MGT 449 EXAM 1
Total value created= ______ - ________
WTP-Costs
consumer surplus= _______ - ________
WTP-Price
1) Keeping in mind Apple's competitive advantage, which of the following products was introduced by Apple in 2007? A) iPhone B) iTunes C) iPod D) iPad
a
If a firm is producing as efficiently as it knows how, then how will the total cost function slope? a) Upward b) Downward c) No Slope d) Downward until an output threshold value, then upward e) Upward until an output threshold value, then downward
a
Suppose an entrepreneur starts a business earning $2M in revenue in 2009 while at the same time incurring $1.8M in costs. If the entrepreneur's best outside alternative employment opportunity is to earn $300K, what are the firms accounting and economic profits? a) $200K, -$100K b) $200K, $100K c) $300K, $100K d) $300K, -$100K e) $200K, $200K
a
price elasticity of demand
a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price
Which of the following best describes average cost? a) The per-unit-of-output cost for a product at a given quantity b) The incremental cost of producing one more unit of output. c) A cost invariant to the firm's output d) The sum of all costs associate with the production of a product e) The cost of fixed items such as general and administrative expenses
a) The per-unit-of-output cost for a product at a given quantity
3. Which of the following cost line items would be a fixed cost? a) Commissions to Salespeople b) Rent c) Raw Materials d) Packaging e) Shipping/Delivery Charges
b
4. Which of the following best describes marginal cost? a) The per-unit-of-output cost for a product b) The incremental cost of producing one more unit of output. c) A cost invariant to the firm's output d) The sum of all costs associate with the production of a product e) The cost of fixed items such as general and administrative expenses
b
Suppose a factory is producing 100 units and the price of each unit is $10. If raising the price to $12 per unit results in a drop in sales of 12 units, what is the price elasticity of demand, η? a) 6 b) .6 c) 1.67 d) .8 e) .17
b
1. The basic law of demand says that all other things being the same, _______________________. a) The lower the price of a product, the less of it consumers will purchase b) The higher the price of a product, the less of it consumers will purchase c) The lower the price of a product, the more of it consumers will purchase d) The higher the price of a product, the more of it consumers will purchase e) The greater the number of units of a product sold in the past, the more of it consumers will purchase that product in the future
c
7. Which of the following variables does not influence the quantity of product that a firm is able to sell? a) Price of the product b) Price of related products c) Plant production costs d) Incomes and tastes of consumers e) Advertising
c
how can value creation occur?
can occur if firms can be more efficient relative to their competitors and lower costs (POSITIONING STRATEGY: Cost Leadership) result from the firms ability to increase the willingness to pay for its consumers (positioning strategy: benefit leadership) firms ability to reduce costs as well as increase willingness to pay for its consumers (integrated strategy)
If a firm can sell its product for more than its fixed costs, but not for more than its totals costs: a) It will shut down b) It will lower its fixed costs c) It will stop producing that product d) It will continue to operate in the short run at a loss e) It will increase its production quantity
d
Which characteristic does not describe a perfectly competitive market? a) Firms produce identical or nearly identical products b) Market price is beyond the control of any individual firm c) A firm's demand curve is perfectly horizontal at the market price d) Industry-level price elasticity is finite e) Firm-level price elasticity of demand facing another perfect competitor is infinite
d
What is a sunk cost? a) A cost that can be avoided if certain choices are made b) A cost that always varies with the output of a factory c) The average cost of operating a plant d) The "lower envelope" of short-run average cost functions e) A cost incurred no matter what the decision is and cannot be avoided
e
In what special situation might the law of demand not hold? a) In a perfectly competitive market b) When there is a high price elasticity of demand c) When MR=MC d) At the Nash Equilibrium e) If high prices confer prestige
e) If high prices confer prestige
Which of the following would not be a characteristic of a good with an elastic demand? a) The product lacks unique features that differentiate it from competing products b) The product is a high percentage of a consumer's total expenditures c) The good is an input used to make a product that is sensitive to changes in price d) There are many substitutes available for the good e) The product has high switching costs
e) The product has high switching costs
Which characteristic is present in a perfectly competitive market? a) Firms produce identical or nearly identical products b) Market price is beyond the control of any individual firm c) A firm's demand curve is perfectly horizontal at the market price d) Firms can enter and exit the market very easily e) all of the above
e) all of the above
Classic relationship between demand and Price is...
