MGT 449 Exam 2, CH 6 Practice Questions

A cost-leader is protected from the threat of new entrants primarily due to its: 49) A) economies of scale. B) premium pricing. C) superior customer service. D) luxury goods.

A

A firm pursuing a differentiation strategy as opposed to a low-cost strategy will: 15) A) focus its research and development on product technologies to add uniqueness. B) build an organization structure that relies on strict budget controls.C) concentrate on leveraging its economies of scale through process technologies. D) create a lower economic value as compared to its competitors.

A

According to the five forces model, which of the following is viewed as a major risk to 51) a business pursuing a cost-leadership strategy? A) Innovation that allows competitors to emerge with more economical replacements B) New entrants with small production scale C) Suppliers requesting a 2% price increase across the industry D) Competition switching from non-price attributes to pricing

A

Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent 34) cancer. While GD Pharma's vaccine sells at $100 per unit, BioThink sells its vaccine at$90 per unit. This price differentiation has mainly been attributed to the companies'capital decisions. While BioThink used its retained earnings to develop the vaccine, GD Pharma borrowed funds from banks to develop the vaccine. Thus, GD Pharma pays a higher interest on its capital, which makes it necessary to price its vaccine higher. Thus, the key driver for BioThink's competitive advantage is: A) low-cost input factors.C) availability of complements. B) superior customer service. D) economies of scale.

A

Both Myoco Electronics Inc. and Electra Series Inc. have achieved cost parity in the 17) television market. To gain and sustain a competitive advantage against Electra Series,Myoco Electronics should: A) create greater perceived economic value than Electra Series.B) increase its cost of production to more than that of Electra Series. C) keep its value gap lower than that of Electra Series.D) achieve differentiation parity with Electra Series.

A

Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture 14) an LED television. However, the economic value created by JL Electronics is morethan that created by Viten Electronics. What does this indicate? A) JL Electronics can charge a premium price on its televisions.B) Viten Electronics has created a higher value gap than JL Electronics.C) Viten Electronics has a competitive advantage over JL Electronics.D) Both Viten Electronics and JL Electronics have achieved competitive parity.

A

Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than 5) its competitors. Yet, the supermarket chain has a large customer base due to its wideproduct portfolio and superior customer service. Which of the following genericbusiness strategies has Home Smart adopted in this scenario? A) Differentiation B) Product diversification C) Market penetration D) Cost-leadership

A

In a focused cost-leadership strategy, a firm: 7) A) delivers low-cost products and services to a specific, narrow part of the market. B) caters to the segment of the market that is least cost-sensitive.C) focuses on reducing the economic value created to drive down costs. D) provides high-priced products for many different segments of the mass market.

A

In a successful ________, the trade-offs between differentiation and low cost are 60) reconciled. A) integration strategy B) focused differentiation strategy C) divestment strategy D) liquidation strategy

A

In contrast to a differentiator, a cost leader will: A) focus its research and development on process technologies to improve efficiency. B) avoid an organizational structure that relies on strict budget controls. C) charge a premium price for its products and services. D) build an organization culture where creativity and customer responsiveness thrive.

A

In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on 39) superior customer experience. The firm charges premium prices for its movie ticketsand services. Global Cine Inc., in contrast, charges the lowest price in the industry withits no-frills approach. In between these two segments is True Movies Inc., which offers a customer experience comparable to that of Vibrant Movies at a price almost as low as that of Global Cine. What strategy is True Movies pursuing in this scenario? A) Integration strategy B) Liquidation strategyC) Market penetration strategy D) Product diversification strategy

A

KitchenThings Inc. is a company that manufactures plastic kitchenware. It operates at 43) an output level that allows it to keep its unit cost per output to the lowest in theindustry. This in turn allows KitchenThings to be the price leader. Other competing companies cannot operate at the same level due to a lack of consumer demand for their products. This puts them at a competitive disadvantage. In this scenario, the cost driver behind KitchenThings' strategic position is ________. A) economies of scale B) superior customer service C) availability of complements D) learning-curve effects

A

Rosa Apparels Inc. outsources its production to contract manufacturers located in 33) underdeveloped nations where unskilled labor is available in plenty for very low wages.This has helped the apparel brand become a price leader in the industry. Which of the following is the key driver behind Rosa Apparel's strategic position? A) Low-cost input factors B) Availability of complements C) Network effects D) Superior customer service

A

The concept of a(n) ________ attempts to capture both learning effects and process 53) improvements at firms. A) experience curve B) managerial gridC) growth matrix D) diminishing utility curve

A

TrueDisk Inc. manufactures external hard disks for $32 per unit, and the maximum 28) price customers are willing to pay is $47 per unit. SW Storage Inc. is a competitor of TrueDisk Inc. that produces external hard disks for $37 per unit, and customers arewilling to pay a maximum price of $50 per unit. What does this imply? A) TrueDisk creates a greater economic value than SW Storage. B) SW Storage has a competitive advantage over TrueDisk in terms of perceived value. C) SW Storage is a cost leader when compared to TrueDisk. D) TrueDisk and SW Storage share differentiation parity.

