Chapter 3 Questions

C

A company is best described as a _____ to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service. A. competitor B. shareholder C. complementor D. strategic equivalent

A

A strategic group will typically include A. firms within the same industry. B. customers belonging to a particular socioeconomic class. C. firms employing similar number of employees, irrespective of their industries. D. employees within a firm earning the same amount of salaries.

D

An industry has many firms that compete in it. While products between competitors tend to be similar, they are by no means identical. As a consequence, managers selling a product with unique features tend to have some ability to raise prices. This type of industry is an example of A. oligopoly B. monopoly C. perfect competition D. monopolistic competition

C

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment A. VRIO framework B. SWOT analysis C. PESTEL framework D. BCG matrix E. Five Force model

C

Buyers are highly price sensitive when A. their purchase represents a small fraction of their procurement budget B. they earn high profits or are strapped for cash C. they earn low profits or are strapped for cash D. the industry's products are highly characterized with non-price competition E. the quality of their products and services are highly affected by the quality of the inputs

A

Competitive rivalry based solely on _____ is destructive to firms as it transfers most of the value created in the industry to the customers. A. price-cutting B. new product releases C. promotional campaigns D. product differentiation

A

Consider the five forces in the airline industry, which of the following best explains the situation in the industry? A. Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. B. Suppliers have weak bargaining power because they offer products that are not differentiated C. Entry barriers in the industry are high resulting in hardly any new airlines popping up D. Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.

D

Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of A. profitability increases B. perfect competition C. natural monopolies D. cutthroat competition

C

In Rozinia Republic, the federal government owns and manages all the nuclear power plants. This is because the business would not be profitable if there was more than one supplier in the nuclear power industry. Which of the following industry competitive structures does the scenario best illustrate? A. monopolistic competition B. oligopoly C. natural monopoly D. perfect competition

A

In an industry, the threat of entry is high when A. capital requirements are low. B. expected returns are high. C. technological know-how is industry specific. D. switching costs are high.

E

In which of the following situations is the power of suppliers high in an industry? A. Suppliers offer products that are undifferentiated. B. Suppliers can credibly threaten to backward integrate into the industry. C. Suppliers depend heavily on the industry for their revenues. D. Suppliers' industry is less concentrated than the industry it sells to E. Suppliers' industry is more concentrated than the industry it sells to.

A

Rhino Pictures Inc. is a large production company that controls a major portion of the movie industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Rhino Pictures Inc. is most likely functioning in a(n) _____ industry A. oligopolistic B. monopolistic C. perfectly competitive D. monopolistically competitive

A

Shield Autos Inc. has newly launched a luxury car into the European market. Which of the following would most likely not be a complement to the car? A. a premium car manufactured and sold by Mova Autos Inc., a rival company B. a bank that insures cars against theft and accidents C. a car service station managed and run by Shield Autos Inc. D. a stereo system that can be used as a GPS system in cars

A

The final step in industry analysis is to A. draw a strategic-group map. B. identify the underlying drivers of the five forces. C. identify the key players in each of the five forces. D. define the relevant industry.

A

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate? A. legal factors B. sociocultural factors C. technological factors D. ecological factors E. economic factors

C

What is the rule of thumb behind Porter's five forces model? A. The stronger the five forces, the greater the industry's profit potential—making the industry less attractive.. B. The stronger the five forces, the lower the industry's profit potential—making the industry more attractive. C. The weaker the five forces, the greater the industry's profit potential—making the industry more attractive. D. The weaker the five forces, the lower the industry's profit potential—making the industry less attractive.

C

Which of the following statements accurately brings out the difference between monopolistic competition and oligopoly? A. Sellers in an oligopoly provide highly differentiated products; in monopolistic competition, the products sold are undifferentiated or standardized B. In an oligopoly, the number of buyers is large; in monopolistic competition, the number of buyers is limited to three or four. C. In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other D. In monopolistic competition, a few compete against each other; in an oligopoly, there are many large firms competing against each other. E. Firms in an oligopoly have no pricing power; firms in a monopolistically competitive industry have the ability to raise prices.

D

A fragmented industry is made into a consolidated industry through A. governmental deregulation B. globalization C. technological innovation and new legislation D. horizontal mergers and acquisitions

C

A key feature of an oligopoly is that the competing firms A. are independent. B. have no pricing power C. are interdependent D. have no barriers to entry

A

A large fabricator of building components purchased a steel company to provide raw materials for its production process. This is an example of A. backward integration. B. economies of scale. C. forward integration. D. product differentiation.

