Test 2 BUS 401 Ch.4

Identify at least two ways that companies can achieve a cost advantage through lower-cost inputs.

(1) exercising strong bargaining power over suppliers, (2) cooperating especially well with suppliers, (3) getting inputs from low-cost locations, and (4) arranging better access to inputs than other companies have.

What are the five sources of cost advantage?

1) economies of scale or scope 2) learning and experience 3) proprietary knowledge 4) input costs 5) different business model

Explain four ways that economies of scale produce cost advantages.

4 ways: the ability to spread fixed costs of production, the ability to spread nonproduction costs, specialization of equipment, and specialization of people.

law of experience

Costs per unit decrease with increases in the cumulative volume of production.

Why do companies have difficulty increasing their profitability by simply buying market share (e.g., lowering prices to increase market share)?

In most cases the CAUSE of both market share and profitability is some common underlying factor, such as a lower-cost method of production or an innovative product that allows a firm to simultaneously grow market share and profitability. In Air Asia's case, its low-cost position is what allows it to grow market share and profitability simultaneously.

Which of the five major sources of cost advantage contributed to the Tata Nano being the world's least expensive car?

Proprietary knowledge; they knew how to engineer the cheapest car

Give an example of a company that has a cost advantage because it uses a different business model or shorter value chain than its competitors.

Ryanair elimates steps in its value chain to have a cost advantage; they dont offer in-flight meals, pillows, blankets, or even air-sick bags. OR Amazon using a different business model than competitors and started selling books online.

What data would you need to calculate a scale curve or experience curve?

Scale curve covers the cost of producing a unit vs. volume of production in period of time like a quarter, but an experience curve covers the cost of producing a unit vs. cumulative volume of production over time

What is a scale curve, and how it is different from an experience curve?

Scale curve: shows economies of scale, minimum efficient scale (optimum quantity Q1), and diseconomies of scale Scale curve covers the cost of producing a unit vs. volume of production in period of time like a quarter, but an experience curve covers the cost of producing a unit vs. cumulative volume of production over time