WPC 480 Midterm

Mobius Electronics incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario?

$450 (Economic value creation equals consumer surplus plus firm profit, or the sum of consumer and producer surplus. In this case, the economic value created is ($800 - $600) + ($600 - $350) = $450.)

When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

11,000 units (The firm experiences economies of scale at an output level of 11,000 units. When a firm operates at the minimum efficient scale, the returns to scale are constant. Minimum efficient scale (MES) is the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.)

Which of the following statements is true of accounting data?

Accounting data are historical data and thus backward-looking. (All accounting data are historical data and thus backward-looking. Accounting profitability ratios show us only the outcomes from past decisions, and the past is no guarantee of future performance.)

Which of the following factors most contributes to the U.S. automotive industry being characterized by high entry barriers?

Car manufacturers require large-scale production in order to be cost-competitive. (Even with relatively recent competitors like Tesla in the marketplace, the U.S. automotive industry is characterized by high entry barriers. Car manufacturers require large-scale production in order to be cost-competitive.)

Silver Screen Cinemas Inc. and Digi Now Inc. are two companies that own and run movie theaters in malls and other commercial areas. While Silver Screen Cinemas Inc. pursues a cost-leadership strategy, Digi Now Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario?

Digi Now and Silver Screen Cinemas will not be direct competitors to each other, and their customer segments will overlap very little. (Although these companies are in the same industry, their customer segments will most likely overlap very little, and they will not be direct competitors. That is because each firm has chosen a distinct but different strategic position; both can win if they have a distinct and well-executed competitive strategy.)

Etsuro is a management consultant. Baker Corp. asks him to evaluate their company, and he finds that the difference between the cost of producing the firm's products and the value of those products is extremely narrow. What should Etsuro suggest that Baker Corp. management do?

Find a way to widen the gap between cost and value. (Firms create economic value by expanding as much as possible the gap between the value the firm's product or service generates and the cost to produce it.)

While Fun Frames incurs a cost of $12 for a pair of eyeglasses, Highwire, its competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario?

Fun Frames and Highwire have achieved differentiation parity. (A firm achieves differentiation parity when it creates the same perceived value as its rival firm.)

Understanding the Resource Allocation Process (RAP) will have large effects on shaping a firm's realized strategy. Which of the following is an example of such an allocation of resources?

Intel's rule to "maximize margin-per-wafer-start" (By changing the tasks the resources in the firm were working on at the middle and lower levels, Intel's decision to set up guidelines for production priorities yielded an emergent strategic shift into microprocessors and out of DRAM (dynamic random-access memory) chips. Intel was able to pursue a strategic transformation due to the way it set up its resource allocation process. In a sense, Intel was using functional-level managers to drive business and corporate strategies in a bottom-up fashion.)

Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then

Invoro will have a resource that is valuable but no longer rare. (If Finolo and Ethver develop the same customer knowledge base and create products that provide the same appeal, then Invoro will have a resource that is still valuable but no longer rare.)

Which of the following best exemplifies social complexity as an isolating mechanism?

Kristin's Cosmetics attempted to imitate how Monica's Makeup combined its management and product development systems with little success. (Social complexity describes situations in which different social and business systems interact with one another. Copying the emerging complex social systems is difficult for competitors because neither direct imitation nor substitution is a valid approach. Therefore, Kristin's Cosmetics attempt to imitate how Monica's Makeup combined its management and product development systems with little success is an example of social complexity as an isolating mechanism.)

Which of the following is a drawback of Porter's five forces model?

Managers cannot determine the changing speed of an industry or the rate of innovation. (With the five-forces-plus-complements model, one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that managers must repeat their analysis over time in order to create a more accurate picture of their industry.)

Upper management at Softstep Inc., a manufacturer of insoles for shoes, wants to work on improving the product lines it already has without taking on other challenges at this time. Which of the following vision statements reflects that goal?

Softstep Inc. wants to be the best manufacturer of insoles in the industry. (Because it of its goals, Softstep would choose a product-oriented vision statement, which focuses employees on improving existing products and services without consideration of underlying customer or employee problems to be solved.)

A company uses the planned emergence approach in the development of its strategies. Which of the following is an implication of this?

The company's organizational structure and systems will be designed to support bottom-up strategic initiatives. (Taken together, a firm's realized strategy is frequently a combination of top-down strategic intent and bottom-up emergent strategies. This type of strategy process is called planned emergence. In that process, organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management.)

Which of the following applies to the Strength-Threats quadrant of the SWOT matrix?

The local fast-food chain Easy Hot Dogs used its wholesome image to maintain its competitive advantage against stiff competition. (The Strength-Threats quadrant of the SWOT matrix uses an external strength, such as a wholesome image, to minimize the effect of an external threat, such as stiff competition.)

