CBA469 EXAM2PT1
Which of the following statements is true of accounting data?
Accounting data are historical data and thus backward-looking.
How does a firm capture its producer surplus for a good or service?
As profit per unit sold
Which of the following statements about competitive advantage is true?
Competitive advantage can be assessed by measuring accounting profit, shareholder value, or economic value.
Which of the following ratios best expresses inventory turnover?
Cost of goods sold/Inventory
Which of the following competitively important assets is typically excluded from a firm's balance sheet?
Customer experience
_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it.
Economic value created
The working capital turnover of Tesva Systems Corp. is 6.0. What does this financial data suggest?
For every dollar Tesva Systems puts to work, the company realizes $6.00 of sales.
Photohome is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate?
Freemium
_____ is best described as the process of manufacturing a large variety of tailor-made products or services at a relatively low unit cost.
Mass customization
Which of the following equations best expresses return on revenue?
Net profits/Revenue
Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
Observable product features
_____ are best described as the value of the best forgone alternative use of the resources employed.
Opportunity costs
_____ precisely indicates how much of a firm's sales is converted into profits.
Return on revenue
Which of the following is true of risk capital?
Return on risk capital includes stock price appreciation plus dividends received over a specific period. A person who provides capital to a firm gets equity shares in return. From the shareholders' perspective, the measure of competitive advantage is primarily based on return on their risk capital.
Which of the following business models has been traditionally used by the magazine and newspaper industry?
Subscription-based
Which of the following frameworks used to measure competitive advantage relies on both an internal and an external view of a firm?
The balanced scorecard model
Which of the following is NOT an accurate expression of the economic value created per unit of a product sold?
The difference between the price charged and the firm's cost
A firm's learning curve is steeper than that of its competitor. What does this imply?
The firm is at an advantage when compared to its competitor.
True Empire Autos Inc. is an automobile company known for its luxury cars and follows a differentiation strategy. In this scenario, True Empire Autos should ideally compare its strategic position with a(n) _____.
automobile company that sells high-end, premium cars
In contrast to a differentiator, a cost leader will:
focus its research and development on process technologies to improve efficiency.
Which of the following drivers simultaneously increases value while lowering cost?
Innovation
A firm's business strategy will lead to a competitive advantage if it allows the firm to:
perform different activities than its rivals.
The difference between the price charged for a product and the cost to manufacture it is referred to as the _____.
producer surplus
A high percentage of R&D/Revenue ratio indicates a(n):
strong focus on innovation to improve current products and services.
The value a consumer attaches to a product or service is captured in the:
consumer's maximum willingness to pay for it.
Andrew invested $200,000 in the shares of a company. At the end of a year, he had earned $7,000 as dividends on his shares along with a $1,000 appreciation in the overall value of his shares. However, if Andrew had invested the same amount on an asset, like gold, the appreciation in its value would have earned him $10,000 at the end of the year. In this scenario, which of the following is Andrew's opportunity cost?
$10,000
A firm incurs $100 to manufacture an office table. It fixes the market price of the table as $250, and discounts the price to $200. However, the maximum a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario?
$180
Which of the following businesses is required by law to make its data available to the public?
A software company with over 300 shareholders.
Evia Cycles Inc. incurs $400 to manufacture a bicycle, and the maximum price 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 maximum price of $620 for it. What does this indicate?
Archer Cycles has created a greater economic value than Evia Cycles.
At present, _____ make up the oldest cohort of the workforce.
Baby Boomers
Which of the following statements is true of a strategic position?
Choosing a strategic position requires making important trade-offs between value and cost positions.
Which of the following statements is NOT true of competitive advantage?
Competitive advantage is an absolute measure.
Free Color Inc. is an apparel company that caters to the highly price-conscious 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 prices in the industry. Which of the following generic business strategies is Free Color applying?
Cost-leadership
Red Ink Electronics Inc. faced a serious technical problem when developing a microprocessor for a high-tech medical device. The employees of the company including those in the research and development department were unable to solve the issue. Thus, an open call was made to the general public, mainly technicians and product engineers, on the company's website to volunteer to solve the technical problem the company faced. Which of the following does the scenario best illustrate?
