BUAD497

The black swan events in the past have demonstrated that
a) capitalism as an economic system is highly reliable.
b) companies can successfully integrate cost-leadership and differentiation strategies.
c) globalization has reduced the need for standardized corporate ethics.
d) stakeholders can affect or be affected by a firm’s actions.

d) stakeholders can affect or be affected by a firm’s actions.

A diagnosis of the competitive challenge, an element of a good strategy, is primarily accomplished through strategy
a) formulation.
b) analysis.
c) implementation.
d) control.

b) analysis.

Which of the following groups will not be considered a company’s internal stakeholder?
a) suppliers
b) board members
c) shareholders
d) managers

a) suppliers

Which of the following statements is true of strategy?
a) Tactical tools that are a part of a firm’s functional and global initiatives are strategy.
b) Actions that allow a firm to address a competitive challenge are strategy.
c) Statements of desire, on their own, are strategy.
d) Operational effectiveness and competitive benchmarking are strategy.

b) Actions that allow a firm to address a competitive challenge are strategy.

The annual net profit after taxes for RSL Corp., a multinational conglomerate, is $5.5 billion. As legal owners, which of the following stakeholder groups has the most legitimate claim on this profit?
a) managers
b) government
c) shareholders
d) local communities

c) shareholders

The metaphor of a black swan best applies to
a) small businesses that become successful enough to raise capital through initial public offering.
b) highly profitable business units in low growth markets that are to be sustained solely for revenue generation.
c) events that are considered highly unexpected and highly impactful when they do occur.
d) low profitable strategic business units within a large enterprise that are best divested or liquidated.

c) events that are considered highly unexpected and highly impactful when they do occur.

Which of the following statements with regard to determining firm performance is true?
a) Firm and industry effects are independent of each other.
b) External analysis will help understand the industry effects that determine a firm’s performance.
c) Industry effects attribute firm performance to the actions managers take within a chosen industry.
d) Industry effects are more important than firm effects in determining a firm’s performance.

b) External analysis will help understand the industry effects that determine a firm’s performance.

Which of the following groups is most likely to be considered a firm’s internal stakeholder?
a) alliance partners
b) board members
c) creditors
d) customers

b) board members

Which of the following statements related to a firm’s stakeholders is not true?
a) If internal or external stakeholders withhold participation in the firm’s exchange relationships, it can have severe negative performance implications.
b) Effective stakeholder management is an example of the actions managers can take in order to enhance a firm’s competitive advantage.
c) While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits.
d) A firm’s stakeholders include organizations and groups along with individuals who can affect or be affected by the firm’s actions.

c) While external stakeholders are those who make contributions toward the firm, internal stakeholders are those who reap all the benefits.

Which of the following has contributed to Twitter’s loss of a competitive advantage?
a) Twitter delivers ads in real time, as opposed to competitors such as Facebook.
b) Individuals pay nothing to use Twitter, which gives Twitter free user-generated content.
c) Core users of Twitter are unable to stay connected permanently.
d) Twitter does not allow advertisers to target their online ads precisely enough.

d) Twitter does not allow advertisers to target their online ads precisely enough.

Which of the following is a stakeholder attribute that managers should consider at every step in a stakeholder impact analysis?
a) solvency
b) literacy
c) supremacy
d) legitimacy

d) legitimacy

Which of the following statements about competitive advantage is not true?
a) A firm’s competitive advantage is always absolute, not relative.
b) A firm can gain a competitive advantage by providing goods similar to its competitors’ goods at a lower price.
c) A firm’s past performance does not guarantee its future performance.
d) A firm will have a sustainable competitive advantage when it outperforms its competitors over a prolonged period of time.

a) A firm’s competitive advantage is always absolute, not relative.

When a firm integrates the competitive strategies of cost-leadership and differentiation, it will most likely result in
a) trade-offs that work against each other.
b) competitive parity with firms that have adopted either of the strategies.
c) a competitive advantage through superior performance.
d) an increase in the firm’s economic contribution.

a) trade-offs that work against each other.