negative, implying that as price increases, demand is expected to decrease
producer surplus= _______ - _________
price-cost
economies of scale
result of the fixed costs being spread over more volume (as fixed costs do not change with production) should be present for successful cost leadership strategy
value appropriation
the ability of the firm to capture as much of the total value created as possible
What is Strategy?
the ability of the firm to create and appropriate value in a given market
how can a firm appropriate value?
try to price as high as possible to maximize producer surplus while at the same time offering something to the consumer
11) A firm's strategic position is likely to be strong when: A) the gap between the value the firm's product generates and the cost to produce it is large. B) all the five forces in Porter's model are strong. C) the entry barriers within the industry it operates in are low and the exit barriers are high. D) its suppliers and vendors can easily forward integrate and buyers can backward integrate.
A
11) For a firm that operates in an industry where competition is high, which of the following practices will result in inferior performance? A) Trying to be everything to everybody by combining different competitive strategies B) Choosing a distinct but different strategic position in the industry C) Working toward increasing the difference between value creation and cost D) Focusing on creating value for customers rather than destroying rivals
A
13) True Cinemas Inc. and Digi Future Inc. are two companies that own and run movie theaters in malls and other commercial areas. While True Cinemas Inc. pursues a cost-leadership strategy, Digi Future Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario? A) Digi Future and True Cinemas will not be direct competitors to each other and their customer segments will overlap very little. B) True Cinemas and Digi Future will use a similar approach to create value for customers by attempting to offer everything to everybody. C) True Cinemas will charge a premium price for its customers while Digi Future will implement everyday low pricing. D) Digi Future will keep its customer service at an acceptable level while True Cinemas will provide superior customer service.
A
14) Industry effects describe the underlying ________ structure of the industry. A) economic B) ethnographic C) psychographic D) demographic
A
15) Which of the following is most likely an implication of new firms entering an industry? A) The incumbent firms will spend more to satisfy their existing customers. B) The rivalry among existing competitors will reduce. C) The industry's overall profit potential and sales will increase. D) The bargaining power of buyers will reduce.
A
15) Which of the following statements accurately describes firm effects? A) They attribute firm performance to the actions managers take within a chosen industry. B) They refer to the external circumstances surrounding all the firms in an industry. C) They attribute firm performance to the industry in which the firm competes. D) They refer to the value-creation potential of a large, diversified enterprise.
A
16) Economies of scale are cost advantages that accrue for firms with: A) larger output. B) low employee turnover. C) high capital risks. D) high fixed costs.
A
18) 3T Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all 3T users are free. When a person switches to a 3T 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 3T Inc. is given a free wireless connection. This has helped to keep competition away from 3T. In this scenario, which of the following factors is acting as an entry barrier for 3T Inc.? A) Network effects B) Economies of scale C) High capital requirement D) High fixed costs
A
19) 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: A) entering the aircraft manufacturing industry requires huge capital investments. B) there is expected to be a huge return on investment within this industry. C) entering the aircraft manufacturing industry means violating government policies. D) there is no credible threat of retaliation from the incumbents.
A
3) The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. This has ensured that all firms in the country pay their employees at least $8,000 per year, which has brought about a higher standard of living for the people of Filvia. Which of the following factors in a firm's general environment does this mandate best indicate? A) Legal factors B) Sociocultural factors C) Technological factors D) Ecological factors
A
31) A company is best described as a ________ to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service. A) complementor B) shareholder C) competitor D) strategic equivalent
A
34) Competitive rivalry based solely on ________ is destructive to firms as it transfers most of the value created in the industry to the customers. A) price-cutting B) promotional campaigns C) new product releases D) product differentiation
A
39) Balmia Ammunition Inc., a firm controlled and managed by the government of Balmia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate? A) Monopoly B) Oligopoly C) Perfect competition D) Monopolistic competition
A
41) Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? A) Oligopoly B) Perfect competition C) Monopolistic competition D) Monopoly
A
42) Why do firms operating in a monopolistically competitive industry have the power to raise the prices of their products or services? A) The firms can differentiate their product offerings. B) The competition in the industry is insignificant. C) The number of buyers in the industry is small. D) The entry barriers in the industry are extremely high.