Crowdsourcing
_____ is best described as decreases in cost per unit as output increases.
Economies of scale
BodyBlush Inc. is a brand reputed for its wide variants of body wash that introduced its range of shampoos and skin moisturizers a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is BodyBlush applying?
Economies of scope
Which of the following statements accurately brings out the difference between economies of scale and economies of scope?
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.
What does it mean for a firm to have an 80 percent learning curve?
Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.
_____ is when a firm is searching for new knowledge that could enhance its future performance.
Exploration
_____ most precisely measures how well a company leverages its fixed assets, particularly property, plant, and equipment (PPE).
Fixed asset turnover
Pilot Games Inc. allows users to play the trial versions of its games without any charge. However, users have to purchase the games to access the upgraded version of the games with advanced features. Which of the following business models is Pilot Games using in this scenario?
Freemium
When using the balanced scorecard approach to assess a firm's performance, which of the following is NOT a key question that managers need to answer?
How do we reduce the economic value created?
Which of the following is an advantage of applying the economic value creation perspective to assess a firm's performance?
In economic value perspective, analysts not only consider historical costs, but also opportunity costs.
According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
Innovation that allows competitors to emerge with more economical replacements
Which of the following statements is true of the balanced scorecard?
It attempts to provide a holistic perspective on firm performance.
How does a sustainable strategy typically help a firm?
It helps the firm achieve positive results along the social and ecological dimensions.
Which of the following expressions accurately describes market cap?
It is the product of the number of outstanding shares and the share price.
Both Viten Electronics Inc. and JL Electronics Inc. incur a cost of $400 to manufacture an LED television. However, the economic value created by JL Electronics is more than that created by Viten Electronics. What does this indicate?
JL Electronics can charge a premium price on its televisions.
Which of the following statements is true of learning curves?
Learning curves can be observed in manufacturing processes and professional services.
As the cumulative output in a firm increases, managers learn how to optimize the production process and improve workers' performance through repetition. This drives down the per-unit cost. Which of the following phenomena is best described here?
Learning effects
Which of the following will hamper a differentiator's ability to achieve a competitive advantage?
Lower value gap
_____ is best described as 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.
Minimum efficient scale
A _____ is best described as a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.
Patent
____ indicates how much a firm benefits from interest-free loans extended by its suppliers and creditors.
Payables turnover
True Vibgyor Inc. sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is True Vibgyor implementing?
Razor-razor-blade
____ indicates how fast a firm is collecting the credit amount extended by a firm to its customers.
Receivables turnover
_____ are the legal owners of public companies.
Shareholders
The productivity frontier provides a theoretical reflection of the possible best practices at any given time. Why is this an important tool for managers?
Strategic positions are not fixed, and firms have to refine their positions over time.
Mia has purchased an Internet package for three months, in which she can use 30 mbps Internet speed. However, for the service, she needs to pay a fee of $50 in advance irrespective of whether she uses the Internet during the service period or not. This arrangement best illustrates the _____ strategy.
Subscription-based
Which of the following is an advantage of a triple-bottom line approach?
The approach takes an integrative and holistic view in assessing a company's performance.
The market capitalization of a public company is $5 billion. Each share of the company is traded at $200. What do you infer from this financial data?
The firm's number of outstanding shares is 25 million.
Which of the following factors contributes to the success of the cost-leadership strategy of Ryanair airlines?
The rock-bottom air fares
Why are differentiation and cost-leadership strategies referred to as generic business strategies?
They can be used by any organization independent of industry context.
True Machine Inc. and One Electrona Inc. are two competing consumer electronics companies. While True Machine's COGS/Revenue is 66%, One Electrona's is 74%. What do you infer from this financial data?
True Machine's profit margin is higher than that of One Electrona.
_____ denotes the dollar amount a consumer would attach to a good or service.
Value
Which of the following situations will have greater effects from economies of scale than from learning effects?
