. What differences in the campaigns
make one better than the other?
Answers will vary but should consider each campaign’s targeted audience, media mix, and accuracy in
reaching the audience.
7. Select a good or service that you have purchased recently. Try to retrace the relevant steps in the
buyer decision process as you experienced it. Which steps were most important to you? Least
important?
Answers will vary.
8. Find some examples of publicity about some business, either a local or a national firm. Did the
publicity have, or is it likely to have, positive or negative consequences for the business involved?
Why?
Answers will vary but students should note that the way a firm reacts to publicity can affect the public’s
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
perceptions of it.
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
CHAPTER 14
QUESTIONS FOR REVIEW
1. What are the four different kinds of production-based utility?
Time utility, created when marketers make products available at the time consumers want them; place
utility, created when products are available where they are convenient for consumers; ownership utility,
created when products become available for consumers to own and use; and form utility, created through
the transformation of raw materials into finished goods.
2. What are the major differences between goods-production operations and service operations?
Goods are produced by combining various factors of production to create finished products. Services are
performed based on specific customer requirements.
3. What are the major differences between high-contact and low-contact service systems?
In high-contact systems, customers must be present during the service transaction. In low-contact systems,
the customer does not have to be present.
4. What are the six major categories of operations planning?
1. Forecasting (uses both qualitative and quantitative techniques); 2. capacity planning (ensures that
capacity just slightly exceeds normal demand); 3. location planning (finds an optimal site for the
manufacturing or service facility); 4. layout planning (focuses on the internal arrangement of equipment
and employees); 5. quality planning (establishes control systems to ensure the level of quality in the
production process); 6. methods planning (focuses on methods for performing each production stage to
reduce waste and increase efficiency).
QUESTIONS FOR ANALYSIS
5. What are the resources and finished products in the following services:
 Real estate firm—labor is a resource; finished product is the service that brings buyers and sellers
together
 Child care facility—resources are labor and equipment; product is care for children

Bank—resources are labor and equipment; product is financial services

City water and electric department—resources are labor, raw materials, equipment; products are
continuous supplies of power and water

Hotel—resources are labor, raw materials, equipment; product is lodging and amenities.
6. Analyze the location of a local firm where you do business (perhaps a restaurant, a supermarket, or a
manufacturing firm). What problems do you see with this location? What recommendations would
you make to management?
Answers will vary but students should recognize the process involved in producing the relevant goods or
services and any possible inefficiencies created by location.
7. Find good examples of a synthetic process and an analytic process. Explain your choices.
Answers will vary.
8. Develop a service flow analysis for some service you use frequently, such as buying lunch at a
cafeteria, having your hair cut, or riding a bus. Identify areas of potential quality or productivity
failures in the process.
Answers will vary. Students should consider whether customized services and/or high-contact services have
greater potential for quality and productivity failures, and whether “failure” is subjective based on
individual perceptions.
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CHAPTER 15
QUESTIONS FOR REVIEW
1. What is the relationship between productivity and quality?
Productivity is a measure of economic performance, comparing how much is produced with the resources
used to produce it. Quality measures a product’s fitness for use. High levels of productivity and quality are
demanded in today’s business world; both create profitable competition.
2. Why do labor unions care about the productivity of an industry?
Increased productivity and a focus on quality can reduce customer complaints, increase citizens’ wealth,
and strengthen the competitive position of the firm and the industry. Such strength can provide growth in
the firm and industry, which may result in increased job security and higher union membership.
3. What part do inputs and outputs play in the basic equation for measuring labor productivity?
The equation gives an indication about the amount of goods and services a country can produce and how
efficiently it uses its resources (land, capital, labor, technology) to generate this output level.
4. What activities are involved in total quality management?
Value added analysis, statistical process control, quality/cost studies, quality improvement teams,
benchmarking, and getting closer to the customer.
5. What are the essential steps in process engineering?
a. Identify the activities that have to be designed
b. Check if the necessary resources are available to operate the process
c. Create the process design
d. Implement the process design
e. Monitor the process. Does it live up to expectations?
QUESTIONS FOR ANALYSIS
6. How would you suggest that benchmarking be used to increase productivity in the service sector?
Firms can look for competitors that deal efficiently with waiting lines or are noted for prompt or especially
courteous service.