Which of the following questions would a firm’s business strategy ideally answer?
a) Where to compete?
b) How to implement the functional strategy?
c) How to compete?
d) Why should we compete?

c) How to compete?

Which of the following questions does the values espoused by a company primarily answer?
a) Which of the value chain activities are primary?
b) What is the company’s customer lifetime value?
c) How do we accomplish our goals?
d) What is the value added to a good or service at each step in the production?

c) How do we accomplish our goals?

If a company chooses to keep its vision customer-oriented rather than product-oriented, what will be its implication?
a) The company will have a short-term, unidirectional focus.
b) The company will fail to establish a positive relationship between its vision statement and performance.
c) The company will tend to be more flexible when adapting to changing environments.
d) The company will clearly define how it means to satisfy a customer need.

c) The company will tend to be more flexible when adapting to changing environments.

Evaluating the data collected from environmental analysis, the corporate executives of F&S Pharma Inc. realized that it was the right time to expand the business. The company’s vision was accordingly adjusted from "To Be the Best in the Pharmaceutical Industry" to "To Make Good Health Accessible to Everyone around the Globe." To support the new vision, the executives decided that the company would first enter the Asian market where its growth potential would be huge. To further support these decisions, the general managers of different SBUs and the functional managers formulated their own strategies. Which of the following approaches to the development of strategy does this best illustrate?
a) scenario planning
b) reverse mentoring
c) bottom-up strategic approach
d) top-down strategic planning

d) top-down strategic planning

In the 1980s, Japanese competitors brought better-quality chips to the market at lower cost, threatening Intel Corporation’s position and strategic plan regarding the production of DRAM (dynamic random-access memory) chips. When the functional managers at Intel came up with the simple rule of producing whichever product delivered the higher margin, the front-line managers shifted Intel’s production capacity away from the lower-margin DRAM business to the higher-margin semiconductor business. This ___________ emerged as a consequence of the firm’s resource allocation process.
a) strategic alliance
b) intended strategy
c) unrealized strategy
d) bottom-up strategy

d) bottom-up strategy

Larry has been recently promoted to the position of a team lead at an insurance company. This promotion was based on his boss’s assessment that Larry is capable of conveying the company’s vision and mission to groups. As a result, he can guide groups to superior performance. From this scenario, we can say that Larry is currently at _____ of the Level-5 leadership pyramid.
a) Level 4
b)Level 1
c) Level 5
d) Level 3

a) Level 4

An organization’s ____________ describes what the organization actually does—the products and services it plans to provide, and the markets in which it will compete.
1) promissory note
2) code of conduct
3) mission
4) vision

3) mission

The board of directors of Best Digital Inc., a company that has a large product mix, has decided to get actively involved in research and development for the next three financial years. Budget for each business unit under the company will be allocated from the headquarters in proportion to its previous performance. The board has also decided to liquidate those units that have failed to perform so far. Which of the following strategies does this scenario best illustrate?
a) business strategy
b) functional strategy
c) divisional strategy
d) corporate strategy

d) corporate strategy

Which of the following statements is true of customer-oriented visions?
a) They tend to force managers to take a myopic view of the business environment.
b) They are inflexible with regard to adapting to changing environments.
c) They state an organization’s goals in terms of a good or service provided to customers.
d) They define a business in terms of providing solutions to people’s needs.

d) They define a business in terms of providing solutions to people’s needs.

A company’s vision primarily states
a) how the company plans to compete in its industry.
b) what the company actually does to generate revenues.
c) how the company plans to accomplish its goals.
d) what the company wants to accomplish ultimately.

d) what the company wants to accomplish ultimately.

Which of the following actions of an automobile firm will be considered as a strategic commitment?
a) the firm launching an existing model of a car in red as a limited edition for six months
b) the firm spending $100,000 on renting a manufacturing facility to meet the temporary demand for its cars
c) the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future
d) the firm promoting its new model of coupe through a free Europe trip worth $15,000 to be won as an early bird offer

c) the firm investing eight years and $4 billion to develop a range of hybrid cars with which it will compete in the future

_____ is best described as the behaviors and styles of executives that influence others to achieve an organization’s vision and mission.
a) Venture capitalism
b) Strategic leadership
c) Machiavellianism
d) Intrapreneurship

b) Strategic leadership

Which of the following statements is true of an oligopoly?
a) In an oligopoly, price-competition is the preferred mode of competition.
b) An oligopoly is often analyzed using game theory.
c) An oligopoly is characterized by low entry barriers.
d) In an oligopoly, competing firms are most often independent of each other.

b) An oligopoly is often analyzed using game theory.

