midterm

Question 1

The greater the extent to which a firm’s assumptions and hypotheses accurately describe how the competition in the industry is likely to evolve, and how that evolution can be exploited to earn a profit, the more likely it is that a firm will gain a competitive advantage from implementing its strategies: True/False

Answer 1

T

Question 2

Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes: True/False

Answer 2

F

Question 3

The cost of equity is equal to the interest a firm must pay its debt holders in order to induce those debt holders to lend money to the firm: True/False

Answer 3

F

Question 4

A resource can be a source of competitive advantage even if the resource is controlled by numerous firms: True/False

Answer 4

F

Question 5

A process is said to be path dependent when imitating firms are not able to understand the relationship between the resources and capabilities controlled by a firm and that firm’s competitive advantage: : True/False

Answer 5

F

Question 6

A firm’s patents may decrease, rather than increase, the costs of imitation: True/False

Answer 6

T

Question 7

The threat of rivalry tends to be high in an industry when firms are able to meaningfully differentiate their products: True/False

Answer 7

F

Question 8

If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open its own diamond brokerage firm, this would be an example of forward vertical integration: True/False

Answer 8

F

Question 9

Within the five forces framework, when all five threats are very high competition in the industry begins to approach a monopoly: True/False

Answer 9

F

Question 10

To a firm seeking competitive advantage, an environmental threat is any individual, group, or organization outside a firm that seeks to reduce the level of that firm’s performance: True/False

Answer 10

T

Question 11

If the average ROE in the heating and cooling industry is 10.1%, and Thermacorp’s ROE is 17.3%, Thermacorp is said to have

Answer 11

above average economic performance.

Question 12

12. The values, beliefs and norms that guide behavior in society are known as

Answer 12

D) culture.

Question 13

13. Firms in industries characterized by ________ can expect to earn only competitive parity.

Answer 13

A) perfect competition

Question 14

All other things being equal, which of the following would lead to lower barriers to entry in an industry?

Answer 14

D) Raw materials are widely and readily available at a competitive price.

Question 15

The advantages that come to firms that make important strategic and technological decisions early in the development of an industry are known as ________ advantages.

Answer 15

A) first-mover

Question 16

LaserTech is a manufacturer of industrial lasers and has developed a new, patented technology that allows its customers to manufacture their products more precisely with a higher level of consistency and at a lower cost than they could previously. LaserTech’s executives believe that no rivals have a similar technology and that it would be very difficult for rivals to copy this technology since the benefits of the new technology can only be realized within LaserTech’s system, which includes processes that are protected by trade secrets, making it difficult for rivals to understand the relationship between the company’s new technology and its competitive advantage.
16. If one of LaserTech’s rivals were to decide to divest its industrial laser manufacturing business in response to LaserTech’s new technology, this would be an example of

Answer 16

competitive dynamics.

Question 17

LaserTech’s new technology is an example of

Answer 17

B) physical resources.

Question 18

Wal-Mart’s earlier mover advantage into the discount retail industry is an example of resources or strategies which are protected from imitation because of high social complexity: True or False

Answer 18

F

Question 19

19. Which type of ratios focus on the ability of a firm to meet its short-term financial obligations?

Answer 19

Liquidity ratios

Question 20

To the extent that a firm’s resources and capabilities enhance a firm’s competitive position by enabling a firm to exploit its opportunities or neutralize its threats, these resources and capabilities are valuable and are known as

Answer 20

D. strengths.

Question 21

Ratios that focus on the level of a firm’s financial flexibility, including its ability to obtain more debt, are known as

Answer 21

A. Leverage ratios.

Question 22

A firm that chooses a cost-leadership business strategy focuses on gaining advantages by reducing its costs to a level equal to all of its competitors: True/False

Answer 22

F

Question 23

Firms that are successful in pursuing a cost-leadership strategy focus solely on keeping costs low and abandoning other business or corporate strategies: True/False

Answer 23

F

Question 24

Economies of scale are said to exist when the increase in firm size (measured in terms of volume of production) are associated with lower costs (measured in terms of average costs per unit of production): True/False

Answer 24

T

Question 25

As a firm increases in size, it often increases in complexity; however the ability of managers to control and operate the firm efficiently are virtually unlimited and therefore costs do not substantially increase: True/False

Answer 25

F

Question 26

Learning curve-cost advantages are restricted solely to manufacturing and the advantage associated only with the manufacturing business function: True/False

Answer 26

F

Question 27

A cost-leadership competitive strategy can reduce both the threat of substitutes and the threat of suppliers that a firm may face: True/False

Answer 27

T

Question 28

Cost leadership firms are typically characterized by very tight cost control systems; frequent and detailed cost control reports; an emphasis on quantitative cost goals and targets; and close supervision of labor, raw materials, inventory, and other costs: True/False

Answer 28

T

Question 29

In general, cost advantages are not possible when competing firms produce similar products: True/False

Answer 29

F

Question 30

Wal-Mart exemplifies a firm pursuing a product differentiation strategy while Victoria's Secret exemplifies a firm pursuing a cost leadership strategy: True/False

Answer 30

F

Question 31

Product differentiation is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firms' products or services: True/False

Answer 31

T

Question 32

If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm: True/False

Answer 32

T

Question 33

A cost-leadership competitive strategy helps reduce the threat of entry by creating cost- based barriers to entry: True/False

Answer 33

T

Question 34

Which of the following compensation policies is most likely to enhance a firm's ability to pursue a low cost strategy?

Answer 34

Awarding employees bonuses that are equal to 50% of the total cost savings achieved based on employee suggestions and initiatives

Question 35

If the potential responses of competing firms are likely to be very detrimental to the costs advantages of a cost leaders, firms pursuing a cost-leadership competitive strategy should

Answer 35

focus on a specific niche market to avoid direct competition with aggressive competitors.

Question 36

As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs of production begin to rise because of

Answer 36

diseconomies of scale