A
46) When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? A) Perfect competition B) Oligopoly C) Monopoly D) Monopolistic competition
A
48) In which of the following industry competitive structures do selling firms have the lowest pricing power? A) Perfect competition B) Monopoly C) Oligopoly D) Monopolistic competition
A
5) Which of the following is an implication of low interest rates? A) Consumer demand will increase. B) Economic growth rate will fall. C) Firms will invest less in future growth. D) Cost of capital for firms will be high.
A
7) Which of the following do the sociocultural forces in a firm's external environment best represent? A) The family size of the firm's target market B) The laws protecting small enterprises in a nation C) The rate of employee attrition within the firm D) The interest rates prevalent in an economy
A
9) Underperformance relative to other firms in the same industry or the industry average results in a(n) ________ for a firm. A) competitive disadvantage B) sustainable competitive advantage C) increased power distance D) diseconomies of scope
A
10) In the ________ developed by Michael Porter, competition is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes. A) VRIO framework B) five forces model C) value chain analysis D) PESTEL framework
B
14) The telecom industry in the country of Andalus is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the telecom industry, the: A) entry barriers are most likely non-existent. B) threat of new entrants is most likely low. C) threat of substitutes is most likely high. D) bargaining power of buyers is most likely low.
B
17) Derek, a retired CEO, invests capital in a start-up company that creates mobile applications. He mentors the entrepreneur and the employees of the company because he wants the company to perform well and survive in the market. Thus, Derek is the start-up company's ________. A) headhunter B) stakeholder C) employee D) category captain
B
2) The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment. A) VRIO framework B) PESTEL framework C) BCG matrix D) SWOT analysis
B
20) In an industry, the threat of entry is high when: A) expected returns are high. B) capital requirements are low. C) technological know-how is industry specific. D) switching costs are high.
B
21) In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A) If the capital requirements in the industry are high B) If the industry has recently become deregulated C) If the company is able to put up a credible threat of retaliation D) If the customer switching costs in the industry are high
B
22) The relative bargaining power of suppliers is high when: A) suppliers depend heavily on the industry for a large portion of their revenues. B) suppliers provide products that are differentiated. C) incumbent firms can credibly threaten to backward integrate into the industry. D) incumbent firms face low supplier switching costs.
B
24) Which of the following features about a buyer indicates that the buyer has high bargaining power? A) When the buyer cannot credibly threaten to backwardly integrate into the industry. B) When the buyer operates in an industry where products are undifferentiated. C) When the buyer faces high switching costs. D) When the buyer cannot purchase specific products from other sellers.
B
25) While industry forces have been favorable for a long time in the U.S. automotive industry, recent dynamics have lowered the profit potential of competing in this industry and thus reduced its attractiveness. The continued success of Tesla Motors in the industry will depend on other firm and industry factors. Which of the following represents one such factor that directly affects Tesla Motors? A) There is a lack of balance in demand and supply: demand far exceeds capacity within the industry. B) Since suppliers of its key sources are few, the bargaining power of suppliers is high. C) Since individual buyers do not have many choices, their bargaining power is low. D) There is a noticeable absence of complementary products and services for the industry.
B
27) Which of the following is a drawback of Porter's five forces model? A) The model describes competition narrowly as a firm's closest competitors. B) Managers cannot determine the changing speed of an industry or the rate of innovation. C) The model fails to consider that threat of substitutes can come from outside a given industry. D) It fails to provide a basis for deriving implications for a firm's strategic position within an industry.
B
29) Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry, while at the same time Samsung and Google are increasingly becoming competitive with one another. This scenario best illustrates the process of: A) monopolization B) co-opetition C) perfect competition D) conglomeration
B
37) How can a firm change its industry structure from monopolistically competitive or oligopolistic to a near monopoly? A) By implementing frequent price-cuts B) By developing proprietary technology C) By decreasing its pricing power D) By reducing the entry barriers in its industry
B
40) The telecommunication industry of United Canava is primarily dominated by three large firms, 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? A) Monopolistic competition B) Oligopoly C) Monopoly D) Perfect competition
B
43) When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger? A) The availability of complements B) The threat of substitutes C) The emergence of entry barriers D) The bargaining power of suppliers
B
8) If SA Pharmaceuticals obtains an 18 percent return on invested capital, which of the following will help determine if it has a competitive advantage over other pharmaceutical companies? A) Assessing the value based on the shareholders' expectations of return on their capital B) Comparing the return to the return on invested capital obtained by other firms in the industry C) Evaluating the liquidity ratios for other pharmaceutical companies D) Comparing the value to the history of the firm's return of investment over a number of years
B
1) Which of the following factors best contributes to the U.S. automotive industry being characterized by high entry barriers? A) New entrants in the automotive industry expect that incumbents will not or cannot retaliate. B) Few industrial products are as easy to build as cars powered by internal combustion engines. C) Car manufacturers require large-scale production in order to be cost-competitive. D) New auto companies create electric cars powered by simpler motors and gearboxes.