Red Think Inc. is a company that supplies microprocessors to Osion Inc., a computer hardware company.
When Osion Inc. demands lower prices for the microprocessors, Red Think Inc. makes it clear that it would profit more from launching its own brand of laptops and desktops in the market. Fearing the competition it would then face from Red Think Inc., Osion Inc. decides to buy the microprocessors at the quoted price itself. In this scenario, Red Think Inc., as a supplier, has exercised its bargaining power by threatening to
a) crowdsource.
b) forward integrate.
c) outsource.
d) backward integrate.

d) backward integrate.

Restrictions imposed by the government, such as export quotas on certain products, are a part of the _______ environment of the PESTEL framework.
a) sociocultural
b) economic
c) ecological
d) political

d) political

Aura Software Inc. has been operating in the country of New Fernsland for almost a decade. The nation is currently experiencing an economic downturn. Which of the following is the most likely benefit of this economic condition for Aura Software Inc.?
a) Aura Software Inc. will have to expand its operations to meet the increasing consumer demand.
b) Aura Software Inc. will find it easier to secure capital to finance future growth.
c) Aura Software Inc. will have better access to highly skilled human capital at a lower cost.
d) Aura Software Inc. will experience lower competition from rival companies.

c) Aura Software Inc. will have better access to highly skilled human capital at a lower cost.

Owners of coffee plantations in the country of Matterstein grow their own coffee beans and supply them to various stores and restaurants all over the country. There are many plantation owners supplying to a huge number of companies, and they are typically unable to differentiate their products from each other. They also do not have the power to fix their own prices in the industry. In addition, these suppliers can only achieve competitive parity and not a competitive advantage. Thus, the coffee bean industry in Matterstein best illustrates a(n)___ structure.
a) oligopolistic
b) monopolistically competitive
c) monopolistic
d) perfectly competitive

d) perfectly competitive

_____ describe the positive externality that one user of a product or service has on the value of that product or service for other users.
a) Economies of scope
b) Network effects
c) Economies of scale
d) Experience effects

b) Network effects

In the restaurant industry, a large number of restaurants cater to the similar food-related needs of customers.
However, each restaurant makes its product unique by offering a different cuisine, a different ambience, or different services like home delivery and organic ingredients. This differentiation allows each restaurant to set its own prices. Thus, the restaurant industry best illustrates a(n)
a) monopolistically competitive structure.
b) monogopoly.
c) perfectly competitive structure.
d) oligopoly.

a) monopolistically competitive structure.

A consolidated industry turns into a fragmented industry when
a) restrictive government policies are introduced in the industry.
b) firms reduce competition within the industry through mergers and acquisitions.
c) network effects enjoyed by incumbent firms within the industry become stronger.
d) technological advances lead to industry convergence.

a) restrictive government policies are introduced in the industry.

Which of the following statements about the five forces in the U.S. airline industry is true?
a) Substitutes are not readily available since customers cannot use other means of transport.
b) Taken together, the competitive forces are quite unfavorable for generating a profit potential in the airline industry.
c) The combination of the competitive forces leads to intense rivalry among existing airlines.
d) Entry barriers in the airline industry are relatively high because of the high costs involved.

b) Taken together, the competitive forces are quite unfavorable for generating a profit potential in the airline industry.

Which of the following statements best supports the fact that even during a period of low demand in the U.S. automotive industry, excess capacity remained?
a) GM and Chrysler, despite their bankruptcy, restructured instead of exiting the industry.
b) Other American automakers of plug-in hybrid sports cars, like Fisker Automotive, filed for bankruptcy.
c) Suppliers in the automotive industry had low bargaining power.
d) Complementary products and services like battery charging and service stations were pervasive.

a) GM and Chrysler, despite their bankruptcy, restructured instead of exiting the industry.

How do complements affect a primary product or service?
a) They increase the demand for the primary product.
b) They reduce the value of the primary product.
c) They lower the utility of the primary product.
d) They act as the strategic equivalent of the primary product.

a) They increase the demand for the primary product.

Incumbent firms can benefit from several important sources of entry barriers. Economies of scale are one such source. Which of the following is an implication of economies of scale for incumbent firms?
a) They cannot employ technology efficiently.
b) They benefit from a less specialized division of labor.
c) They can spread fixed costs over lesser units.
d) They can demand better terms from their suppliers.

d) They can demand better terms from their suppliers.

Which of the following firms most likely has the lowest bargaining power as a buyer?
a) a cell phone company that requires highly customized software for its phones
b) a fast food chain that has multiple suppliers for processed meat
c) an automobile company that can backwardly integrate to produce its own component parts
d) a government agency that buys large quantities of cement from a private supplier

a) a cell phone company that requires highly customized software for its phones

Which of the following companies would most likely benefit from an economic recession?
a) Top Grill Inc., which offers expensive steaks and other meats
b) Fast Chow Inc., which specializes in selling low-cost Asian food
c) Luxury Suites Inc., which provides luxurious hotel accommodations
d) Fancy Jewelers Inc., which sells top-end gold and platinum jewelry

b) Fast Chow Inc., which specializes in selling low-cost Asian food

Spark Electronics Inc., One Digital Inc., and Esco Products Corp. are all companies that manufacture and sell consumer electronics. They procure their component parts from the same set of suppliers in China and sell the final product to customers with similar needs. Thus, the three companies together are a part of a(n)
a) industry.
b) occupational group.
c) focus group.
d) plant.

a) industry.

What are network effects?
a) the positive cost effects that standardized commodities have on incumbent industries
b) the positive effect that one user of a product or service has on the value of that product or service for other users
c) the positive effect that the high price of the entry ticket has on incumbent industries
d) the positive cost effects that accrue for firms with larger output because they can spread fixed costs over more units

b) the positive effect that one user of a product or service has on the value of that product or service for other users

In which of the following situations is the power of suppliers high in an industry?
a) Suppliers depend heavily on the industry for their revenues.
b) Suppliers offer products that are undifferentiated.
c) Suppliers can credibly threaten to backward integrate into the industry.
d) Suppliers’ industry is more concentrated than the industry it sells to.

d) Suppliers’ industry is more concentrated than the industry it sells to.

In a firm’s external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
a) economic trends
b) political trends
c) demographic trends
d) ecological trends

c) demographic trends

Economies of scale are cost advantages that accrue for firms with
a) low employee turnover.
b) high fixed costs.
c) larger output.
d) high capital risks.

c) larger output.

A company is best described as a _____ to an existing company if customers value the existing company’s product or service offering more when they are able to combine it with the other company’s product or service.
a) competitor
b) strategic equivalent
c) shareholder
d) complementor

d) complementor

What is the rule of thumb behind Porter’s five forces model?
a) The stronger the five forces, the greater the industry’s profit potential—making the industry less attractive.
b) The weaker the five forces, the greater the industry’s profit potential—making the industry more attractive.
c) The weaker the five forces, the lower the industry’s profit potential—making the industry less attractive.
d) The stronger the five forces, the lower the industry’s profit potential—making the industry more attractive.

b) The weaker the five forces, the greater the industry’s profit potential—making the industry more attractive.

The _____ allows the scanning, monitoring, and evaluating of changes and trends in a firm’s macro environment.
a) SWOT analysis
b) PESTEL framework
c) BCG matrix
d) VRIO framework

b) PESTEL framework

In an industry, the rivalry among existing competitors is high when
a) fixed costs are low and marginal costs are high.
b) incumbent firms are highly committed to the business.
c) exit barriers are low.
d) industry growth is high.

b) incumbent firms are highly committed to the business.

