INTG BUS POLICY/STRATEGY PRACTICE EXAM 2

A firm has 30 million shares outstanding, and each share is traded at $100. Also, each shareholder gets a dividend of $2,000 annually. In this case, the market capitalization is A. 30,000 shares, that is, 30 million shares/$100. B. $200,000, that is, $2,000 × $100. C. $3 billion, that is, 30 million shares × $100. D. 20:1, that is, $2,000/$100.

C. $3 billion, that is, 30 million shares × $100.

Which of the following businesses is most likely to disrupt an existing industry? A. Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time. B. Mega Technologies reconfigured the components used in its touchscreen tablets to create a new type of wearable device for use in restaurants and other service industries. C. Particle Inc. developed a teleportation technology that can transport physical materials instantaneously across great distances. D. Altrea added advanced camera technology to its premium line of smartphones so that they would take the highest-quality photos of all phones on the market.

A. Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time.

Happy Foods and General Grains both produce similar puffed rice breakfast cereals. For both companies, the cost of producing a box of cereal is 45 cents, and it is not possible for either company to lower their production costs any further. How can one company achieve a competitive advantage over the other? A. Increase total perceived consumer benefits through differentiation. B. Raise prices above the current reservation price. C. Lower prices to the break-even price. D. Increase the number of stock market shares available to investors.

A. Increase total perceived consumer benefits through differentiation.

Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using? A. cost-leadership B. differentiation C. niche marketing D. product diversification

A. cost-leadership

As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n) A. entrepreneur. B. category captain. C. franchisor. D. early adopter.

A. entrepreneur.

Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to A. gain a market share and make up the loss in margin through increased sales. B. create higher value creation and thus generate greater profit margins. C. gain a market share and make up the loss in margin through increased pricing. D. create higher value creation and thus generate greater sales.

A. gain a market share and make up the loss in margin through increased sales.

The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator? A. high price, high comfort, high customer service, high concessions variety, low hours of operation B. low price, high comfort, high customer service, high concessions variety, low hours of operation C. high price, low comfort, low customer service, high concessions variety, low hours of operation D. low price, low comfort, low customer service, low concessions variety, low hours of operation

A. high price, high comfort, high customer service, high concessions variety, low hours of operation

Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate? A. radical innovation B. incremental innovation C. architectural innovation D. disruptive innovation

B. incremental innovation

Mobius Electronics 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? A. $350 B. $450 C. $800 D. $200

B. $450

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? A. 2,000-3,000 units B. 3,000-4,000 units C. below 2,000 units D. above 4,000 units

B. 3,000-4,000 units

At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n) A. 80 percent learning curve. B. 90 percent learning curve. C. 60 percent learning curve. D. 54 percent learning curve.

B. 90 percent learning curve.

It is April 2018 and Mark is a novice investor who wants to decide between purchasing shares in EagleCorp or Myna Bird Inc. In fiscal year 2017, EagleCorp's return on invested capital (ROIC) was 15 percent, and its cost of capital was 12 percent. During the same period, Myna Bird Inc.'s ROIC was 22 percent and its cost of capital was 25 percent. What does this information tell Mark? A. Myna Bird Inc. is more likely to create value while EagleCorp is more likely to destroy value. B. EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value. C. Both Myna Bird Inc. and EagleCorp are likely to create value. D. Neither Myna Bird Inc. nor EagleCorp are likely to create value.

B. EagleCorp is more likely to create value while Myna Bird Inc. is more likely to destroy value.

Which of the following is an advantage of the balanced-scorecard? A. It is a tool for both strategic formulation and strategic implementation. B. It allows managers to translate a firm's vision into measureable operational goals. C. The balanced-scorecard is independent of the skills of the managers responsible for its implementation. D. Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives.

B. It allows managers to translate a firm's vision into measureable operational goals.

What must a cost-leadership strategy accomplish to be successful? A. It must increase the firm's cost above that of its competitors while offering adequate value. B. It must reduce the firm's cost below that of its competitors while offering adequate value. C. It must increase the firm's cost above that of its competitors while offering superior value. D. It must reduce the firm's cost below that of its competitors while offering superior value.

B. It must reduce the firm's cost below that of its competitors while offering adequate value.

The Lynx Manufacturing Company produces components used in electronic toys. In fiscal year 2017, Lynx earned an accounting profit of $3 million. However, Lynx's production facilities might have also been used to produce components for mobile phones, which would have generated $2 million in revenues and saved the company $500,000 in production costs. Which of the following statements is true? A. Lynx earned an economic profit of $5.5 million. B. Lynx earned an economic profit of $500,000. C. Lynx suffered an economic loss of $500,000. D. Lynx suffered an economic loss of $2.5 million.

B. Lynx earned an economic profit of $500,000.

Which of the following scenarios best exemplifies a platform business? A. Devin purchases electronic parts from a variety of vendors and assembles them into inexpensive MP3 players that he sells to consumers. B. Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy. C. Raul operates a consulting firm in which businesses hire him to assess deficiencies in their organizational culture. D. Gena founded a bike-based transportation company that offers environmentally-friendly rides to customers within a 25-mile radius.

B. Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.

In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply? A. The mode of competition in the electric car industry will be based on price, whereas in the MP3 player industry, the mode of competition will be non-price based. B. The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation. C. The electric car industry will move to the growth stage, whereas the industry for MP3 players will enter the growth stage next. D. The industry for electric cars will primarily pursue an integration strategy, whereas in the MP3 players industry, the focus will be on differentiation.

B. The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.

While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true? A. The industry for cell phones with holographic keyboards will face greater competition than the tablet industry. B. While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation. C. While the industry for cell phones with holographic keyboards can reap the benefits of economies of scale, the tablet industry will experience no such benefits. D. The industry for cell phones with holographic keyboards will face price competition, whereas, in the tablet industry, the mode of competition will be non-price.

B. While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.

Unlike the financial ratios based on accounting data, total return to shareholders is A. backward-looking and historic in nature. B. an external performance metric. C. an absolute measure of competitive advantage. D. unaffected by market volatility or macroeconomic factors.

B. an external performance metric.

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario? A. cost-leadership B. differentiation C. market penetration D. product diversification

B. differentiation

When Simple Semiconductors was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as? A. minimum efficient scale B. diseconomies of scale C. experience curve effect D. learning-curve effect

B. diseconomies of scale

General Electric (GE) disrupted itself in the healthcare industry by A. replacing the top levels of the executive hierarchy. B. introducing inexpensive and smaller diagnostic devices in developing countries. C. saturating the global market with multiple diagnostic devices. D. targeting the comparatively less price-sensitive sections of the market.

B. introducing inexpensive and smaller diagnostic devices in developing countries.

Elena is the CEO of Geode Technologies, a consumer electronics manufacturer. Last year, Geode's return on invested capital (ROIC) was 11.6 percent, while Geode's closest competitor, NorthWest Tech, had an ROIC of 17 percent. Which of the following factors might Elena use to convince investors to invest in Geode rather than NorthWest Tech? A. Geode had a Research & development (R&D) expense / Revenue ratio of 16 percent, while NorthWest Tech had an R&D / Revenue ratio of 12 percent. B. Geode's working capital to revenue ratio was 75 percent, while NorthWest Tech's was 68 percent. C. Geode's intangible intensity was 6 percent, while NorthWest Tech's was 3 percent. D. Geode's plant, property, and equipment (PPE) over revenue ratio was 19 percent, while NorthWest Tech's was 10 percent.

C. Geode's intangible intensity was 6 percent, while NorthWest Tech's was 3 percent.

Both Saturn Technologies and Granite Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Saturn Technologies charges a higher price than Granite Inc. does, but it still sells a higher number of phones. What does this imply? A. Saturn Technologies and Granite have achieved a competitive parity. B. Granite Inc. has a competitive advantage over Saturn Technologies. C. Saturn Technologies creates more economic value than Granite Inc. does. D. Granite Inc. is not charging enough for its product.

C. Saturn Technologies creates more economic value than Granite Inc. does.

Erin is the manager of gardening supplies wholesaler SpringTime Inc. The company's vision is to become the leading supplier of gardening materials west of the Mississippi River. In assessing the firm's current state, Erin has determined that the firm could differentiate itself from competitors with an easy-to-use online ordering system and a two-day delivery guarantee. To accomplish this, Erin has determined that SpringTime must spend the next two quarters honing its capabilities for sourcing materials quickly and improving its web development competencies. According to the balanced scorecard approach, what is wrong with Erin's thinking? A. She has not considered the opportunity costs associated with launching an online ordering system. B. She has not addressed the question of which core competencies the firm needs. C. She has failed to account for external factors such as customer perceptions and shareholder perceptions. D. She has not addressed the question of how SpringTime will create value.

C. She has failed to account for external factors such as customer perceptions and shareholder perceptions.

Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms? A. Unlike incumbent firms, new entrants do not have to face the high entry barriers, initially. B. New entrants are embedded in an innovation ecosystem, while incumbent firms are not. C. Unlike incumbent firms, new entrants do not have formal organizational structures and processes. D. Incumbent firms do not have the advantages of network effects that new entrants have.

C. Unlike incumbent firms, new entrants do not have formal organizational structures and processes.

While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data? A. The number of competitors will be greater in the domestic airline industry than the internet-enabled appliance industry. B. The internet-enabled appliance industry is ahead of the domestic airline industry in the industry life cycle. C. While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants. D. The mode of competition will be price-based in the internet-enabled appliance industry and will be non-price-based in the domestic airline industry.

C. While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.

Airbase is a consumer electronics company known for its affordable mobile devices that follows a cost-leadership strategy. In this scenario, Airbase should ideally compare its strategic position with A. a company that sells small kitchen appliances at affordable prices. B. a consumer electronics company that sells high-end devices. C. a consumer electronics company popular among price-conscious customers. D. an online company that sells customized electronics accessories.