7. Why is employee empowerment essential to successful quality improvement teams?
Because team members are expected to solve common production problems and improve both work methods
and products, for which they need the ability to make and implement decisions.
8. Why is high productivity in the service sector so difficult to achieve?
One reason is the high degree of variability that can occur between service transactions, even when
performed by the same employee. There are also fewer tools with which to measure service productivity,
and in low-contact services in particular, customers may never make direct observations of the transaction.
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CHAPTER 16
QUESTIONS FOR REVIEW
1. Why must a business manage information as a resource?
Because it is an asset to plan for, develop, and protect.
2. How can an electronic conferencing system increase productivity and efficiency?
It is readily available and allows participants to meet and interact at the same time without the need for
travel to distant locations.
3. Why do the four levels of user groups in an organization need different kinds of information from the
information system?
Because they have different responsibilities, different kinds of problems, and different information needs to
solve them.
4. In what ways are local area networks (LANs) different from or similar to wide area networks
(WANs)?
Both are networks of computers and workstations. WANs consist of remote locations linked by telephone or
satellite; LANs consist of near locations linked by cable.
5. What are the main types of electronic information technologies being applied in business information
systems.
Fax machines, voice mail, e-mail, electronic conferencing, groupware.
QUESTIONS FOR ANALYSIS
6. Give two examples (other than those in this chapter) for each of the major types of applications
programs used in business.
Word processing for memos and writing reports and stories; spreadsheets for accounting/payroll
applications and inventory or sales forecasts; databases for managing employee files, customer order files,
inventory files; graphics for presentations.
7. Describe three or four activities in which you regularly engage that might be made easier by
multimedia technology.
Answers will vary.
8. Give three examples (other than those in this chapter) of how a company can become leaner by
adopting a networked information system.
Answers will vary but students should recognize that information networks streamline and automate
communications operations and allow more to be done with fewer resources.
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CHAPTER 17
QUESTIONS FOR REVIEW
1. Identify the three types of services performed by CPAs.
Auditing services, tax services, and management services.
2. How does the double-entry system reduce the chances of mistakes or fraud in accounting?
Every transaction affects two accounts. Recording dual effects ensures that the accounting equation always
balances.
3. What are the three basic financial statements and what major information does each contain?
The balance sheet reflects a firm’s financial condition at one point in time by supplying detailed information
about the firm’s assets, liabilities, and owners’ equity. The income statement reflects a firm’s profit or loss
by comparing the firm’s revenues with its expenses. The statement of cash flows describes a company’s
yearly cash receipts and cash payments.
4. Identify the three major classifications of financial statement ratios and give an example of one ratio
in each category.
Solvency ratios express a firm’s ability to pay obligations; profitability ratios measure potential earnings;
and activity ratios reflect how efficiently management uses its assets. Examples will vary.
5. Explain how financial ratios allow managers to monitor their own efficiency and effectiveness.
These ratios are composed of key financial performance measures that supply managers with information
about the ability to meet liabilities, profitablility, and how effective resources are utilized. The results
generated by the ratios can than be compared to industry standards.
6. Explain the ways in which financial accounting differs from managerial (management) accounting.
Financial accounting: Information is used by external users, focuses on the company as a whole, has to
follow the generally accepted acounting principles, provides information about the financial postion of a
firm
Managerial accounting: Data is used by internal users, focuses on the individual departments in the
company, can be customized toward the need of the user, goes beyond just providing informtion about the
financial postion of the company and supplies solutions to problems as well
QUESTIONS FOR ANALYSIS
7. If you were planning to invest in a company, which of the three types of financial statements would
you most want to see?
Why? Balance sheets provide the most complete information, while income statements illustrate the
relationship between the company’s revenues and expenses and the resulting profit or loss. Some
companies, unless publicly traded, do not prepare a statement of cash flows.
8. Dasar Co. reports the following data in its Sept. 30, 2001 financial statements:
Gross sales
Current sales
Long-term assets
Current liabilities
Long-term liabilities
Owners’ equity
Net income
$225,000
40,000
100,000
16,000
44,000
80,000
7,200
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
Compute the following ratios: current ratio, debt-to-equity ratio, and return on owners’ equity.
