Chapter 9

Question 1

When does a firm have competitive advantage in the market

Answer 1

When a firm earns a higher rate of economic profit than the average rate of economic profit or other firms competing within the same market, the firm has a competitive advantage in that market

Question 2

What is maximum willingness to pay

Answer 2

Suppose that a particular software is worth $150 to you. If its market price was $80, you would buy it. $150 is the maximum willingness to pay

Question 3

What is consumer surplus

Answer 3

Suppose that a particular software is worth $150 to you. If its market price was $80, you would buy it. The $150-$80= $70 is the consumer surplus

Question 4

What does the value map illustrate

Answer 4

The value map illustrates the price-quality positions of firms in a market

Question 5

What does the value chain depict

Answer 5

The value chain depicts the firm as a collection of value-creating activities

Question 6

What are the five primary activities of the value chain depict

Answer 6

Inbound logistics
Production operations
Outbound logistics
Marketing and sales
Service

Question 7

What are the four support activities of the value chain depict

Answer 7

Firm infrastructure activities
Finance and accounting
Human resource management
Technology development
Procurement

Question 8

What does a firm’s generic strategy describe

Answer 8

It describes in broad terms, how it positions itself to compete in the market it serves.
it includes benefit leadership, cost leadership and focus

Question 9

Explain cost leadership

Answer 9

it creates more value than its competitors by offering products that have a lower C than its competitors

Question 10

Explain benefit leadership

Answer 10

it creates more value than its competitors by offering products that have a higher B than its rivals

Question 11

When a firm has High price elasticity of demand it should take a

Answer 11

Share strategy (weak horizontal differentiation)

Question 12

When a firm has low price elasticity of demand it should take a

Answer 12

Margin strategy (strong horizontal differentiation)

Question 13

Margin strategy with cost advantage
(low price elasticity)

Answer 13

Maintain price parity with competitors

Question 14

Share strategy with cost advantage (high price elasticity)

Answer 14

Underprice competitors to gain share

Question 15

Margin strategy with benefit advantage (low price elasticity)

Answer 15

Charge price premium relative to competitors

Question 16

Share strategy with benefit advantage (high price elasticity)

Answer 16

Maintain price parity with competitors

Question 17

What does stuck in the middle mean

Answer 17

Stuck in the middle mean to describe a firm that pursues elements of cost leadership and benefit leadership at the same time and in the process achieves neither

Question 18

What is weak horizontal differentiation

Answer 18

Horizontal differentiation = brand loyalty

So weak horizontal differentiation is that customers are more price sensitive

Question 19

What is strong horizontal differentiation

Answer 19

Horizontal differentiation = brand loyalty

So strong horizontal differentiation is that customers are less price sensitive