Chapter 2 Flashcards
A product that is fundamentally different yet serves the same function or purpose as another product best defines the term ________.
a) substitute
b) rivalry
c) opportunity
d) threat
a) substitute
Which of the following statements is true about rivalry?
a) It is an expensive method that treats other companies amicably.
b) It is an important driving force to increase profitability.
c) It helps increase losses for an organization to a large extent.
d) It is a force that is best avoided in an industry to increase profits.
b) It is an important driving force to increase profitability.
The household appliance industry has few major manufacturers like Nebula Corp., Cook Well Inc., and Mercury Corp. and a few smaller manufacturers. There is not much competition in this industry because the smaller companies cannot afford to compete aggressively with the large firms which do not engage in price wars. This scenario best illustrates a ________.
a) concentrated industry
b) fragmented industry
c) quaternary industry
d) quandary industry
a) concentrated industry
WillowWorks LLC, a retail clothing store, has been sourcing its raw materials from a supplier named ThreadTym Corp. for the last five years. A change of management at ThreadTym resulted in an increase of the prices of the raw materials. As a result, WillowWorks purchases ThreadTym so that it can produce these products on its own. This scenario best illustrates ________.
a) forward integration
b) network effect
c) switching cost
d) backward integration
d) backward integration
BlockWood Inc. has been providing raw materials to Couches Corp., a furniture company. The management at Couches recently decided to cut the prices it pays for the raw materials. BlockWood Inc. tried to negotiate a price that would be feasible for both companies, but Couches did not agree to pay more than what they had quoted. As BlockWood Inc. was facing similar difficulties with other buyers too, it eventually stopped supplying raw materials and took to manufacturing furniture instead. This scenario best illustrates ________.
a) barriers to exit
b) forward integration
c) barriers to entry
d) backward integration
b) forward integration
Products that can be used in tandem with those from another industry best define the term ________.
a) supplementary products
b) cannibalizing products
c) standardized products
d) complementary products
d) complementary products
Summer Corp., a retailer of consumer electronics, has been experiencing high profits because an increasing percentage of the customers have sufficient disposable income to afford its products. Similar companies have also experienced a boom in customer demand. Which of the following macroeconomic forces is Summer Corp. experiencing?
a) Inflation
b) Interest rate
c) Economic growth
d) Currency exchange rate
c) Economic growth
OneTick Shop Inc. experienced a loss of finances in the small town of Brightland as a lot of people from the town moved to bigger cities in search of jobs. This resulted in a loss of both returning as well as new customers. This scenario primarily reflects ________.
a) global forces
b) regulatory forces
c) environmental forces
d) demographic forces
d) demographic forces
The board of directors of August Inc., a company that provides legal services, has been debating over whether to provide its 99 full-time employees with health insurance. The managers of the firm, however, are considering dropping employee health insurance as a benefit. Which of the following statements strengthens the managers’ consideration?
a) The Affordable Health Care Act requires firms with over 50 employees to provide health insurance for their workers, or face fines.
b) The fine that August Inc. would face would be cheaper than the current premiums for health insurance.
c) The revised policy would help August Inc. erect entry barriers in its industry and change the nature of rivalry in the industry with most of the small firms.
d) The federal Affordable Health Care Act, enacted in 2009, mandates that health insurers cover even those with preexisting conditions.
b) The fine that August Inc. would face would be cheaper than the current premiums for health insurance.
The attractiveness of an industry is ________.
a) dependent on the number of large firms that are operating in an industry
b) unregulated by the general environment
c) the degree to which an average firm in the industry can earn good profits
d) the extent to which a firm has control over its profitability
c) the degree to which an average firm in the industry can earn good profits
Identify a true statement about switching costs.
a) The lower the switching costs, the easier it is for competitors to poach customers.
b) The higher the switching costs, the easier it is to convince customers to switch brands.
c) It is the loss in profit incurred by a firm for every buyer who switches to another brand.
d) It is the cost a firm has to pay to each buyer who switches to another brand for superior quality.
a) The lower the switching costs, the easier it is for competitors to poach customers.
dentify a true statement about substitutes.
a) It is a product with the same basic characteristics and is made using the same general set of inputs.
b) It is a product that is fundamentally different yet serves the same basic function as another product.
c) Substitutes put upward pressure on the price that firms in an industry can charge.
d) Substitutes give a firm the freedom to charge customers high prices for their products.
b) It is a product that is fundamentally different yet serves the same basic function as another product.
Which of the following statements is true about the role of technology in a firm’s profitability?
a) Technological change can often lower barriers to entry.
b) Incorporating new technology early creates barriers for new entrants.
c) Technological change within an industry does not affect a firm’s landscape.
d) Firms who are late to adopt new technologies benefit more than early adopters.
a) Technological change can often lower barriers to entry.
A firm that provides products that are inputs to another firm’s production process is known as a(n)
supplier
