MGMT 352 EXAM 1

T/F - Competitive advantage goes to the firm that maximizes the difference between the cost of producing a good and the retail price that consumers pay

False - This describes economic value created to measure competitive advantage, ALL products/services must be assessed

T/F - Firms within the same industry automatically belong to the same strategic group.

False - strategic groups include firms in the same industry ALSO pursuing the same strategy

T/F - One of Rolex's tangible resources is its well-known brand name and reputation for quality timepieces.

False - this is an intangible resource

T/F - A cost leader is the firm most likely to survive a price war

True

T/F - A firm operating on a 70 percent learning curve will achieve lower per unit costs after doubling its output than operating on an 80 percent learning curve will.

True

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. $200 b. $900 c. $1100 d. $550

a. $200 consumer surplus = perceived worth - actual amount paid

In an industry, the threat of entry is high when a. capital requirements are low b. network effects are strong c. switching costs are high d. expected returns are low

a. capital requirements are low b, c, and d the threat of entry is low bc there are high barriers to entry

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? a. value the consumer attaches to the dress b. firm's cost in manufacturing the dress c. the producer surplus d. the consumer surplus

a. value consumer attaches to the dress

Which of the following statements accurately brings out the difference between tangible and intangible resources? a. tangible resources contribute to a company's competitive advantage, whereas intangible resources have little effect on competitive advantage b. tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased c. tangible assets are difficult for competitors to imitate, whereas intangible assets can be easily replicated d. tangible resources take a longer time to build, whereas intangible assets can be built comparatively easily

b. tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased common sense

Anders is researching sociocultural factors related to his employer, a sporting goods manufacturer. Which of the following would be part of the sociocultural forces in a firm's external environment? a. the rate of employee attrition within the firm b. the laws protecting small enterprises c. the family size of the firm's target market d. the interest rates prevalent in an economy

c. the family size of the firm's target market sociocultural factors include cultures, norms, values, and dynamics of each demographic attrition means weakening a and d would be economic, b would be legal

Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then a. Invoro will have a resource that is rare but no longer valuable b. Finolo and Ethver will have a VRIO resource c. Invoro will have a sustainable competitive advantage in the industry d. Invoro will have a resource that is valuable but no longer rare

d. Invoro will have a resource that is valuable but no longer rare rare means the resources are possessed by only one or a few firms

A ________ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market. a. corporate level strategy b. causal ambiguity c. path dependence d. business level strategy

d. business level strategy

T/F - When pursuing a blue ocean strategy, a firm in a crowded marketplace attempts to out-compete rivals on both cost and product features with the goal of gaining market share at the expense of other competitors in the same industry.

False - this describes red ocean strategy blue ocean strategy is the combo of cost leadership and differentiation strategies to create additional demand in UNTAPPED market space

T/F - A differentiator will always benefit when products have become commoditized.

False - when products become commoditized product features lose their value which in turn means your buyer has multiple credible options

Which of the following statements with regard to industry structures is true? a. a consolidated industry tends to be more profitable than a fragmented one b. they are stable over time, not dynamic c. having a large number of competitors generally equates to higher industry profitability d. having few but large competitors increases the threat of strong competitive forces such as supplier or buyer power

a. a consolidated industry tends to be more profitable than a fragmented one monopolies have more pricing power than perfect competition

Economies of scale are cost advantages that accrue for firms with a. larger cumulative output b. larger output c. high average costs d. high fixed costs

b. larger output cumulative output refers to learning curve; economies of scale means low cost

Which of the following is an accurate statement about learning effects? a. learning effects are captured at one point in time b. learning effects occur over time as output accumulates c. learning effects can produce diseconomies d. learning effects are significant in all production processes

b. learning effects occur over time as output accumulates

Which of the following most accurately describes a difference between incremental innovation and radical innovation? a. incremental researches new materials; radical researches new processes b. incremental draws on novel methods; radical draws on proven methods c. incremental builds on established knowledge base; radical uses an entirely different knowledge base d. incremental targets new markets and technologies; radical reinvents markets and technologies

c. incremental builds on established knowledge base; radical uses an entirely different knowledge base incremental: established knowledge targeting existing markets radical: entirely new knowledge base to target new markets