Which of the following is the best characterization of sociocultural forces?
a) a firm’s culture, norms, and values
b) a focus group’s culture, norms, and values
c) a society’s culture, norms, and values
d) a competitor’s culture, norms, and values

c) a society’s culture, norms, and values

In the _____ developed by Michael Porter, competition is not defined narrowly as a firm’s closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes.
a) PESTEL framework
b) five forces model
c) value chain analysis
d) VRIO framework

b) five forces model

Which of the following is an example of a firm’s capabilities?
a) assets such as plant and machinery owned by the firm
b) routine activities performed in the firm, like physical delivery of products
c) specific tasks involved in the invoicing of customers
d) skills involved in training and managing a workforce

d) skills involved in training and managing a workforce

In the context of the VRIO framework, a resource is said to be valuable if it
a) results in a perfectly competitive industry structure.
b) helps a firm increase its costs.
c) leads to competitive parity within an industry.
d) allows a firm to take advantage of an external opportunity.

d) allows a firm to take advantage of an external opportunity.

If a firm is not effectively organized to exploit the competitive potential of a valuable, rare, and costly to imitate (VRI) resource, the best case scenario is
a) direct imitation.
b) strategic equivalence.
c) a temporary competitive advantage.
d) a state of perfect competition.

c) a temporary competitive advantage.

In a perfectly competitive industry structure
a) resource heterogeneity is high.
b) any competitive advantage that one firm has will be short-lived.
c) resource immobility is high.
d) competitors cannot move quickly to acquire resources that are utilized by the current market leader.

b) any competitive advantage that one firm has will be short-lived.

The auditor of a public company is assessing the value of all the intangible assets owned by the company. Which of the following would most likely be included in this assessment?
a) the company’s headquarters
b) the company’s cash reserves
c) the company’s brand equity
d) the company’s plant and equipment

c) the company’s brand equity

A firm decides to retain $20,000 from its annual earnings and invest it in developing an advanced manufacturing system. In this scenario, the $20,000 would most likely be referred to as the firm’s
a) resource flow.
b) marginal utility.
c) frozen asset.
d) capital gain.

a) resource flow.

Which of the following will most likely be considered as an automobile company’s core competency?
a) the company’s ability to follow federal laws just like its competitors
b) the company’s ability to start distributing its cars in areas where a competitor is the market leader
c) the company’s ability to make its cars more fuel efficient than most of its competitors
d) the company’s ability to manufacture cars at a cost that is average in the industry

c) the company’s ability to make its cars more fuel efficient than most of its competitors

Which of the following statements accurately brings out the distinction between a firm’s resources and capabilities?
a) While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies.
b) Unlike capabilities, resources of the firm cannot be imitated by its competitors.
c) Unlike resources, capabilities do not find their expression in the firm’s structure, routines, and culture.
d) While a firm’s resources are always tangible, its capabilities are by nature intangible.

a) While resources reinforce core competencies, capabilities allow managers to orchestrate their core competencies.

Patents, designs, copyrights, trademarks, and trade secrets are five forms of
a) causal ambiguity.
b) path dependence.
c) social complexity.
d) intellectual property.

d) intellectual property.

In the context of SWOT analysis, a firm can develop a defensive strategic option primarily by
a) using an internal strength to exploit an external opportunity.
b) leveraging an external opportunity to overcome an internal threat.
c) eliminating an internal weakness to mitigate an external threat.
d) maximizing an external weakness to exploit an internal opportunity.

c) eliminating an internal weakness to mitigate an external threat.

In the context of the SWOT matrix, which of the following best exemplifies an external opportunity for a firm?
a) decreasing employee attrition within the firm
b) increasing inflation rates in the target market
c) increasing productivity of the employees
d) decreasing government interference in the target market

c) increasing productivity of the employees d) decreasing government interference in the target market

Which of the following explains how dynamic capabilities are different from the resource-based view?
a) Dynamic capabilities deal with intangible resources.
b) Dynamic capabilities deal with tangible resources.
c) Dynamic capabilities deal with applying resources over time.
d) Dynamic capabilities deal with resource heterogeneity.

c) Dynamic capabilities deal with applying resources over time.

