POLICY/STRATEGY CH. 5-7 PRACTICE QUIZZES

The cost of capital to create a product is a fixed cost because it is A) directly proportional to the output level. B) uniform throughout all firms and industries. C) not a part of the profit calculations. D) unaffected by consumer demand.

D) unaffected by consumer demand.

The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest? A) For every $6.00 Tesva Systems puts to work, the company incurs a cost of $1.00. B) For every $6.00 Tesva Systems puts to work, the company realizes sales of $1.00. C) For every dollar Tesva Systems puts to work, the company realizes $6.00 in loss. D) For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

D) For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.

Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage? A) Implement process innovations that lower per-unit costs. B) Introduce product innovations that differentiate Potomac televisions from the competition. C) Imitate the features of the highest-selling television on the market. D) Increase spending on marketing and attempt to acquire a high-profile celebrity spokesperson.

A) Implement process innovations that lower per-unit costs.

The ratio Cost of goods sold/Revenue indicates how efficiently a company can A) produce a good. B) sell a good. C) advertise a good. D) design a good.

A) produce a good.

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? A) 9,000 units B) 11,000 units C) 13,000 units D) 15,000 units

B) 11,000 units

Which of the following statements correctly compares Apple and Microsoft in 2016? A) Apple had a higher return on revenue than Microsoft. B) Apple had a higher return on invested capital than Microsoft. C) Microsoft had higher total sales than Apple. D) Microsoft had a lower cost structure than Apple.

B) Apple had a higher return on invested capital than Microsoft.

You are the CEO of a home appliance manufacturing company and have recently undertaken a review of your company's strategy. In comparing your stock market valuation to that of your closest competitor, you note that your firm is currently valued at $50 billion, while your competitor is valued at $40 billion. How should you proceed? A) Consider this evidence of a sustainable competitive advantage and maintain your current strategy. B) Compare the current valuations with past valuations to determine a trend. C) Assume your current strategy has failed and begin to formulate a new one. D) Compare your valuation to firms in another industry.

B) Compare the current valuations with past valuations to determine a trend.

How does a firm capture its producer surplus for a good or service? A) as cost per unit sold B) as profit per unit sold C) as earnings per share D) as market price per share

B) as profit per unit sold

The value a consumer attaches to a product or service is captured in the A) least price a consumer is willing to pay for it. B) consumer's maximum willingness to pay for it. C) expenses incurred by the firm in manufacturing it. D) difference between the price charged for it and the cost to produce it.

B) consumer's maximum willingness to pay for it.

The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the A) introduction stage. B) growth stage. C) shakeout stage. D) maturity stage.

B) growth stage.

A watchmaking company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling anything less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch? A) $150 B) $180 C) $170 D) $210

C) $170

The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently? A) growth stage B) maturity stage C) decline stage D) commercialization stage

C) decline stage

Swan Song is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Swan Song is following a A) product diversification strategy. B) liquidation strategy. C) broad differentiation strategy. D) focused differentiation strategy.

D) focused differentiation strategy.

Product features, customer service, and complements are all examples of important A) cost curves. B) cost drivers. C) value curves. D) value drivers.

D) value drivers.

Which of the following expressions accurately describes market cap? A) It is the product of the number of outstanding shares and the share price. B) It is the difference between the book value and the market value of a firm's assets. C) It is the ratio of a firm's equity finance and its debt finance. D) It is the difference between a firm's account receivables and account payables.

A) It is the product of the number of outstanding shares and the share price.

Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle? A) There is more strategic variety in the growth stage when compared to the introduction stage. B) The number of competitors is more in the introduction stage than the growth stage. C) The market size for a new product or service is larger in the introduction stage when compared to the growth stage. D) While achieving market acceptance is the strategic objective during the introduction stage, the objective in the growth stage is to pursue a harvest strategy.

A) There is more strategic variety in the growth stage when compared to the introduction stage.

As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate? A) first-mover advantages B) social benefits C) network externalities D) fringe benefits

A) first-mover advantages

Nendry is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Nendry has decided to pursue a differentiation strategy. In this case, she should A) focus on adding unique features to her product that customers will value. B) concentrate on improving process technologies to achieve economies of scale. C) enforce strict budget controls at all levels of the organization. D) devote all resources to reducing the value gap.

A) focus on adding unique features to her product that customers will value.

A new product often has a high price when it is launched because of a A) large investment in designing a product while producing small quantities. B) large investment in marketing a product while producing small quantities. C) large investment in designing a product while producing large quantities. D) large investment in marketing a product while producing large quantities.

A) large investment in designing a product while producing small quantities.

Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent 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. B) economies of scale. C) superior customer service. D) availability of complements.

A) low-cost input factors.

________ are best described as the value of the best forgone alternative use of the resources employed. A) Variable costs B) Opportunity costs C) Social costs D) Switching costs

B) Opportunity costs

Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice? A) The framework believes that the life cycle of industries is unpredictable. B) The framework does not explain everything about changes in industries. C) The framework is based on the tenet that industries can be rejuvenated even in the declining stage. D) The framework believes that the number and size of competitors remain constant throughout the life cycle.

B) The framework does not explain everything about changes in industries.

Intel's Celeron chip and Atom chip are initiatives to A) introduce a new product in a new market to extend its leadership. B) guard the company against disruptive innovation by protecting the low end of the market. C) stall its own disruption strategies and wait for its rivals to introduce disruptive forces. D) target that section of the market that is not particularly price sensitive.

B) guard the company against disruptive innovation by protecting the low end of the market.

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

C) AccuroDisk creates a greater economic value than TD Storage.

A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n) Lafley is a(n) A) venture capitalist. B) category captain. C) intrapreneur D) early adopter.

C) intrapreneur

Which of the following best describes a strategic trade-off? A) the tension between innovation and keeping manufacturing costs down B) the tension between maintaining both high-quality products and service C) the tension between value creation and the pressure to keep costs in check D) the tension between raising prices and keeping a loyal clientele

C) the tension between value creation and the pressure to keep costs in check

When does a firm fall into the large competitive chasm between early adopters and early majority? A) when it cannot attract technological enthusiasts to try the beta versions of its products B) when it creates strong network effects during the growth stage C) when it fails to successfully launch a mass-market version of its product D) when the early majority create herding effects for its products

C) when it fails to successfully launch a mass-market version of its product

How is differentiation parity different from cost parity? A) Differentiation parity deals with pricing not innovation. B) Differentiation parity deals with innovation not value. C) Differentiation parity deals with pricing not value. D) Differentiation parity deals with value not cost.

D) Differentiation parity deals with value not cost.

What does it mean for a firm to have an 80 percent learning curve? A) Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent. B) Every time the cumulative output is doubled, the cost per unit will decline by 80 percent. C) Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent. D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

Which of the following examples uses a focused differentiation strategy? A) a tennis pro shop that sells low-quality racquets priced at 150 dollars per racquet B) a coffee shop that offers mediocre lattes at a price of five dollars for a small latte C) a hotel chain that offers high-quality furnishings and service with room rates of under 75 dollars per night D) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

D) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle