Chapter 5

Economic contribution is created when the revenue generated by selling a unit of a product is equal to the cost incurred by the firm in producing it. price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it. price a customer is willing to pay for a good is less than what it costs the firm to manufacture it. value a consumer attaches to a good or service is lesser than what he or she paid for it.

price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it.

Global Reach Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company's producer surplus? $150 $300 $650 $200

$200

By selling a television at $1,200 for which consumers are willing to pay up to $1,300, a consumer electronics firm makes a profit of $500 per unit. What is the economic value created in this scenario? $600 $1,300 $1,200

$600

_______ is best described as the difference between the value a consumer attaches to a good or service and what he or she paid for it. Consumer equity Consumer lifetime value Consumer surplus

Consumer surplus

Which of the following is a disadvantage of the balanced scorecard approach to measure firm performance? It fails to allow managers and executives to find a balance between financial and strategic goals. It only relies on an internal view of the firm, ignoring the external view. It fails to allow managers to align their different perspectives to create a more focused corporation overall. It provides only limited guidance about which performance metrics to choose.

It provides only limited guidance about which performance metrics to choose.

Initial product is often sold at a loss, or given away for free- drives demand for complimentary goods

Razor-Razorblade model

The tenet behind the triple bottom line is that a firm should solely focus on increasing the economic value created for its customers. a firm's primary objective should be increasing the total returns to its shareholders. a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy. a firm's return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.

a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

Rey estimated that a pair of NuFit jeans would be worth $60 for its brand and durability. However, at the NuFit store, the pair of jeans he wanted was available for $45. The difference of $15 in this scenario is referred to as the consumer surplus reservation price producer surplus

consumer surplus

The sum of consumer surplus and producer surplus for a good or service equals the reservation price. firm's profit. economic value created.

economic value created.

The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock is called the time compression economies. upper-echelons theory. price-demand function. efficient-market hypothesis.

efficient-market hypothesis.

If a company has 25 million shares outstanding, and each share is traded at $400, the ______ is $10 billion. total return to shareholders market capitalization customer lifetime value return on revenue

market capitalization