QUIZ 5

Which of the following is most likely an implication of new firms entering an industry?

The incumbent firms will spend more to satisfy their existing customers.

How are cumulative learning and experience effects of a company most likely to affect the threat of new entrants?

Threat of new entrants will be low.

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

entering the aircraft manufacturing industry requires huge capital investments.

In an industry, the threat of entry is high when

capital requirements are low.

In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry?

if the industry has recently become deregulated

BellRing Brands is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should BellRing Brands's managers prepare for next?

increased competition from imitators

Economies of scale are cost advantages that accrue for firms with

larger output

Five years ago, Palomino Airline was able to get a strong foothold in the airline industry by hiring a few pilots and crew and renting two airplanes, which flew routes between Denver, Omaha, Pierre, Cheyenne, and Helena. Which of the following summarizes the above factors that enabled Palomino to get started?

low entry barriers

Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls network, his or her entire network of family and friends is likely to switch to the same network to avail the benefit of free calls and messages. In addition, an existing user who gets a new user to register with Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.?

network effects

The threat of new entrants is increased if:

product differentiation in the industry is low

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

switching cost