C
12) Keeping in mind the five forces in the airline industry, which of the following best explains the situation in the industry? A) Entry barriers in the industry are high resulting in hardly any new airlines popping up. B) Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry. C) Substitutes are readily available in the form of trains and buses, thus reducing the profit potential in the industry. D) Suppliers have weak bargaining power because they offer products that are not differentiated.
C
12) Which of the following statements about strategy is NOT true? A) Grandiose statements of desire, on their own, are not strategy. B) Strategy is as much about deciding what not to do, as it is about deciding what to do. C) Operational effectiveness and competitive benchmarking should be treated as strategy. D) Strategy is about creating superior value, while containing the cost to create it.
C
17) 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 ________. A) octroi charge B) opportunity cost C) switching cost D) excise duty
C
18) Stakeholder strategy is an integrative approach to managing a diverse set of stakeholders effectively in order to ________. A) single-mindedly focus on the stockholders alone B) minimize the difference between value creation and cost C) gain and sustain competitive advantage D) minimize the joint value created
C
19) Which of the following is NOT an example of a software company's external stakeholder? A) Alliance partners B) Creditors C) Project managers D) Customers
C
2) ________ is best described as a set of goal-directed actions a firm takes to gain and sustain superior performance relative to competitors. A) Credo B) Competency management C) Strategy D) Behavior modification
C
20) Pure Food Inc., a multinational company, relies on its media partner Radio Ex to regularly advertise its offers, sales, and new products. Radio Ex is invested in this relationship because it generates most of its revenue from advertising Pure Food's products. In this scenario, Radio Ex is Pure Food Inc.'s ________. A) stockholder B) internal stakeholder C) external stakeholder D) workforce
C
23) Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through ________. A) crowdsourcing B) product differentiation C) backward integration D) forward integration
C
28) Which of the following strategies will be most detrimental to firms that are close rivals operating in an oligopolistic industry structure? A) Competing against each other through lifestyle advertisements B) Competing against each other through new-product introductions C) Competing against each other through price-cutting D) Competing against each other through product differentiation
C
3) In ________, a firm frames a guiding policy to address the competitive challenge. A) strategy implementation B) strategy control C) strategy formulation D) strategy analysis
C
32) In which of the following situations is the power of suppliers high in an industry? A) Suppliers offer products that are undifferentiated. B) Suppliers can credibly threaten to backward integrate into the industry. C) Suppliers' industry is more concentrated than the industry it sells to. D) Suppliers depend heavily on the industry for their revenues.
C
33) In the smartphone industry, Google is a complementor to Samsung. Which of the following statements best explains why this is true? A) Google accounts for a large quantity of Samsung's overall sales. B) Samsung apps are tailored exclusively for Google smartphones and tablets. C) Samsung's smartphones increase in value when they are pre-installed with Google's Android system. D) Google's smartphones increase in value because they face strong buying power from Samsung.
C
35) Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of ________. A) profitability increases B) perfect competition C) cut-throat competition D) natural monopolies
C
38) In Galvania Republic, the federal government owns and manages all the nuclear power plants. This is because the business would not be profitable if there was more than one supplier in the nuclear power industry. Which of the following industry competitive structures does the scenario best illustrate? A) Perfect competition B) Oligopoly C) Natural monopoly D) Monopolistic competition
C
44) Which of the following is a feature of an oligopolistic industry structure? A) Standardized or undifferentiated products B) Limited pricing power C) High entry barriers D) Many small sellers
C
45) Beans Inc. operates in a perfectly competitive agricultural industry. Classica Apparel Inc., in contrast, operates in a monopolistically competitive industry. Keeping this information in mind, which of the following statements is true? A) While Beans Inc. will communicate the degree of product differentiation through advertising, Classica Apparel Inc. will need no advertising. B) Beans Inc. will face competition from many sellers, whereas Classica Apparel Inc. will be the only seller in the market. C) While Classica Apparel Inc. will have the power to set the prices for its products, Beans Inc. will have little or no ability to do so. D) Beans Inc. will have many buyers for its products, whereas Classica Apparel Inc. will have very few buyers for its products.