A

When a differentiator charges a similar price as its competitors in the same strategic 16) group but offers more perceived value, it: A) gains market share from other firms. B) results in diseconomies of scale.C) loses its competitive advantage.D) lowers the economic value created.

A

Which of the following is a firm effect that has an impact on the competitive advantage of a firm? A) The value and the cost position of the firm relative to its competitorsB) The exit barriers within the industry in which the firm operatesC) The intensity of rivalry among existing companies in the firm's chosen industry D) The number of companies operating in the industry in which the firm operates

A

Which of the following sources of differential appeal is least effective in helping a firm 57) sustain its advantage? A) Observable product features B) Reputation for qualityC) Superior customer experience D) Reputation for innovation

A

Which of the following statements is true of a strategic position? 64) A) Choosing a strategic position requires making important trade-offs between value and cost positions. B) A firm is said to have a competitive advantage when it ends up with strategic positions below the productivity frontier. C) Differentiation and cost leadership require similar strategic positions. D) Strategic positions are fixed; they do not change like the environment.

A

Why are differentiation and cost-leadership strategies referred to as generic business 8) strategies? A) They can be used by any organization independent of industry context. B) They can be simultaneously pursued by a firm without any trade-offs. C) They can be applied only by businesses which have a competitive advantage. D) They require similar strategic positions in order to increase a firm's chances to gain competitive advantage.

A

A firm experiences ________ when there are increases in cost per unit as output 45) increases. A) economies of flow B) diseconomies of scale C) time compression diseconomies D) economies of scope

B

An integration strategy differs from a low-cost strategy in that: 66) A) economies of scale are more important to an integrator, while economies of scope are more important to a cost leader. B) the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value. C) the focus of an integrator is on lowering the economic value created, whereas a cost leader focuses on increasing the economic value created. D) an integrator's research and development focus is on process technologies, and a cost-leader's focus is on product technologies.

B

Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price 29) customers are willing to pay is $550 per unit. Archer Cycles Inc., its competitor, incurs$450 to manufacture a similar bicycle, and customers are willing to pay a maximumprice of $620 for it. What does this indicate? A) Evia Cycles has a competitive advantage over Archer Cycles.B) Archer Cycles has created a greater economic value than Evia Cycles.C) Both Evia Cycles and Archer Cycles have achieved differentiation parity. D) Both Evia Cycles and Archer Cycles have achieved cost parity.

B

Green Curry is a restaurant that caters to the needs of a small percentage of highly 12) health-conscious consumers. It has an all-organic, vegan menu. Since there are veryfew restaurants that offer the same unique services, customers are willing to pay apremium price for its products and services. In this scenario, Green Curry is following a ________.A) product diversification strategy C) liquidation strategy B) focused differentiation strategy D) mass market strategy

B

The primary goal of a firm pursuing an integration strategy should be to: 56) A) create the highest perceived value in its respective industry. B) achieve a larger economic value created than that of rivals in the industry. C) build a reputation of being the lowest-cost producer in its chosen industry. D) achieve a less steeper learning curve.

B

Value drivers contribute to a firm's competitive advantage only if: 21) A) the decrease in perceived value leads to an increase in costs. B) the increase in value creation exceeds the increase in costs.C) they can restrict the firm from claiming a premium price for its products. D) they can shrink the firm's value gap.

B

Wear Crush Inc. is an apparel company known for its affordable clothes that follows a 11) cost-leadership strategy. In this scenario, Wear Crush should ideally compare itsstrategic position with: A) a company that sells wristwatches at affordable prices.B) an apparel company popular among price-conscious customers. C) an online company that sells customized pet clothing.D) a luxury apparel company that sells designer clothes.

B

When Internet service providers offer free routers for subscriptions to their wireless 20) Internet packs, the perceived value of the service offering increases. In this case, thevalue driver would be: A) economies of scale. B) availability of complements. C) experience-curve effects. D) learning-curve effects.

B

When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 46) units per month, the firm's cost per unit was $20. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $22. This increase wasattributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as? A) Network effectC) Learning-curve effect B) Diseconomies of scale D) Resource ambiguity

B

When a firm is successful at pursuing an integration strategy, ________. 65) A) low cost acts as a substitute B) investments in differentiation are complements C) value and cost exhibit a positive correlation D) investments in process and product technologies are substitutes

B

When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of 40) $10 per unit. When it manufactures 3,000-4,000 units of the same product, the averagecost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale?A) Below 2,000 units C) Above 4,000 units B) 3,000-4,000 units D) 2,000-3,000 units

B

When a firm operates at the minimum efficient scale, the: 41) A) firm experiences diseconomies of scale. B) returns to scale are constant. C) cost per unit is the highest. D) firm attains the highest cost position.