Onivo Auto Inc. has been the leader in low-cost and fuel-efficient engine technology for many years. It has been able to sustain its competitive advantage primarily because of its highly efficient automobile engines, which competitors have been unable to develop or buy at a reasonable price. In the context of the VRIO framework, which of the following resource attributes most likely underpins Onivo’s competitive advantage?
a) The resource neutralizes external opportunities.
b) The resource is costly to imitate.
c) The resource is easy to replicate.
d) The resource decreases the perceived value of its products.

b) The resource is costly to imitate.

Chat Room is an instant messaging mobile application. Initially, users were not charged. However, after a period of six months, the users had to pay for a fee to use the upgraded version of the application with advanced features. Which of the following business models does this best illustrate?
a) subscription-based
b) freemium
c) pay-as-you-go
d) razor-razor-blade

b) freemium

Which of the following is an advantage of accounting data?
a) Accounting data focus mainly on intangible assets, which are more important than tangible assets in firms’ stock market valuations.
b) Accounting profitability ratios not only show us the outcomes from past decisions, but also provide information to guarantee future performance.
c) Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms.
d) Accounting data consider off-balance sheet items, which makes comparing companies with different capital structures easy.

c) Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms.

The sum of consumer surplus and producer surplus for a good or service equals the
a) firm’s profit.
b) total return to shareholders.
c) reservation price.
d) economic value created.

d) economic value created.

Univo Corp. is a public company whose shares are currently trading in the market at $150 each. The company manufactures smartphones at the cost of $300 per unit and sells them in the market for $500 each. What is the company’s producer surplus?
a) $200
b) $150
c) $650
d) $300

a) $200

The tenet behind the triple bottom line is that
a) a firm should solely focus on increasing the economic value created for its customers.
b) a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.
c) a firm’s return on revenue can be broken down into three ratios: COGS/Revenue, R&D/Revenue, and SG&A/Revenue.
d) a firm’s primary objective should be increasing the total returns to its shareholders.

b) a firm should achieve positive results along the economic, social, and ecological dimensions to gain a sustainable strategy.

Economic contribution is created when the
a) price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it.
b) price a customer is willing to pay for a good is less than what it costs the firm to manufacture it.
c) value a consumer attaches to a good or service is lesser than what he or she paid for it.
d) revenue generated by selling a unit of a product is equal to the cost incurred by the firm in producing it.

a) price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it.

Pietro estimated that a pair of Style King jeans would be worth $50 for its brand and durability. However, at the Style King store, the pair of jeans he wanted was available for $40. The difference of $10 in this scenario is referred to as the
a) producer surplus
b) break-even price
c) reservation price
d) consumer surplus

d) consumer surplus

When using the balanced scorecard approach to assess a firm’s performance, which of the following is not a key question that managers need to answer?
a) How do shareholders view us?
b) How do we create value?
c) How do customers view us?
d) What intangible assets do we need?

d) What intangible assets do we need?

Higher ratios of receivables turnover indicate
a) shorter durations of interest-free loans to customers.
b) inefficiency in paying creditors.
c) higher interest rates paid on credit extended by suppliers.
d) inefficiency in turning raw materials into finished goods.

a) shorter durations of interest-free loans to customers.

Which of the following is a disadvantage of the balanced scorecard approach to measure firm performance?
a) It provides only limited guidance about which performance metrics to choose.
b) It fails to allow managers to align their different perspectives to create a more focused corporation overall.
c) It only relies on an internal view of the firm, ignoring the external view.
d) It fails to allow managers and executives to find a balance between financial and strategic goals.

a) It provides only limited guidance about which performance metrics to choose.

In the financial year 2014, Apple’s return on revenue was 29.30 percent, and Microsoft’s return on revenue was 32 percent. This implies that
a) Apple’s inventory turnover was more than that of Microsoft’s.
b) Microsoft was more efficient than Apple in producing its goods.
c) Microsoft was using its capital more efficiently to generate revenue than Apple.
d) Microsoft’s return on revenue was higher than that of Apple.

d) Microsoft’s return on revenue was higher than that of Apple.