C
47) Which of the following is a feature of a monopolistically competitive industry? A) A single firm B) High entry barriers C) Differentiated products D) No pricing power
C
5) A firm that achieves superior performance relative to other firms in the same industry or the industry average has a(n) ________. A) equity leverage B) power position C) competitive advantage D) balanced scorecard
C
7) Which of the following scenarios illustrates a firm that has a sustainable competitive advantage? A) SM Inc. almost doubled its sales to 8500 units this year compared to its previous year's sales of 5000 units, though the industry average is 10,000 units. B) Newon Inc. generated a revenue of $300,000 this financial year, which is close to the industrial revenue average of $320,000. C) TrueLink Corp. was able to hold its market share of 68 percent in the social networking industry for more than three years. D) Max Electrova Inc. was able to outperform its competitors with its new production system, in terms of revenue, for a brief period of four months.
C
8) A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so (C). A) incumbency B) threat of entry C) strategic position D) attrition rate
C
10) Exis Inc. and Stelma Inc. are two companies that have been manufacturing typewriters for almost 30 years. Due to the reduced demand for typewriters today, both companies' average return on invested capital is approximately -5 percent. The current industry average is 2 percent. In this scenario, Exis Inc. and Stelma Inc. most likely have: A) economies of scope instead of economies of scale. B) competitive advantage over other firms in their industry. C) strategic alliance with each other. D) competitive parity with each other.
D
13) Which of the following statements is NOT true about the five forces in Porter's competitive analysis model? A) The relative strengths of the five forces that shape competition are context-dependent. B) Competition in the model is described as the tug-of-war between the five forces to capture as much as possible of the economic value created in an industry. C) An analysis of the five forces provides the basis for how a firm should position itself to gain and sustain a competitive advantage. D) The stronger the five forces in an industry, the greater the industry's profit potential.
D
16) Which of the following forces tends to be more important in determining a firm's performance? A) The entry barriers in the industry B) The underlying economic structure C) The number and size of other firms in the industry D) The actions of managers within the firm
D
26) When applying the five forces model, the first step should ideally be: A) assessing the overall industry structure. B) drawing a strategic group map. C) identify the underlying drivers of each force. D) defining the relevant industry.
D
30) ________ is best described as cooperation by competitors to achieve a strategic objective. A) Liquidation B) Amalgamation C) Conglomeration D) Co-opetition
D
36) During periods of high industry growth: A) rivals are focused on taking market share away from one another. B) firms indulge in intense promotional campaigns. C) new product releases with minor modifications become common. D) price competition among firms frequently decreases.
D
4) Through ________, a firm puts its guiding policy into practice by employing a set of coherent actions. A) strategy formulation B) strategy analysis C) strategy control D) strategy implementation
D
4) Which of the following represents an economic factor in a firm's external general environment? A) The bargaining power of the firm's suppliers and buyers B) The government regulations and laws in the country in which the firm exists C) The values and norms prevalent in the society in which the firm operates D) The stage of the business cycle that the country is in
D
6) Cadia Foods Inc. was the first company to start selling energy drinks in its country—a product that gained popularity among diverse groups. Soon, other companies started to sell their own brands of energy drinks, thereby giving Cadia Foods ample competition. In response, Cadia Foods decided to limit its variety of energy drinks to only two. However, it ensured that these two flavors were free of calories and low in cost. With this innovation, Cadia Foods Inc. consistently outperformed its competitors for ten years. In this scenario, Cadia Foods Inc. has maintained a ________ through its innovative strategy. A) fiduciary responsibility B) balanced scorecard C) consistent power position D) sustainable competitive advantage
D
6) In a firm's external environment, ________ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class. A) ecological trends B) economic trends C) political trends D) demographic trends
D
9) The primary objective of Porter's five forces model is to: A) break down a firm's value chain activities into primary and support. B) replace a firm's competitive advantage with competitive parity. C) reduce the gap between the value of a firm's product and its cost of production. D) understand the profit potential of different industries.
D