B

Which of the following situations will have greater effects from economies of scale 52) than from learning effects? A) When practicing corporate law B) When mass manufacturing pens C) When making business decisions D) When conducting surgeries

B

Which of the following will hamper a differentiator's ability to achieve a competitive 18) advantage? A) Lower production costs C) Customized goods B) Lower value gap D) Premium prices

B

While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, 27) manufactures a pair of shoes at $22. Both the companies are able to sell their shoes fora maximum of $30 per pair. Which of the following statements is NOT true in thisscenario? A) Aros has created a greater economic value than Shoes Cult.B) Shoes Cult has a competitive advantage over Aros.C) Both Aros and Shoes Cult have achieved differentiation parity. D) Aros is a cost leader when compared to Shoes Cult.

B

4) Firms pursuing a differentiation strategy primarily seek to: 4) A) keep their cost structures lower than that of the cost leader. B) reduce the value gap to gain a competitive advantage.C) create higher customer perceived value than the value that competitors create. D) provide products that are a direct imitation of the competitors' products.

C

A differentiation strategy works best when a: 59) A) firm's focus of competition shifts to price, and when increasing differentiation of product features do not create additional value. B) firm's differentiated products are commoditized, and costs of providing uniqueness do not rise above the customer's willingness to pay. C) firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty. D) firm has tangible resources, its focus of competition shifts to price, and equivalent substitutes are readily available.

C

A firm experiences diseconomies of scale when it: 25) A) has a constant returns to scale. B) has a steep learning curve when compared to its competitors.C) produces at an output level beyond the minimum efficient scale. D) moves down the experience curve.

C

A successfully implemented integration strategy allows a firm to: 47) A) reduce its value gap beyond that created by the cost leader in the industry. B) create lesser economic value than the differentiator in the industry. C) charge a higher price than the cost leader in the industry. D) increase its price above that of the differentiator in the industry.

C

As the cumulative output in a firm increases, managers learn how to optimize the 48) production process and improve workers' performance through repetition. This drivesdown the per-unit cost. Which of the following phenomena is best described here? A) Productivity frontier B) Network effectsC) Learning effects D) Diseconomies of scale

C

Bass Watches Inc. initially spent eight man-hours to assemble a wrist watch. But as the 19) production doubled, the number of hours spent on assembling a watch reduced by 20percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as? A) Black-swan event B) Network effectC) Learning-curve effect D) Time compression diseconomies

C

Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members 22) to use the gym facilities for 12 months by paying only for 10 months. Included in thepackage are two health check-ups and a gym kit. These add-ons by themselves are notvery valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is:A) experience-curve effects. B) learning-curve effects. C) availability of complements. D) economies of scale.

C

BodyBlush Inc. is a brand reputed for its wide variants of body wash that introduced its 62) range of shampoos and skin moisturizers a few years ago. Since most of its productscould be produced using the same resources and technology, the company's coststructure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is BodyBlush applying? A) Learning-curve effect B) Mass customization C) Economies of scope D) Network effect

C

Even without differentiation parity, a firm pursuing a cost-leadership strategy can still 30) gain a competitive advantage as long as its: A) value gap is lower than that of its competitors.B) learning curve is not steeper than that of its competitors. C) economic value creation exceeds that of its competitors. D) per-unit costs are higher than that of its competitors.

C

Free Color Inc. is an apparel company that caters to the highly price-conscious 6) customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest pricesin the industry. Which of the following generic business strategies is Free Color applying?A) Differentiation C) Cost-leadership B) Product diversification D) Niche marketing

C

To be cost-competitive, a firm should: A) attain the highest cost position. B) position itself below the productivity frontier. C) operate at the minimum efficient scale. D) avoid moving on to a steeper experience curve.

C

When a firm combines experience based learning and process innovation, the firm: 54) A) experiences an increase in per-unit cost. B) moves down the existing learning curve. C) jumps to a steeper learning curve. D) loses its competitive advantage.

C

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in ________. A) arbitration B) collective bargaining C) strategic trade-offs D) mediation

C

Which of the following drivers simultaneously increases value while lowering cost? 63) A) Economies of scale B) Superior customer service C) Innovation D) Availability of complements

C

Which of the following factors contributes to the success of the cost-leadership strategy 31) of Ryanair airlines? A) The luxury servicesC) The rock-bottom air fares B) The lower value gap D) The high input costs

C

Which of the following statements is true of learning curves? 50) A) The steeper the learning curve, the lesser the learning effects. B) Learning curves are captured at one point in time when output is increased. C) Learning curves can be observed in manufacturing processes and professional services. D) As cumulative output increases, the learning curve becomes less steeper.