When mass manufacturing pens
Which of the following statements accurately brings out the difference between economies of scale and learning effects?
While there are no diseconomies to learning, there are diseconomies to scale.
The tenet behind the triple bottom line is that
a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
The primary goal of a firm pursuing an integration strategy should be to:
achieve a larger economic value created than that of rivals in the industry.
Wear Crush Inc. is an apparel company known for its affordable clothes that follows a cost-leadership strategy. In this scenario, Wear Crush should ideally compare its strategic position with:
an apparel company popular among price-conscious customers.
When Internet service providers offer free routers for subscriptions to their wireless Internet packs, the perceived value of the service offering increases. In this case, the value driver would be:
availability of complements.
The translation of strategy into action primarily takes place in a firm's _____.
business model
In an economic context, strategy for producers is primarily about:
capturing the economic value created as much as possible.
Economic value creation is best expressed as _____.
consumer surplus plus firm profit
Both Myoco Electronics Inc. and Electra Series Inc. have achieved cost parity in the television market. To gain and sustain a competitive advantage against Electra Series, Myoco Electronics should:
create greater perceived economic value than Electra Series.
Firms pursuing a differentiation strategy primarily seek to:
create higher customer perceived value than the value that competitors create.
Threadless is a community-centered online apparel store that leverages user-generated content. The idea is to turn consumers into prosumers, a hybrid between producers and consumers. Members of the Threadless community do most of the work, which they consider fun: They submit T-shirt designs online, and community members vote on which designs they like best. The designs receiving the most votes are put in production, printed, and sold online. It can be said that Threadless uses the _____ technique.
crowdsourcing
In a focused cost-leadership strategy, a firm:
delivers low-cost products and services to a specific, narrow part of the market
A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the:
differentiator is able to create a significant difference between perceived value and current market prices.
In the fiscal year 2012, BlackBerry's Cost of goods sold (COGS)/Revenue ratio was higher than that of its competitor, Apple. This implies that BlackBerry needs to work toward:
driving down its costs.
Even without differentiation parity, a firm pursuing a cost-leadership strategy can still gain a competitive advantage as long as its:
economic value creation exceeds that of its competitors
A cost-leader is protected from the threat of new entrants primarily due to its:
economies of scale.
Janet is a 23-year-old employee at DR Products Inc. As a millennial, she will tend to:
expect her company to be socially responsible.
When a firm combines experience based learning and process innovation, the firm:
experiences an increase in per-unit cost.
A differentiation strategy works best when a:
firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.
A firm pursuing a differentiation strategy as opposed to a low-cost strategy will:
focus its research and development on product technologies to add uniqueness.
Green Curry is a restaurant that caters to the needs of a small percentage of highly health-conscious consumers. It has an all-organic, vegan menu. Since there are very few restaurants that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Green Curry is following a _____.
focused differentiation strategy
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it:
gains market share from other firms
In order to achieve a competitive advantage, a firm should be able to:
increase the difference between the value created and the cost to produce it.
Diseconomies of scale refer to:
increases in cost as output increases.
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.
In a successful _____, the trade-offs between differentiation and low cost are reconciled.
integration strategy
When a firm is successful at pursuing an integration strategy, _____.
investments in differentiation are complements
A firm achieves differentiation parity ideally when:
it creates the same customer value as its competitors.
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:
low-cost input factors.
Combining economies of learning with the existing production technology allows a firm to:
move down a given learning curve.
To be cost-competitive, a firm should:
operate at the minimum efficient scale.
Samantha is a recent fashion graduate. She started her own apparel store with an investment of $300,000. In the first year she made a profit of $60,000. If she had taken up a job as a fashion editor for a magazine, she would have earned $50,000 as salary per year. Also, she could have invested her capital, $300,000, in treasury bonds and earned an interest of $12,000. Thus, the amount $62,000 ($50,000 + $12,000) would be Samantha's
opportunity cost
In the _____ business model, the initial product is often sold at a loss or given away for free in order to drive demand for complementary goods.
razor-razor-blade
From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the _____.
return on risk capital
When a firm operates at the minimum efficient scale, the:
returns to scale are constant.
