CH03 Flashcards
- Given the range of external influences that impact a firm, understanding the external environment requires managers to:[See pp.60-61]
a. Use a framework or a system to organize relevant information
b. Monitor competitors closely
c. Use all existing sources and techniques to gather and analyze information
d. Devote a large proportion of their time to this task
a
- Economic value is created when:[See pp.61-62]
a. The price that customers pay for a product exceeds the costs of producing it
b. Competition causes surplus value to be transferred from producers to consumers
c. The price that customers are willing to pay for a product exceeds the price they actually pay
d. The price that customers are willing to pay for a product exceeds the cost producing it
d
- The profits earned by firms in an industry, are determined by:[See p. 62]
a. The intensity of competition among the firms within the industry
b. How much customers value the products supplied by the industry
c. The extent to which the industry is protected by barriers to entry
d. The value of the product to customers, the intensity of competition, and the relative bargaining powers of producers, their suppliers and their buyers
d
- If an industry earns a return on capital in excess of its cost of capital:[See p.66]
a. It will soon attracts the attention of competition authorities
b. Workers will push for higher pay and benefits causing the level of profitability to fall
c. It will attract the attention of potential entrants and, unless protected by high barriers to entry, the return on capital will fall
d. Firms within the industry will over-invest causing the return on capital to fall
c
As the competitors in an industry become more diverse in terms of their goals, cost structures, and strategies, it is likely that:[See p.68]
a. Their incentives to collude on price increase
b. They will compete more fiercely on price
c. Their products will become increasingly differentiated
d. Mergers, acquisitions and alliances among them will increase
b
Industries where a decline in demand is most likely to cause industry-wide losses tend to have the following characteristics: [See pp.68-69]
a. High concentration, lack of product differentiation and scale economies
b. High exit barriers, lack of product differentiation, and a high ratio of fixed to variable costs
c. High exit barriers, lack of product differentiation, and powerful buyers
d. Powerful buyers and suppliers and high exit barriers
b
Bargaining power rests, ultimately, on:[See p.70]
a. The negotiating skills of the buyer versus the seller
b. Tradition
c. The respective effectiveness and cohesion of top management teams
d. The relative costs that each party would incur from walking away from the dea
d
- To obtain a license to drive a “black cab” taxi in London, requires passing a rigorous test of the driver’sknowledge of London’s streets and buildings involving 2 to 4 years of study. This test affects the profitability of the London taxi industry: [See pp.66-67]
a. Negatively, because of the debts that future taxi drivers accumulate during their training
b. Negatively, because it encourages native Londoners, who are already familiar with the city, to enter the industry
c. Positively because they restrict entry to the industry
d. Positively, because “doing the knowledge” increases solidarity among London’s taxi drivers. if such licenses can be sold on a secondary marke
c
- The most useful approach to forecasting industry profitability in the future is:[See pp.71-73]
a. To estimate the industry’s revenues and costs in future years
b. To use an industry’s probability at similar stages of the business cycle in the past as an indicator of future profitability
c. To extrapolate the trend of industry profitability into the future
d. To understand how the industry’s structure has determined competitive intensity and profitability in the past, then to use information on an industry’s changing structure to predict how profitability is likely to change in the future
d
A market’s boundaries are determined by:[See pp.75-76]
a. The geographical extent of the markets that are supplied by the incumbents
b. The type of product which is sold, and the type of customers willing to pay for the product
c. Price homogeneity—within the confines of a market, a single price rules
d. Substitutability on both the demand side and the supply side
d
In practice, drawing industry boundaries is:[See pp.75-76]
a. A subjective exercise that depends upon the personal preferences of top managers
b. An objective exercise that requires estimating cross-elasticities of demand for the industry’s products
c. A matter of judgment that depends upon the purpose of the analysis
d. Critical to the output of the analysis and therefore should only be undertaken with the help of an academic or consultant
c
For most business enterprises a market is: [See pp.75-76]
a. An abstract concept—from the point of view of competition it is a continuum from a firm’s closest competitor towards more distant competitors
b. A sociological concept that is defined mainly by convention and institutions
c. Geographical concept defined by the location of customers and competitors
d. All the above
d
Key success factors are:[See pp.77-80]
a. Factors that allow rivals to undermine a firm’s competitive advantage
b. The sources of competitive advantage within an industry
c. The forces of competition that are most influential in determining industry profitability
d. The generic strategy that is most closely aligned with customer preferences
b
Identifying key success factors within an industry requires answers to the following questions:[See pp.77-80]
a. What do customers want and what should the firm do to survive competition?
b. What is a firm’s unique selling proposition?
c. Which of the five forces of competition most threaten a firm’s survival and how could the firm deal with them?
d. What are the main sources of a company’s cost efficiency?
a