Tony's Pizza has been trying to directly copy the strategies of Moonlight Pies. Even though it is evident that the success of Moonlight Pies' success comes from the freshness and variety of ingredients it uses, Tony's Pizza has not been able to introduce the same types of produce into its recipes. This is because Moonlight's network of relationships with local growers, as well as its efficient supply chain, are very difficult to emulate. Which of the following barriers to imitation does this scenario best illustrate? a. resource mobility b. resource homogeneity c. path dependence d. social complexity

d. social complexity "network of relationships" c means current alternatives are limited by past decisions b is one of the Resource Based View assumptions meaning a firm is a bundle of resources with differing capabilities

The internet service provider industry in the country of Megalopolis 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 internet service provider industry, the a. entry barriers are most likely nonexistent b. threat of substitutes is most likely high c. bargaining power of buyers is most likely low d. threat of new entrants is most likely low

d. threat of new entrants is most likely low entry barriers are high

T/F - When smartphone manufacturers began including cameras and voice recorders in their products, that was an example of industry convergence.

True

Which of the following features about a buyer indicates that the buyer has high bargaining power? a. buyer operates in an industry where products are undifferentiated b. buyer cannot purchase specific products from other sellers c. buyer cannot credibly threaten to backwardly integrate into the industry d. buyer faces high switching costs

a. buyer operates in an industry where products are undifferentiated b, c, and d are all examples of low bargaining power

In an economic context, strategy for producers is primarily about a. capturing the economic value created as much as possible b. distributing the economic value created equally between consumers and themselves c. reducing the difference between consumer's willingness to pay for a product and the cost to produce it d. lowering producer surplus and increasing consumer surplus

a. capturing the economic value created as much as possible

In the five forces model developed by Michael Porter, _____ is not defined narrowly as a firm's closest competitor 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. competition b. strategic group c. barrier to entry d. firm's resource

a. competition no other option make's sense

Managers at Sandburg Real Estate are surprised to hear that interest rates are likely to remain low for the next six months. Which of the following is an implication of low interest rates? a. consumer demand will increase b. consumer demand will decrease c. cost of capital for firms will be high d. firms will invest less in future growth

a. consumer demand will increase use common sense

Which of the following customer segments as described in the chasm framework make up the most of mass market? a. early and late majority together b. early adopters alone c. late majority alone d. technology enthusiasts and laggards together

a. early and late majority together both early and late majority = 34% early adopters = 13.5% tech enthusiasts = 2.5% laggards = 16%

It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they a. enter into the market in large numbers creating a herding effect b. are driven by technology concerns rather than the practicality of a new product c. influence the purchase decisions of early adopters d. have the highest purchasing power when compared to the other customer segments

a. enter into the market in large numbers creating a herding effect b and c are tech enthusiasts

Cloudlink 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? a. freemium b. razor blade c. subscription based d. pay as you go

a. freemium b. is when the initial product is sold at a loss in order to drive demand for complementary goods c. is when users pay for access during a payment term d. is when users pay one time cost and if they need it again they will pay again when they choose

How does causal ambiguity act as an isolating mechanism for organizations? a. it makes it difficult for the competitors to understand why a company has been so successful. b. it creates a situation in which different social and business systems interact with one another. c. it makes it difficult for competitors to deploy their resources by creating ambiguity within their organizational structures. d. it makes it difficult for competitors to imitate core competencies quickly due to time compression diseconomies.

a. it makes it difficult for the competitors to understand why a company has been so successful

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

b. AccuroDisk creates a greater economic value than TD storage 47 - 32 = 15 which is greater than 50 - 37 = 13

Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. This example describes a. incremental innovation. b. architectural innovation. c. disruptive innovation. d. radical innovation.