The productivity frontier represents a(n):
set of best-in-class strategic positions the firm can take relating to value creation and low cost at a given point in time.
Economies of scale do NOT allow firms to:
spread their variable costs over a larger output.
Return on risk capital primarily includes:
stock price appreciation plus dividends received over a specific period.
When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in _____.
strategic trade-offs
Value drivers contribute to a firm's competitive advantage only if:
the increase in value creation exceeds the increase in costs.
An integration strategy differs from a low-cost strategy in that:
the intent of an integration strategy is not to be the absolute lowest-cost provider because an integrator must also increase perceived value.
The productivity frontier function is concave, and it captures the:
trade-off between value creation and production cost.
Using the _____ approach, managers audit their company's fulfillment of its social and ecological obligations to stakeholders such as employees, customers, suppliers, and communities as conscientiously as they track its financial performance.
triple-bottom-line
The cost of capital to create a product is a fixed cost because it is:
unaffected by consumer demand.
A defining characteristic of the subscription-based business model is that the:
user pays for access to a product or service whether he or she uses it during the payment term or not.
A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the _____.
economic value created
Both Vibrant Phones Inc. and Oryxo Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Vibrant Phones creates more economic value than what Oryxo does. What does this imply?
Vibrant Phones sells its products at a better price than Oryxo.
By selling a laptop at $1000 for which consumers are willing to pay up to $1200, a consumer electronics firm makes a profit of $400 per unit. In this scenario, the amount $600, that is ($1200 - $1000) + $400, is the _____.
economic value created
During the process of formulating an effective business model, a firm's managers should first:
transform their strategy of how to compete into a blueprint of actions and initiatives.
Which of the following is a drawback of Wikipedia's business model?
The user-generated content may be unreliable and unauthoritative.
A successfully implemented integration strategy allows a firm to:
charge a higher price than the cost leader in the industry.
A watch-making company has priced one of its wrist watches 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 wrist watch?
$170
Gina paid $900 for a camera that she thought was worth $1100 for all the features included in it. For the consumer electronics firm selling the camera, however, the cost of producing the camera was only $350. What is the consumer surplus in this scenario?
$200
A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2000 annually. In this case, the market capitalization is _____.
$3 billion, that is, 30 million shares × $100
At a certain output level, the per-unit cost incurred by a firm to manufacture a product is $5. Other factors remaining constant, what will be the new per-unit cost if the cumulative output is doubled, and the firm is able to achieve an 80 percent learning curve?
$4
Osion Electronics Inc. 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
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 working capital of a small home-based business is $200,000. The revenues generated account to $600,000, and the profits incurred are $300,000. What would be the company's working capital turnover?
3, that is, $600,000/$200,000
When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost 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?
3,000-4,000 units
At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $60. Once the cumulative output doubled, the cost per unit reduced to $54. All other factors remaining constant, the firm has been able to achieve a(n):
90 percent learning curve.
Blue Horizon Inc. is an Internet service provider. It provides a router free of charge when users sign up for a two-year wireless service plan. In this plan, users pay in advance irrespective of whether they use the Internet package during the two-year period or not. Which of the following business models does this scenario best illustrate?
A combination of the razor-razor-blade model and the subscription-based business model
Which of the following scenarios best illustrates crowdsourcing?
A company encourages the general community to post new product ideas on its official website.
The receivables turnover of GD Products Inc. is 13.6 and that of its competitor, AP Goods Inc., is 6.0. What does this financial data primarily imply?
GD Products collects accounts receivables faster than what AP Goods does.
The payable turnover for Apple and BlackBerry (as of fiscal year 2012) was 7.4 and 24.8 respectively. From this data we can conclude that:
Apple has been more efficient than Blackberry in paying creditors and generating interest-free loans from suppliers.
How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?
By allowing any person, expert or novice, to generate and edit content
_____ is best described as a process in which a group of people voluntarily performs tasks that were traditionally completed by a firm's employees.