Which of the following financial ratios typically indicates a company’s efficiency in extending credit, as well as collecting debts?
a) inventory turnover
b) fixed asset turnover
c) receivables turnover
d) return on revenue

c) receivables turnover

Which of the following statements accurately brings out the difference between economies of scale and learning effects?
a) Economies of scale reduce cost per unit, whereas learning effects increase cost per unit.
b) Firms experience economies of scale when output increases, and they experience learning effects when output decreases.
c) While there are no diseconomies to scale, there are diseconomies to learning.
d) Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased.

d) Learning effects occur over time, whereas economies of scale are captured at one point in time when output is increased.

A Blue Ocean strategy typically allows a firm to
a) reduce the value gap created by their products.
b) provide unique product or service features at a premium price.
c) offer a differentiated product or service at low cost.
d) add product features that raise costs without raising the perceived value.

c) offer a differentiated product or service at low cost.

Costs being equal, when a firm has a higher value gap than its competitor, it can be inferred that the firm
a) has lost its competitive advantage to its competitor.
b) can charge a premium price for its products and services.
c) has achieved a competitive parity in its chosen industry.
d) can adopt a cost-leadership strategy.

b) can charge a premium price for its products and services.

Good Earth Coffee Inc. is a premium cafe that is reputed for its superior customer service. The coffee shop also serves gourmet food to its customers, which allows it to charge a premium price. Coffee Basics Inc., in contrast, is a chain of coffee shops that charges the lowest price in the industry due to its self-service policy. However, Coffee Crazy Inc. has found a balance between these two strategic groups by offering acceptable levels of customer service at a price slightly above that of Coffee Basics. In this scenario, Coffee Crazy is following a
a) Blue Ocean strategy.
b) liquidation strategy.
c) market penetration strategy.
d) product diversification strategy.

a) Blue Ocean strategy.

There exist important trade-offs between value creation and low cost because value creation and cost tend to be
a) independent of each other.
b) negatively correlated.
c) positively correlated.
d) inversely related.

c) positively correlated.

While Cadzia Electronics Inc. incurs $450 to manufacture a laptop, its competitor, Virtue Electronics Inc., incurs $400. However, laptops of both the companies have been able to create the same value among customers. From the given scenario, it can be inferred that
a) Cadzia Electronics has a competitive advantage over Virtue Electronics.
b) Virtue Electronics and Cadzia Electronics share a differentiation parity.
c) Cadzia Electronics is a cost leader when compared to Virtue Electronics.
d) Virtue Electronics can charge a higher price for its laptops.

b) Virtue Electronics and Cadzia Electronics share a differentiation parity.

When a Blue Ocean strategy is successfully formulated and implemented, investments in differentiation and low costs are not
a) complements but substitutes.
b) substitutes but complements.
c) value drivers but cost drivers.
d) cost drivers but value drivers.

b) substitutes but complements.

A firm’s business strategy will lead to a competitive advantage if it allows the firm to
a) reduce the value gap.
b) position itself below the productivity frontier.
c) perform different activities than its rivals.
d) execute the same activities performed by the rivals in a similar manner.

c) perform different activities than its rivals.

ItsHere.com has successfully created a higher perceived value in the e-commerce industry though it offers the same products at slightly higher prices than the competitors. This has been mainly attributed to the company’s easy-to-navigate website, simple return procedures, fast delivery, and cash on delivery option. Thus, the value driver for ItsHere.com is its
a) availability of complements.
b) superior customer service.
c) lower value gap.
d) economies of scale.

b) superior customer service.

In the _____, firms change the underlying technology while holding cumulative output constant.
a) maximum efficient scale
b) minimum efficient scale
c) experience curve
d) learning curve

c) experience curve

Dr. Shetty is able to drive down the cost of complex medical procedures from $100,000 to $2,000 not by doing one big thing, but rather on doing a thousand small things. This approach focuses on driving down the cost of healthcare through
a) process innovation.
b) cost of input factors.
c) product innovation.
d) value of input factors.

a) process innovation.

The viability of a differentiation strategy is severely undermined when the
a) differential appeal is based more on intangible resources than tangible resources.
b) differentiated products become commoditized throughout the industry.
c) difference between perceived value and costs is significant.
d) focus of competition shifts to value-creating features rather than price.

b) differentiated products become commoditized throughout the industry.