C. a consumer electronics company popular among price-conscious customers.

You are the founder of Shadow Skateboards, and you are considering methods of gaining and sustaining a competitive advantage. Which of the following changes has the best chance of quickly creating a sustainable advantage? A. devoting significant resources to researching and developing new products that will be more durable than competitors' B. automating the manufacturing process to reduce production costs C. allowing customers to upload their own image designs and help assemble the finished product at retail locations D. switching to a just-in-time inventory system to reduce inventory costs

C. allowing customers to upload their own image designs and help assemble the finished product at retail locations

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 checkups 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 A. Economies of scale. B. learning-curve effects. C. availability of complements. D. experience-curve effects.

C. availability of complements.

When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Magnet adopted in this scenario? A. harvest strategy B. maintain strategy C. consolidation strategy D. differentiation strategy

C. consolidation strategy

DiscountHaven 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 DiscountHaven's low prices. Thus, DiscountHaven has a competitive advantage due to its A. superior customer service. B. time compression economies. C. economies of scale. D. learning-curve effects.

C. economies of scale.

The difference between the price charged for a product and the cost to manufacture it is referred to as the A. consumer surplus. B. break-even price. C. producer surplus. D. reservation price.

C. producer surplus.

Fleet Foot Shoes has been successful at differentiating itself from competitors by claiming a premium price for its athletic footwear based on superior design and high-quality materials. In this scenario, which of the following is the key value driver? A. economies of scale B. low-cost input factors C. product features D. premium prices

C. product features

CordKing Electronics has entered a stage in which the demand for their innovative fax machines has declined. Now most customers are buying replacement parts or buying their second fax machine from the firm. What stage in the industry life cycle does this scenario describe? A. growth stage B. maturity stage C. shakeout stage D. decline stage

C. shakeout stage

The top management at Sunshine Vitamins, through rigorous testing, ensures that the company develops and sells vitamins 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 Sunshine Vitamins are applying the ________ approach to measure firm performance. A. economic value creation B. shareholder value creation C. triple-bottom-line D. accounting profitability

C. triple-bottom-line

Serena 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? A. $900 B. $1,100 C. $550 D. $200

D. $200

DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate? A. disruptive innovation B. incremental innovation C. radical innovation D. architectural innovation

D. architectural innovation

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? A. liquidation strategy B. product diversification strategy C. market penetration strategy D. blue ocean strategy

D. blue ocean strategy

As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate? A. radical innovation B. incremental innovation C. architectural innovation D. disruptive innovation

D. disruptive innovation

At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent? A. laggards B. technology enthusiasts C. early adopters D. early majority

D. early majority

Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage? A. advanced capabilities B. the company's outsider status C. sleek and trendy design D. ease of use

D. ease of use

Zelda 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 Genevieve's A. social cost. B. break-even price. C. reservation price. D. opportunity cost.

D. opportunity cost.

Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should Lillypad's managers prepare for next? A. increased competition from imitators B. a prolonged period of uncontested success C. a sharp decline in demand for the product D. a difficult struggle to move from invention to innovation

A. increased competition from imitators

Which of the following statements is true of accounting data? A. Accounting data focus mainly on intangible assets, rather than tangible assets. B. Accounting data are historical data and thus backward-looking. C. Accounting data do not have to be adjusted in any manner to compare companies with different capital structures. D. Accounting data consider off-balance sheet items, such as pension obligations of a firm.

B. Accounting data are historical data and thus backward-looking.

Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model? A. Launch a social media platform for food lovers. B. Provide free weekly catered meals for the homeless. C. Seek investments from venture capitalists. D. Buy out his closest competitors to ensure a competitive advantage.

B. Provide free weekly catered meals for the homeless.

Backyard BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage? A. lowering the quality of ingredients below what customers expect to control costs B. eliminating brick-and-mortar locations and offering delivery from a central kitchen C. raising prices without improving on the quality of food D. marketing itself as a high-end restaurant and competing with more refined restaurants in the area

B. eliminating brick-and-mortar locations and offering delivery from a central kitchen

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

B. gains market share from other firms.

Starfish Sodas has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine Starfish's position? A. Starfish improves the recipe for its most popular soda without increasing the price. B. Starfish introduces a new biodegradable bottle that raises cost and perceived value. C. Starfish's customers start to consider soda a commodity. D. Starfish's product has not established an acceptable standard of quality.

C. Starfish's customers start to consider soda a commodity.

In order to achieve a competitive advantage, the Coastal Haven Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so? A. Maintain prices but significantly increase spending on customer service and other amenities. B. Lower prices but eliminate several of the features that have come to define Coastal Haven properties for consumers, such as complimentary meals and in-room massages. C. Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image. D. Raise prices without increasing spending on customer service or resort features.

C. Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image.