B

Beans Co. operates in a perfectly competitive agricultural industry. Apparel Co., in contrast, operates in a monopolistic competitive industry. Keeping this information in mind, which of the following statements is true? A. Beans Co. will face competition from many sellers, whereas Apparel Co. will be the only seller in the mark B. While Apparel Co. will have the power to set the prices for its products, Beans Co. will have little or no ability to do so. C. Beans Co. will have many buyers for its products, whereas Apparel Co. will have few buyers for its products. D. While Beans Co. will communicate the degree of product differentiation through advertising, Apparel Co. will need no advertising.

B

Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate? A. perfect competition B. monopolistic competition C. monopoly D. oligopoly

D

Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n) A. oligopoly B. monopoly C. perfectly competitive industry D. monopolistically competitive industry

B

Earlier, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. With the emergence of the Internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information? A. The travel industry changed from a fragmented structure to a consolidated one. B. The travel industry changed from a consolidated structure to a fragmented one. C. The bargaining power of buyers in the travel industry has decreased. D. The structure of the travel industry changed from monopolistic competition to an oligopolistic one. E. The pricing power of the incumbent firms in the travel industry has increased.

B

Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? A. monopolistic competition B. oligopoly C. monopoly D. perfect competition

B

First Ledger Inc., an auditing company, replaced its existing accounting software with new accounting software from another supplier. Since the new software has different features and abilities, First Ledger Inc. has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents First Ledger Inc.'s A. opportunity cost. B. switching cost C. octroi charge D. excise duty

C

Given the industry structure in the automobile business, entering the auto manufacturing industry doesn't seem advisable. Yet Tesla Motors is joining the fray. Rather than attempting to compete head-on in internal combustion engines, Tesla Motors is entering the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche? A. network effects B. economies of life C. economies of scale D. capital requirements E. customer switching costs

A

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class. A. demographic trends B. political trends C. ecological trends D. economic trends E. technical trends

C

In an industry, the rivalry among existing competitors is high when A. fixed costs are low and marginal costs are high. B. exit barriers are low. C. incumbent firms are highly committed to the business. D. industry growth is high.

E

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because A. entering the aircraft manufacturing industry requires less capital investments. B. there is expected to be a huge return on investment within this industry. C. there is no credible threat of retaliation from the incumbents. D. entering the aircraft manufacturing industry means violating government policies. E. entering the aircraft manufacturing industry requires huge capital investments

C

In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true? A. Samsung apps are tailored exclusively for Google smartphones and tablets. B. Google's smartphones increase in value because they face strong buying power from Samsung. C. Samsung's smartphones increase in value when they are preinstalled with Google's Android system. D. Google accounts for a large quantity of Samsung's overall sales.

E

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A. if the company is able to put up a credible threat of retaliation B. if the capital requirements in the industry are high C. if the customer switching costs in the industry are high D. if the industry has recently become more regulated E. if the industry has recently become deregulated

C

Increasingly larger numbers of women entering the work force since the early 1970s is an example of A. demographic changes. B. political and legal environmental changes. C. sociocultural changes. D. technological developments.

B

Industry convergence is a process whereby A. firms within the same industry start to satisfy different customer needs. B. formerly unrelated industries begin to satisfy the same customer need. C. excess capacity within an industry is reduced through horizontal mergers D. firms within an industry start to target a narrow market segment

B

Interest-rate increases have a __________ impact on the residential home construction industry and a __________ effect on industries that produce consumer necessities such as prescription drugs or basic grocery items. A. positive; negligible B. negative; negligible C. negative; positive D. positive; negative

D

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through A. forward integration B. product differentiation C. crowdsourcing D. backward integration

B

The aging of the population, changes in ethnic composition, and effects of the baby boom are A. macroeconomic changes. B. demographic changes. C. global changes. D. sociocultural changes

C

The primary objective of Porter's five forces model is to A. replace a firm's competitive advantage with competitive parity. B. understand the cost potential of different industries. C. understand the profit potential of different industries. D. break down a firm's value chain activities into primary and support E. reduce the gap between the value of a firm's product and its cost of production.