Crowdsourcing
Home Smart Inc. is a chain of supermarkets that sells its products at higher prices than its competitors. Yet, the supermarket chain has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Home Smart adopted in this scenario?
Differentiation
When Jean Cult Inc. was operating at the minimum efficient scale of 10,000-12,000 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 was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?
Diseconomies of scale
The fixed asset turnover of a company is 8.3. What do you infer from this?
Every dollar spent on the company's fixed assets generates $8.30 of revenue.
When a firm applies its current knowledge to enhance its performance in the short term, it is referred to as _____.
Exploitation
In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Global Cine Inc., in contrast, charges the lowest price in the industry with its 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?
Integration strategy
Which of the following is an advantage of the balanced scorecard?
It allows managers to translate a firm's vision into measureable operational goals.
GlamorRace is a cosmetic brand that pursues a cost-leader strategy. Which of the following statements is true of the cosmetic brand?
It appeals to the price-conscious buyers.
Which of the following is NOT an advantage of the balanced scorecard approach to assess firm performance?
It is a tool which can be effectively used by managers for both strategic implementation and strategic formulation.
Bass Watches Inc. initially spent eight man-hours to assemble a wrist watch. But as the production doubled, the number of hours spent on assembling a watch reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as?
Learning-curve effect
Rosa Apparels Inc. outsources its production to contract manufacturers located in 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?
Low-cost input factors
Which of the following is a disadvantage of measuring firm performance through total return to shareholders and firm market capitalization?
Market volatility makes it difficult to assess firm performance through these measures, particularly in the short term.
Innovate Electronics Inc. allows its customers to personalize their refrigerators in terms of the dimensions, the panels inside, and the color and design of the outer body. Also, customers can include additional features like in-built radios, extra lights, and cold water dispensers based on their individual requirements. The company successfully manufactures these tailor-made goods at a relatively low unit cost and provides it to the customers at a price almost equal to that of the standard refrigerators sold by other companies. What does this scenario best illustrate?
Mass customization
Maverick Communications Inc. is a cellular service provider that charges its customers $1 for three hours of talk time. So, if a customer's talk time for a month is 60 hours, the company charges him or her $20 at the end of the month. Which of the following business models does this best illustrate?
Pay-as-you-go
Oviyo Inc. has been successful at differentiating itself from competitors by claiming a premium price for its digital cameras based on superior image quality and advanced technology. In this scenario, which of the following is the key value driver?
Product features
Manufacturers of electric fragrance diffusers sell the electric outer device at an extremely low price, sometimes even at a loss. However, they make their money on the product by charging a premium on the perfume refills that have to be replaced regularly. Which of the following business models does this best illustrate?
Razor-razor-blade
Which of the following best expresses fixed asset turnover?
Revenue/Fixed assets
Which of the following is NOT true of risk capital?
Risk capital invested in a firm can be legally recovered if the firm goes bankrupt.
While Aros Inc. incurs a cost of $20 for a pair of shoes, Shoes Cult Inc., its competitor, manufactures a pair of shoes at $22. Both the companies are able to sell their shoes for a maximum of $30 per pair. Which of the following statements is NOT true in this scenario?
Shoes Cult has a competitive advantage over Aros.
Master's Health Club, a chain of gyms and spas, requires its customers to pay a quarterly or an annual fee to use its services. Irrespective of whether they frequently use the services during the payment period or not, members have to pay in advance. Which of the following business models does this best illustrate?
Subscription-based
Coral Orchids is a chain of premium hotels around the globe that charges higher prices for its rooms and suites when compared to the average industry standards. Yet, the hotel enjoys the largest market share in the industry. This is mainly due its highly responsive staff that has a strong commitment toward achieving a 100 percent guest satisfaction. In this scenario, which of the following is the key value driver?
Superior customer service
Which of the following is more of a value driver than a cost driver?
Superior customer service
Which of the following is NOT a limitation of the economic value creation framework?