b. architectural innovation "components put together in an altogether different way that was more user-friendly"

In the context of industrial growth, which of the following statements is true of standards? a. standards emerge exclusively from bottom-up through competition in the marketplace b. as the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices c. after a standard is established in an industry, the basis of competition tends to move away from process innovations toward product innovations d. standards are exclusively imposed top-down by gov or other agencies such as the Institute of Electrical and Electronics Engineers

b. as the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices a and d are false because both the top down and bottom up approach are valid c. is false because companies also pursue strategic objectives

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. social complexity b. backward integration c. causal ambiguity d. forward ambiguity

b. backward integration common sense

Economic value creation is best expressed as a. consumer surplus minus cost of production b. consumer surplus plus firm profit c. producer surplus plus firm profit d. producer surplus minus consumer surplus

b. consumer surplus plus firm profit (Value-Price)+(Price-Cost)

In a focused cost-leadership strategy, a firm a. provides high-priced products for many different segments of the mass market b. delivers low cost products and services to a specific narrow part of the market c. focuses on reducing the economic value created to drive down costs d. caters to the segment of the market that is least cost sensitive

b. delivers low cost products and services to a specific narrow part of the market

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. economies of scale c. diseconomies of scale d. learning curve effects

b. economies of scale

To be successful and to survive the shakeout stage of the industry life cycle, a firm should a. shift from price to non price competition b. gain economies of scale c. focus on product innovation rather than process innovation d. charge higher prices than its competitors

b. gain economies of scale in the shakeout stage, firms compete for market share and the biggest weapon is low price

Which of the following is primarily a value driver? a. experience curve effects b. economies of scope c. complements d. cost of input factors

c. complements primary value drivers include product features, customer service, and complements a, b, and d are all major cost drivers

A blue ocean strategy differs from a low cost strategy in that a. blue ocean research and development focuses on process technology, cost leader focus is on product technology b. intent of blue ocean is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value c. economies of scale are more important to a blue ocean strategy while economies of scope are more important to cost leadership d. focus of blue ocean is lowering the economic value created, cost leadership focuses on increasing the economic value created

b. intent of blue ocean is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value blue ocean is both decreasing cost and increasing value cost leadership is solely lowering cost

Combining economies of learning with the existing production technology allows a firm to a. jump to a less steeper learning curve b. move down a given learning curve c. move up a given experience curve d. jump to a flatter experience curve

b. move down a given learning curve

Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls 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 Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.? a. high fixed costs b. network effects c. economies of scale d. high capital requirement

b. network effects common sense

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. monopolistic competition b. perfect competition c. oligopoly d. monopoly

b. perfect competition a is many firms, some pricing power, differentiated product, medium entry barriers c is few large firms, some pricing power, differentiated product, high entry barriers d is one firm, considerable pricing power

In which of the following situations is the power of suppliers high in an industry? a. suppliers depend heavily on the industry for their revenues b. suppliers industry is more concentrated than the industry it sells to c. suppliers offer products that are undifferentiated d. suppliers can credibly threaten to backward integrate into the industry

b. suppliers industry is more concentrated than the industry it sells to more concentrated = less options = more bargaining power = greater power of suppliers

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 max a person is willing to pay for it is $180. What is the amount of total perceived consumer benefits in this scenario? a. $100 b. $200 c. $180 d. $250

c. $180 total perceived consumer benefit = consumer's willingness to pay a = firm's cost b = firm's price c = n/a

Both Bison Autos and Sparrow Inc. incur a cost of $9000 to manufacture a vehicle. However, the economic value created by Sparrow Inc is more than that created by Bison Autos. What does this indicate? a. Bison Autos has created a higher value gap than Sparrow Inc b. both Bison Autos and Sparrow Inc have achieved competitive parity c. Sparrow Inc can charge a premium price on its automobiles d. Bison Autos has a competitive advantage over Sparrow Inc

c. Sparrow Inc can charge a premium price on its automobiles if the consumer's willingness to pay is raised, you can charge a higher price