Current ratio = Current assets/Current liabilities = 40,000/16,000 = 2.5
Debt-to-equity ratio = total liabilities/Owners’ equity = 60,000/80,000 = .75
Return on sales = Net income/Sales = 7,200,225,000 = .032 or 3.2 %
Return on Owners’ Equity = Net income/Owners’ Equity = 7,200/80,000 = .09 or 9%
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
CHAPTER 18
QUESTIONS FOR REVIEW
1. What are the components of M-1? M-2?
M-1 consists of currency, demand deposits, and other checkable deposits. M-2 includes M-1 as well as time
deposits, money market mutual funds, savings deposits, and overnight transactions.
2. Explain the roles of commercial banks, savings and loan associations, and nondeposit institutions in
the U.S. financial system.
Commercial banks use deposits to make loans and to earn profits. Savings and loan associations accept
deposits and make loans primarily for home mortgages. Nondeposit institutions, including pension funds,
insurance companies, finance companies, and securities investment dealers, take in money, provide interest,
and/or make loans.
3. Explain the types of pension services that commercial banks provide for their customers.
Setting up savings plans such as IRAs, serving as financial intermediaries by receiving and investing funds
as directed by customers, providing information about investment vehicles available, and offering trust
services that can pay bills, manage investment portfolios, or manage the estates of the deceased.
4. Describe the structure of the Federal Reserve System.
The Federal Reserve System is made up of a board of 7 governors, 12 Reserve Banks, and member banks.
5. Show how the Fed uses the discount rate to manage inflation in the U.S. economy.
The Fed regulates the supply of money, decreasing the discount rate to keep the economy from slowing
down too much or increasing it to stimulate the economy.
QUESTIONS FOR ANALYSIS
6. Do you think credit cards should be counted in the money supply? Why or why not? Support your
argument by using the definition of money.
Answers may vary. Credit cards are portable, divisible, durable, and stable as well as serving as a medium
of exchange, a store of value, and a unit of account, although they represent borrowed money which
students may feel prevents them from fitting the definition of money.
7. Should commercial banks be regulated, or should market forces be allowed to determine the money
supply? Why?
The U.S. banking system has remained strong primarily because of strict government controls that allow
adjustments to be made that counter the effects of inflation and recession.
8. Identify a purchase made by you or a family member in which payment was made by check. Draw a
diagram to trace the steps in the clearing process followed by that check.
Answers will vary although students should note the check is deposited in a payee’s bank and then in the
bank’s account at the district bank for its region. From there the check goes to the district bank in the
region where the drawer’s bank is located and is forwarded to the drawer’s local bank for payment. The
local bank deducts the amount of the check from the drawer’s account and the same amount is transferred
from the bank’s account at the regional Federal Reserve Bank and transferred to the Federal Reserve Bank
in the payee’s region. The payee’s local bank and individual account are credited.
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CHAPTER 19
QUESTIONS FOR REVIEW
1. What are the purposes of the primary and secondary markets for securities?
The primary market sells newly issued stocks and bonds; the secondary market is where existing stocks and
bonds are traded.
2. Which of the three measures of common stock value is most important? Why?
Market value reflects investors’ willingness to invest and is arguably the most important measure.
3. How do government, municipal, and corporate bonds differ from one another?
Federal government bonds are backed by the government and are the safest. Municipal bonds are issued by
state and local governments to finance school, transportation, and other projects; investors pay no tax on
interest received on these bonds. Corporate bonds, issued by corporations, are rated to help investors
assess their risk. They may be registered or bearer, and secured or unsecured.
4. How might an investor lose money in a commodities trade?
When the value of the commodity decreases, the investor in commodities or in futures loses money. Buying
futures contracts on margin can also lead to loss if the price of the commodity goes down.
5. How does the Securities and Exchange Commission regulate securities markets?
It oversees many phases in the securities issuing process, in order to protect investors and maintain
functioning markets. For instance the SEC requires a detailed prospectus from every firm to prevent
fraudulent issues and enforces laws against insider trading.
6. Which U.S. stock market has the largest volume of trade?
The New York Stock Exchange.
QUESTIONS FOR ANALYSIS
7. Suppose you decide to invest in common stocks as a personal investment. Which kind of broker—full
service or online discount—would you use for buying and selling? Why?