C

Whole Foods differentiates itself from competitors by offering top-quality foods 23) obtained through sustainable agriculture. This business strategy implies that WholeFoods focuses on: A) maintaining a less steeper learning curve as compared to its competitors. B) lowering its costs compared to its competitors', while offering adequate value for its products and services. C) increasing the perceived value created for customers, which allows it to charge a premium price. D) decreasing the existing value gap by providing luxury goods to customers.

C

________ is best described as decreases in cost per unit as output increases. 36) A) Time compression economies C) Economies of scale B) Economies of replication D) Economies of scope

C

________ is best described as the process of manufacturing a large variety of 61) tailor-made products or services at a relatively low unit cost. A) Product diversification C) Mass customization B) Unit-cost productionD) Just-in-time manufacturing

C

A company that uses a differentiation strategy can achieve a competitive advantage as 13) long as its: A) products and services create a lower consumer surplus than that of its competitors. B) strategic position is below the productivity frontier. C) value gap is lower than that of its competitors. D) economic value created is greater than that of its competitors.

D

A differentiator is least likely to be threatened by increases in input prices due to 58) powerful suppliers when the: A) source of a competitor's differential appeal is tangible rather than intangible. B) differentiator is able to significantly reduce the value gap. C) new product features added raise costs but not the perceived value in the minds of consumers. D) differentiator is able to create a significant difference between perceived value and current market prices.

D

A firm achieves differentiation parity ideally when: 26) A) its product features and services are better than that of its competitors. B) it successfully sells its products and services at a higher price than its competitors. C) its cost of production is higher than that of its competitors. D) it creates the same customer value as its competitors.

D

A firm's business strategy will lead to a competitive advantage if it allows the firm to: A) reduce the value gap. B) position itself below the productivity frontier.C) execute the same activities performed by the rivals in a similar manner. D) perform different activities than its rivals.

D

BuyMart Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive 44) operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores.This makes it difficult for smaller retail stores and supermarkets to compete against BuyMart's low prices. Thus, BuyMart has a competitive advantage due to its: A) time compression economies. B) learning-curve effects. C) superior customer service. D) economies of scale.

D

Diseconomies of scale refer to: 10) A) increases in economic value as per-unit cost decreases. B) decreases in profit when consumer demand decreases. C) decreases in cost as profit increases. D) increases in cost as output increases.

D

Economies of scale do NOT allow firms to:A) take advantage of certain physical properties. B) employ specialized systems and equipment. C) spread their fixed costs over a larger output. D) spread their variable costs over a larger output. 37)

D

GlamorRace is a cosmetic brand that pursues a cost-leader strategy. Which of the 55) following statements is true of the cosmetic brand? A) It directly competes against luxury cosmetic brands that charge premium prices. B) It charges a premium price for its products.C) Its primary value driver is product uniqueness.D) It appeals to the price-conscious buyers.

D

True Empire Autos Inc. is an automobile company known for its luxury cars and 9) follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n) ________. A) automobile company that sells pre-owned carsB) pen manufacturing company that follows a differentiation strategy C) automobile company that manufactures economy carsD) automobile company that sells high-end, premium cars

D

Which of the following statements accurately brings out the difference between 24) economies of scale and learning effects? A) Economies of scale reduce cost per unit, learning effects increase cost per unit. B) Economies of scale occur over time, whereas learning effects are captured at one point in time. C) Firms experience economies of scale when output increases, and learning effects when output decreases. D) While there are no diseconomies to learning, there are diseconomies to scale.

D

Which of the following statements accurately brings out the difference between 35) economies of scale and economies of scope? A) Economies of scale refer to the decreases in per-unit cost with decreases in output, whereas economies of scope refer to the increases in per-unit cost with increases in output. B) Economies of scale result in decreasing returns to scale, and economies of scope result in constant returns to scale. C) Economies of scope are realized when a firm operates at the minimum efficient scale, whereas economies of scale are realized when the firm operates beyond the minimum efficient scale. D) Economies of scope are the savings that come from producing two or more outputs from the same resources, whereas economies of scale are decreases in per-unit cost with increases in output.

D

________ is best described as the output range needed to bring down the cost per unit 38) as much as possible, allowing a firm to stake out the lowest-cost position that isachievable through economies of scale. A) Optimum sustainable yield B) Maximum output capacity C) Break-even output D) Minimum efficient scale

D