Unlike the financial ratios based on accounting data, total return to shareholders is

an external performance metric. (Unlike accounting data, total return to shareholders is an external performance metric. It essentially indicates how the stock market views all available public information about a firm's past, current state, and expected future performance (with most of the weight on future growth expectations).)

Mercurial Foods is the parent company of several chain restaurants offering a variety of cuisines. The top management at Mercurial has decided to enter the frozen foods industry based on its assessment of the profit potential in that industry. Which of the following strategies does this best illustrate?

corporate strategy (Corporate executives at headquarters formulate corporate strategy. They need to formulate a strategy that can create synergies across business units that may be quite different, and determine the boundaries of the firm by deciding whether to enter certain industries and markets and whether to sell certain divisions.)

The CEO of Chyron Media has decided to enter the markets of emerging nations like China and Brazil. This means that the books, magazines, and websites published under the Chyron Media banner would be made available in these nations. Which of the following strategies does this scenario best illustrate?

corporate strategy (The given scenario of Chyron Media describes a corporate strategy. Corporate strategy concerns questions relating to where to compete (industry, markets, and geography). Corporate executives at headquarters formulate corporate strategy.)

In the context of SWOT analysis, which of the following best exemplifies a firm's internal weakness?

decline in the firm's market share (In the context of SWOT analysis, decline in a firm's market share best exemplifies a firm's internal weakness. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.)

Fuller Apparel's core value statement reads we will ensure our clothing is made with the highest respect toward human rights and environmental protection. Which of the following actions exemplifies how Fuller's core values drive its strategic decision making?

demanding that textile suppliers pay livable wages and maintain safe production facilities (Fuller's core values are best reflected in the decision to demand that all members of the supply chain exhibit a similar concern with the environment and human rights. If the company did not enforce these standards among its suppliers, its products would not comply with the company's stated values, and Fuller would be vulnerable to other ethical lapses and negative public attention.)

The first step in stakeholder impact analysis involves

identifying the stakeholders that currently have, or potentially can have, a material effect on a company. (In the first step of stakeholder impact analysis, the firm focuses on stakeholders that currently have, or potentially can have, a material effect on a company. This prioritization identifies the most powerful stakeholders (both internal and external) and their needs.)

Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on

increasing the perceived value created for customers, which allows it to charge a premium price. (Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on increasing the perceived value created for customers, which allows it to charge a premium price.)

Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will be successful today only if its

internal strengths change with its external environment in a dynamic fashion. (Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, dynamic markets today are the rule rather than the exception. As a response, a firm may create, deploy, modify, reconfigure, or upgrade resources to provide value to customers and/or lower costs in a dynamic environment.)

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using ________ to influence the political process.

lobbying forces (Many large companies use powerful lobbying forces to influence the political process.)

To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on

lowering cost and increasing perceived customer benefits. (When formulating a blue ocean business strategy, managers address questions that focus on lowering cost and increasing perceived customer benefits.)

Three large firms dominate the telecommunication industry of United Canava: 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?

oligopoly (These companies are most likely in an oligopolistic industry, which is consolidated with few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power. In oligopoly, non-price competition is the preferred mode of competition.)

The ratio Cost of goods sold/Revenue indicates how efficiently a company can

produce a good. (The ratio Cost of goods sold/Revenue indicates how efficiently a company can produce a good.)

Jake's Taxi Service is a new entrant to the taxi industry. It has achieved success by staking out a unique position in the industry. How did Jake's Taxi Service mostly likely achieve this position?

providing long-distance cab fares at a lower rate than competitors; servicing the same area as competitors (Jake's Taxi Service achieved a unique position in the industry by providing long-distance cab fares at a lower rate than competitors while servicing the same area as competitors. To stake out a unique position, a company must either perform the same activities as competitors in a way that is better for customers or perform different activities. Also, this company must provide an advantage for customers without trading the benefit with a disadvantage.)

Which of the following stages in the AFI strategy framework involves designing a business, corporate, and global strategy?

strategy formulation (Strategy formulation involves formulating a business strategy: How should the firm compete (cost leadership, differentiation, or integration)?; Corporate strategy: Where should the firm compete (industry, markets, and geography)?; and, Global strategy: How and where (local, regional, national, and international) should the firm compete around the world?)

Which of the following is an external performance metric?

total return to shareholders (Unlike accounting data, total return to shareholders is an external performance metric. It essentially indicates how the stock market views all available public information about a firm's past, current state, and expected future performance (with most of the weight on future growth expectations).)

Red Sapphire is a wristwatch company known for its luxury watches and that follows a differentiation strategy. In this scenario, Red Sapphire should ideally compare its strategic position with a

watch maker that sells high-end, premium watches. (Red Sapphire should ideally compare its strategic position with a watch company that sells high-end, premium watches. A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping costs at the same or similar levels. The idea is to compare Red Sapphire's strategic position with the next-best differentiator. In this case, it will be a watch maker that sells high-end luxury watches.)