As differentiation and cost leadership are distinct strategic positions that require important trade-offs, it is
a) best for firms to avoid pursuing a generic business-level strategy.
b) quite difficult to translate a Blue Ocean strategy into reality.
c) easy to build an ambidextrous organization.
d) easy to increase value and lower cost at the same time.

b) quite difficult to translate a Blue Ocean strategy into reality.

In contrast to a differentiator, a cost-leader will
a) focus its research and development on process technologies to improve efficiency.
b) charge a premium price for its products and services.
c) avoid an organizational structure that relies on strict budget controls.
d) build an organizational culture where creativity and customer responsiveness thrive.

a) focus its research and development on process technologies to improve efficiency.

ElectroScape Inc. and BestDigital Inc are two competitors in the consumer electronics market. The cost incurred by each company to manufacture laptops is $400 per unit. Although both the companies sell their laptops at the same price, ElectroScape has a larger market share in the laptop industry. What does this imply?
a) ElectroScape has been able to offer more perceived value than BestDigital.
b) BestDigital has created a higher value gap than ElectroScape.
c) BestDigital has a competitive advantage over ElectroScape.
d) ElectroScape has a cost advantage over BestDigital.

a) ElectroScape has been able to offer more perceived value than BestDigital.

Firms pursuing a cost-leadership strategy seek to
a) create higher value for customers and offer premium pricing.
b) keep their cost structures at the same or similar levels as that of the competitors.
c) deliver products or services at a lower cost than competitors.
d) gain competitive advantage by reducing the value gap.

c) deliver products or services at a lower cost than competitors.

There are several cost drivers that can be managed in order to establish a low-cost leadership advantage. One of the primary cost drivers is
a) adding unique features that turn standard commodities into differentiated products.
b) creating personalized customer service in order to minimize price sensitivity among customers.
c) shifting to small-scale production processes in order to create highly customized products.
d) combining experience-based learning and process innovation to move onto a steeper learning curve.

d) combining experience-based learning and process innovation to move onto a steeper learning curve.

All of the following are tools primarily used to achieve cost-leadership except
a) controlling the cost of inputs.
b) offering products at a premium price.
c) learning by doing.
d) leveraging economies of scale.

b) offering products at a premium price.

An experience curve attempts to capture both
a) time compression diseconomies and mass customizations.
b) economies of scope and network effects.
c) network effects and diseconomies of scale.
d) learning effects and process improvements.

d) learning effects and process improvements.

In a focused differentiation strategy, a firm seeks to
a) offer low-priced products and services with a narrow focus on a niche market.
b) create higher customer value than the competitors in different segments of a mass market.
c) focus on reducing the value gap to differentiate itself from the competitors.
d) deliver products or services with unique features to a specific, narrow part of the market.

d) deliver products or services with unique features to a specific, narrow part of the market.

Value drivers contribute to a firm’s competitive advantage only if
a) the decrease in perceived value leads to an increase in costs.
b) they can restrict the firm from claiming a premium price for its products.
c) they can shrink the firm’s value gap.
d) the increase in value creation exceeds the increase in costs.

d) the increase in value creation exceeds the increase in costs.

When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in
a) mediation.
b) collective bargaining.
c) arbitration.
d) strategic trade-offs.

d) strategic trade-offs.

A firm that follows the differentiation strategy is protected from the threat of new entrants primarily due to its
a) low cost per unit.
b) diseconomies of scale.
c) low pricing.
d) reputation for quality.

d) reputation for quality.

Which of the following is more of a value driver than a cost driver?
a) experience-curve effects
b) economies of scale
c) superior customer service
d) learning-curve effects

c) superior customer service

Rite Shoes competes against the global leaders in the athletic shoes industry by developing and selling acceptable quality shoes at a lower price. This has been possible due to the company’s large-scale production that reduces its manufacturing expenses. Which of the following generic business strategies is Rite Shoes applying in this scenario?
a) product diversification strategy
b) cost-leadership strategy
c) liquidation strategy
d) differentiation strategy

b) cost-leadership strategy