Answers will vary.
8. Which type of mutual fund would be most appropriate for your investment purposes at this time?
Why?
Answers will vary but students should consider their financial goals and risk tolerance.
9. Using a newspaper, select an example of a recent day’s transactions for each of the following: a stock
on the NYSE, a stock on the AMEX, a Nasdaq stock, a bond on the NYSE, and a mutual fund.
Explain the meaning of each element in the listing.
Answers will vary but most stock listings will include the years high and low prices, the stock’s symbol, the
annual dividend payable, the price-earnings ratio, the volume of shares traded, and day’s high and low
prices, the closing price, and the net change from the pervious day’s closing price. Bond quotations also
reveal the bond’s year of maturity. Mutual fund quotations list each fund’s objective as well as ranking each
fund’s recent and long-term performance against other funds with similar objectives.
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
CHAPTER 20
QUESTIONS FOR REVIEW
1. What are four short-term sources of funds for financing day-to-day business operations? Identify the
advantages and disadvantages of each.
Trade credit allows the firm to use the purchased product and the price of the product until the firm pays
the bill, but the firm must monitor its agreement so that adequate credit can be maintained as well as sound
relationships with vendors. Secured loans must be backed by collateral but generally offer lower interest
rates. Unsecured loans require no collateral but a compensating balance must sometimes be maintained at
the lending bank. Interest rates on unsecured loans can be higher but many such loans take the form of lines
of credit or revolving credit agreements that can be accessed at any time. Factoring accounts receivable
allows the firm to raise funds on amounts owed to it, eliminating a portion of accounts receivable without
taking the time to collect it from customers.
2. In what ways do the two sources of debt financing differ from each other? How do they differ from
the two sources of equity financing?
The duration of long-term loans varies accounting to the borrower’s needs whereas the duration of bonds is
predetermined and can run to 30 years. A company issuing bonds gains access to large number of lenders
through bond markets and stock exchanges, while borrowers of long-term loans may have difficulty finding
lenders to supply large sums of money. Interest rates on bonds are spelled out in the bond indenture while
interest rates on long-term loans are often negotiated.
By issuing shares of common stock, firms acquire needed funds but incur need to pay dividends to
stockholders, which can be most costly than paying bond interest. A company using retained earnings as
capital will not have to borrow money or pay interest; if it has a history of reaping profits by reinvesting
retained earnings it can become attractive to investors although retained earnings mean smaller dividends
for shareholders which can decrease stock price.
3. Describe the relationship between investment risk and return. In what ways might the risk-return
relationship affect a company’s financial planning?
Risky investments have historically offered higher returns. A company’s financial planning can be affected
by the risk-return relationship is the risk-management process is not applied or if inadequate lossprevention techniques are used.
4. Give two examples of risks that are uninsurable. Why are they uninsurable?
Answers will vary but should lack the four criteria for insurability—predictability, casualty,
unconnectedness, and verifiability. Examples include losses due to economic and environmental conditions,
poor management, and changes in government regulations.
5. Describe the risk-management process. What are the major roles of a company’s risk manager?
The five steps of the process are (!) identifying risks, (2) measuring possible losses, (3) evaluating
alternative techniques, (4) implementing chosen techniques, and (5) monitoring results. Risk managers must
learn to avoid, control, retain, or transfer risk.
QUESTIONS FOR ANALYSIS
6. How would you decide on the best mix of debt. equity, and preferred stock for a company?
Answers will vary as each firm’s position is unique. Answers will vary; students should know that all-equity
financing is extremely conservative; all-debt financing is the riskiest strategy. Preferred stock serves as a
middle ground between debt and equity financing.
7. Why is liability insurance important to business firms?
It protects the firm’s assets and owners’ investments in the firm.
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BUSINESS MANAGEMENT: SELF-EVALUATION QUESTIONS)
8. As a risk manager of a large firm, what risks do you think your firm faces? For a small firm? What
accounts for the most important differences?
Answers will vary although students should recognize that firms of all sizes face risks from changes in
consumer demand and behavior, economic and social conditions, and technology and financial conditions.
Some firms face risk from managers’ actions that do not support the best interests of stockholders.
29