B

The relative bargaining power of suppliers is high when A. suppliers provide products that are identical B. suppliers provide products that are differentiated C. incumbent firms can credibly threaten to backward integrate into the industry D. suppliers depend heavily on the industry for a large portion of their revenues E. incumbent firms face low supplier switching costs

D

The telecommunication industry of United Canava is primarily dominated by three large firms: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which of the following industry competitive structures are these companies most likely in? A. monopoly B. perfect competition C. monopolistic competition D. oligopoly

C

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? A. monopoly B. oligopoly C. perfect competition D. monopolistic competition E. C and D

C

When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger? A. the emergence of entry barriers B. the bargaining power of suppliers C. the threat of substitutes D. the threat of complements E. the availability of complements

C

Which of the following best illustrates a firm operating in a monopolistically competitive industry? A. A foreign exchange company sells currencies of different countries at market prices as it cannot differentiate its products from its competitors. B. A chain of multiplex theaters, along with its competitor, owns 80 percent of the multiplex market share. C. An automobile manufacturer uses branding, pricing, and superior advertising to differentiate itself from a large number of other automobile manufacturers. D. A railway company owned by the government of Darvland owns 100% of the railway transport in the country.

C

Which of the following do the sociocultural forces in a firm's external environment best represent? A. the interest rates prevalent in an economy B. the laws protecting small enterprises in a nation C. the family size of the firm's target market D. the rate of employee attrition within the firm

E

Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers? A. New auto companies create electric cars powered by simpler motors and gearboxes B. New entrants in the automotive industry expect that incumbents will not or cannot retaliate C. Car manufacturers require small-scale production in order to be cost-competitive D. Few industrial products are as easy to build as cars powered by internal combustion engines E. Car manufacturers require large-scale production in order to be cost-competitive

B

Which of the following is an example of monopolistic competition? A. iron ore industry B. computer hardware industry C. express delivery industry D. beverages industry E. utility industry

C

Which of the following is an implication of low interest rates? A. Cost of capital for firms will be high B. Firms will invest less in future growth C. Consumer demand will increase D. Economic growth rate will fall E. Consumer demand will decrease

E

Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines? A. The overall industry profitability will increase. B. The threat of strong competitive forces such as supplier power will increase. C. There will be fewer competitors. D. The structure of the industry will change from consolidated to one that is fragmented. E. A and C

D

Which of the following is most likely an implication of new firms entering an industry? A. The bargaining power of buyers will reduce B. The industry's overall profit potential and sales will increase C. The rivalry among existing competitors will reduce D. The incumbent firms will spend more to satisfy their existing customers

B

Which of the following represents an economic factor in a firm's external general environment A. the government regulations and laws in the country in which the firm exists B. the stage of the business cycle that the country is in C. the values and norms prevalent in the society in which the firm operates D. the bargaining power of the firm's suppliers and buyers

B

Which of the following statements is not true about the five forces in Porter's competitive analysis model? A. The relative strengths of the five forces that shape competition are context-dependent B. The stronger the five forces in an industry, the greater the industry's profit potential C. Competition in the model is described as the tug-of-war between the five forces to capture as much as possible of the economic value created in an industry D. An analysis of the five forces provides the basis for how a firm should position itself to gain and sustain a competitive advantage

C

Which of the following statements with regard to industry structures is true? A. They are stable over time, not dynamic. B. Having a large number of competitors generally equates to higher industry profitability. C. A consolidated industry tends to be more profitable than a fragmented one. D. Having few but large competitors increases the threat of strong competitive forces such as supplier/buyer power.

B

Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure? A. competing against each other through product differentiation B. competing against each other through price-cutting C. competing against each other through new-product introductions D. competing against each other through lifestyle advertisements

B

While Burger Cult Inc. operates in a monopolistically competitive industry, Citizen Telecom Inc. operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true? A. The threat of new entrants will be lower for Burger Cult Inc. than Citizen Telecom Inc. B. The threat of new entrants will be higher for Burger Cult Inc. than Citizen Telecom Inc. C. Burger Cult Inc. will have more profit potential than Citizen Telecom Inc. D. The number of buyers will be limited for both Burger Cult Inc. and Citizen Telecom Inc. E. Burger Cult Inc. will have more pricing power than Citizen Telecom Inc.

C

Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products? A. The competition in the industry is insignificant B. The number of buyers in the industry is small C. The firms can differentiate their product offerings D. The entry barriers in the industry are extremely high

A

_____ is best described as cooperation by competitors to achieve a strategic objective. A. Co-opetition B. Conglomeration C. Amalgamation D. Liquidation