Which of the following is the best characterization of sociocultural forces? a. strategic group's culture, norms, and values b. competitor's culture, norms, and values c. society's culture, norms, and values d. firm's culture, norms, and values

c. a society's culture, norms, and values sociocultural factors: cultures, norms, values, and dynamics of each demographic

Bargain Styles 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 Bargain Styles applying? a. blue ocean b. competitive disadvantage c. cost leadership d. differentiation

c. cost leadership common sense

Companies in the same strategic group are _______ to each other. a. indirect competitors b. different competitive forces c. direct competitors d. irrelevant

c. direct competitors

Which of the following statements accurately brings out the difference between monopolistic competition and oligopoly? a. firms in oligopoly have no pricing power; firms in monopolistic have ability to raise prices b. in an oligopoly number of buyers is large; in monopolistic the number of buyers is limited to three or four c. in monopolistic, many firms compete against each other, in oligopoly there are few large firms competing against each other d. sellers in an oligopoly provide highly differentiated products; in monopolistic, undifferentiated or standardized products are sold

c. in monopolistic, many firms compete against each other, in oligopoly there are few large firms competing against each other monopolistic competition is different than a monopoly !! monopolistic = many firms, some pricing power, differentiated product, medium entry barriers oligopoly = few large firms, some pricing power, differentiated product, high entry barriers

Which of the following is a macroeconomic factor that can affect a firm's strategy? a. threat of substitutes b. power of buyers c. levels of employment d. power of suppliers

c. levels of employment levels of employment is a subset of economic factors in the PESTEL framework a, b, and d all are components of Porter's five forces model

Due to resource immobility, a critical assumption in the resource-based model of a firm, the a. competitive advantage of a firm exists for a short period of time. b. resource bundles of a firm can be easily imitated by competitors. c. resource differences between firms last for a long time. d. competencies and capabilities of all firms in an industry are similar.

c. resource differences between firms last for a long time resource immobility claims that resources tend to be "sticky" and don't move easily from firm to firm

From an investors' or shareholders' perspective, the measure of competitive advantage that matters most is the a. consumer surplus b. economic value created c. return on risk capital d. returns on revenue

c. return on risk capital Total Shareholder Return (TSR) = Return on Risk Capital

Which of the following is a feature of the maturity stage of the industry life cycle? a. the industry structure is more monopolistically competitive b. the competitive intensity within the industry is at its peak c. the market reaches its maximum size d. the focus on product innovation is higher than that on process innovation

c. the market reaches its max size both a. and b. are the shakeout stage; d. is the introduction stage

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. architectural innovation b. radical innovation c. incremental innovation d. disruptive innovation

d. disruptive innovation *begins as new low cost solution to existing problem and rate of technological improvement increases* a. means existing technology is leveraged into a new market b. means entirely new knowledge base to new target markets c. established knowledge to target existing markets; incremental innovation

Which of the following is a primary feature of the five forces model? a. it takes into account a firm's internal resources, capabilities, and core competencies b. it helps managers determine the changing speed of an industry or the rate of innovation c. it is concerned exclusively about the intensity of rivalry among direct competitors d. it views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes

d. it views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes a is internal analysis b is industry life cycle c is strategic group mapping

Trendline Architects' core competency is building multi-family housing in urban areas. This competency is based primarily on the decisions made by the company's top management over several years to focus on building in densely populated cities. This process is called a. causal ambiguity b. social complexity c. better expectations of future value of resources d. path dependence

d. path dependency a means the cause of success/failure is not apparent b means two or more systems interact creating many possibilities for success or failure c means you buy resources at a low cost before it gains value

The primary objective of Porter's five forces model is to a. reduce the gap between the value of a firm's product and its cost of production b. understand macroeconomic factors c. understand valuable, rare, and hard to imitate resources d. understand the profit potential of industries

d. understand the profit potential of industries a is economic value creation; b is strategic group mapping; c is resource based view