Economic Concepts/Market Influence on Business Strategies

Question 1

Oligopoly

Answer 1

• Few firms in the market
• Significant barriers to entry
• differentiated products
• fixed(or semi fixed) prices
• kinked demand curves

Question 2

A business firm that has the ability to control the price of the product it sells

Answer 2

Faces a downward-sloping demand curve.

Question 3

Under pure competition, strategic plans focus on:

Answer 3

maintaining the market share & being responsive to market conditions related to sales price.

Question 4

Under monopolistic competition, strategic plans focus on:

Answer 4

Maintaining the market share & planning for enhanced product differentiation

Question 5

Under monopoly, strategic plans focus on

Answer 5

Profitability from production levels that maximize profits.

Question 6

Elasticity of demand or supply is:

Answer 6

A measure of how sensitive the demand for or supply of a product is to a change in its price.

Question 7

Demand for a product is price inelastic?

Answer 7

An increase in price will result in an increase in total revenue.

Question 8

If a demand is unit elastic, what happens to the change in price?

Answer 8

It will have no effect on total revenue.

Question 9

Value chain analysis

Answer 9

• must be used in conjunction with the strategic plan of the organization
• critical to assessing the competitive advantage of a firm.
• strategic tool that assists the firm in determining how important the perceived value of the buyers is with respect to the market the firm operates in.

Question 10

Vertical linkage analysis

Answer 10

understanding the activities of the suppliers & the buyers of the product & determining where value can be created external o the firm’s operations/ Production manager’s visit to the supplier’s location is an example.

Question 11

What factors increase the bargaining power of the suppliers?

Answer 11

• 1 group of customers makes up a large volume of the firm’s business
• buyers have low switching costs of changing products
• much information is available to the customer to compare & contrast features of all products on the market.

Question 12

Surplus can only arise if there is a:

Answer 12

Minimum price above the equilibrium price

Question 13

SCOR Model of supply chain operations, which management processes does assessing the ability of the suppliers to supply resources fall into?

Answer 13

Plan

“The process of planning consists of developing a way to properly balance aggregate demand & aggregate supply within the goals & objectives of the firm & plan for the necessary infrastructure.

Question 14

A perfectly inelastic supply curve in a competitive market:

Answer 14

Exists when firms cannot vary input usage.

Question 15

If an item has many similar substitutes, its price elasticity of demand will be:

Answer 15

high.

*Customers can always switch to a substitute, so a change in price may affect demand substantially.

Question 16

The distinguishing characteristic of the long run on the supply side is:

Answer 16

• All inputs are variable.

* In accounting terms, this means that in the long run all costs are variable.

Question 17

Economies of Scale

Answer 17

The theory of economies of scale states that, as a production process gets larger, the process becomes more efficient & productivity increases.

1) Efficient utilization of capital equipment
2) Labor specialization
3) Utilization of by-products

Question 18

Michael Porter - 5 Forces that affect profitability:

Answer 18

1) Bargaining powers of customers
2) Bargaining powers of suppliers
3) Barriers to market entry
4) Market Competitiveness
5) Existence of a substitute product.

Question 19

What happens if product demand is significantly elastic?

Answer 19

Quantity increases proportionally more than the price declines.

Question 20

Pricing policy that results in establishment of a price to external customers higher than the competitive price for a given industry?

Answer 20

-Collusive pricing

Question 21

Patents are an example of:

Answer 21

Barrier to entry

Question 22

In a perfectly competitive market, a monopolist tends to:

Answer 22

Produce substantially less but charge a higher price.

Question 23

Monopolistic competition

Answer 23

market with many independent firms, low barriers to entry, and product differentiation

Question 24

When do differentiation strategies fail?

Answer 24

The value of the firm’s differentiation premium does not exceed its cost.