The framework fails to provide the foundation that will help firms decide between cost-leadership or differentiation strategies.
Which of the following approaches to assess competitive advantage is based on the view that noneconomic factors can have a significant impact on a firm's financial performance?
The triple-bottom-line approach
After trying on a dress, a consumer assesses it to be worth a maximum of $100 and is willing to pay that amount for the dress. However, the dress was priced at $80. What is the amount, $100, referred to as?
The value (V) the consumer attaches to the dress
Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
The value and the cost position of the firm relative to its competitorsTo formulate an effective business strategy, managers need to keep in mind that competitive advantage is determined jointly by industry and firm effects. At the firm level, performance is determined by value and cost positions relative to competitors. This is the firm's strategic position.
Which of the following statements is true of the triple bottom line?
Three dimensions, economic, social, and ecological, make up the triple bottom line.
Which of the following is an external performance metric?
Total return to shareholders
_____, which is the return on risk capital, includes stock price appreciation plus dividends received over a specific period.
Total return to shareholders
TrueDisk Inc. manufactures external hard disks for $32 per unit, and the maximum 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 are willing to pay a maximum price of $50 per unit. What does this imply?
TrueDisk creates a greater economic value than SW Storage.
_____ is best described as a measure of how effectively capital is being used by a firm to generate revenue.
Working capital turnover
Unlike the financial ratios based on accounting data, total return to shareholders is:
an external performance metric
Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health check-ups and a gym kit. These add-ons by themselves are not very 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:
availability of complements.
A _____ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
business-level strategy
Blue Ego Inc. is a market leader in the cell phone industry. To gain competitive advantage, the company has a post on its official site requesting its suppliers and customers to contribute ideas about the kinds of features and technology they think should be included in the next smartphone. This has helped the company reduce the burden of innovation on its employees, effectively meet customers' needs, and also include the larger community in product development. This process best exemplifies:
crowdsourcing
The concept of a(n) _____ attempts to capture both learning effects and process improvements at firms.
diminishing utility curve
A firm experiences _____ when there are increases in cost per unit as output increases.
diseconomies of scale
A company that uses a differentiation strategy can achieve a competitive advantage as long as its:
economic value created is greater than that of its competitors
KitchenThings Inc. is a company that manufactures plastic kitchenware. It operates at an output level that allows it to keep its unit cost per output to the lowest in the industry. 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's strategic position is _____.
economies of scale
BuyMart Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive 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:
economies of scale.
Competitive advantage goes to the firm that achieves the:
largest economic value created.
When GD Inc. declared a dividend of $20,000,000, its market value increased from $8 billion to $8.5 billion. However, it lost a chance to reinvest $20,000,000 in the research and development of a new product which would have earned a profit of $200 million. Thus, this $200 million is referred to as GD Inc.'s _____.
opportunity cost
A firm experiences diseconomies of scale when it:
produces at an output level beyond the minimum efficient scale.
DFS Electronics Inc. ensures that all its products are highly durable and reliable by using techniques like zero-defect and lean manufacturing systems. These efforts not only add to the products' differential appeal, but also help the company save costs during production and avoid expenses due to after-sales services. Thus, the common value and cost driver responsible for DFS Electronics' strategic position as an integrator is the _____.
quality
A firm is said to have a competitive advantage over its rivals when it:
reaches the productivity frontier.
The typical four-step innovation process begins with:
the presentation of an idea as findings derived from basic research.
The top management at BioTrue Pharma Inc. through rigorous testing ensures that the company develops and sells drugs that are free of harmful side-effects. Also, the company ensures that the chemical waste generated in the manufacturing process is kept to a bare minimum and is disposed of according to the regulations of the Environmental Protection Agency. The management assesses its overall performance based on these dimensions. Thus, the managers at Bio True Pharma are applying the _____ approach to measure firm performance.
triple-bottom-line
In the freemium business model, the:
users are not charged for the basic features of a product or service, but the user must pay for premium advanced features or add-ons.
A defining characteristic of the pay-as-you-go business model is that the:
users pay for only the services they consume
