Question 1

Studying a firm's value chain forces us to think about firm resources in an aggregated way.

Accepted Answer

Studying a firm's value chain involves analyzing each activity individually to understand how they contribute to the firm's competitive advantage, rather than aggregating resources.

Question 2

The value chain model developed by McKinsey and Company divides value-creating activities into two large categories: primary activities and secondary activities.

Accepted Answer

The value chain model was developed by Michael Porter, not McKinsey and Company, and it divides activities into primary and support activities, not secondary.

Question 3

If a firm creates environmental pollution in the process of manufacturing its goods, the pollution is known as an externality.

Accepted Answer

This is because an externality is a cost or benefit that is not reflected in the market price of a good or service. In this case, the cost of the pollution is not factored into the price of the firm's goods, making it an example of a negative externality.

Question 4

Within the VRIO framework, valuable resources and capabilities are also known as strengths.

Accepted Answer

Valuable resources and capabilities are assets that provide a company with a competitive advantage and are therefore considered strengths within the VRIO framework.

Question 5

Within the VRIO framework, resources and capabilities that are not valuable are also known as weaknesses.

Accepted Answer

Within the VRIO framework, resources and capabilities that are not valuable are not considered strengths, but instead are considered weaknesses.

Question 6

A firm's plant and equipment, its geographic location and its access to raw materials are all examples of physical resources.

Accepted Answer

Physical resources are tangible and include things like property, equipment, and materials. The firm's plant and equipment, geographic location, and access to raw materials are all examples of physical resources.

Question 7

In the VRIO framework, the R represents resources.

Accepted Answer

The R in the VRIO framework stands for "Rare," which is one of the criteria used to evaluate a firm's resources and capabilities for competitive advantage.

Question 8

Many firms have resources and capabilities that are used to neutralize threats and the use of these resources enables the firms to increase their net revenues.

Accepted Answer

Neutralizing threats is a key function of a firm's resources and capabilities. By utilizing these resources effectively, firms can protect themselves from threats and increase their net revenues.

Question 9

Financial resources include only the profits a firm has made earlier in its history and that it has reinvested in itself.

Accepted Answer

Financial resources can include profits that have been reinvested in the firm, but they can also include other sources of funding such as loans, investments, and issuing shares of stock.

Question 10

Resources in the resource based view are defined as the tangible and intangible assets that a firm controls, which it can use to conceive and implement its strategies.

Accepted Answer

This is the correct definition of resources in the resource based view.

Question 11

In general, as long as the number of firms that possess a particular valuable resource or capability is less than the number of firms needed to generate perfect competition dynamics in an industry, that resource or capability can be considered rare and a potential source of competitive advantage.

Accepted Answer

This statement is true. If there are only a few firms that possess a valuable resource or capability, then they can potentially use it to outcompete others in the industry and gain a competitive advantage. This is because there are not enough firms to drive down prices or replicate the resource/capability, which would happen in a perfectly competitive market.

Question 12

One of the key assumptions of the RBV is resource homogeneity.

Accepted Answer

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Question 13

When firms without a resource or capability face a cost disadvantage in obtaining or developing it compared to firms that already possess it, this resource or capability is described as perfectly imitable.

Accepted Answer

When firms face a cost disadvantage in obtaining or developing a resource or capability compared to firms that already possess it, this resource or capability is described as imperfectly imitable. Perfectly imitable resources or capabilities can be easily and quickly duplicated by competing firms without any cost disadvantage.

Question 14

Most firms have a resource base that is composed primarily of valuable but common resources and capabilities, some of which are essential if a firm is to gain competitive parity.

Accepted Answer

This statement is true. Many firms have resources and capabilities that are valuable but not rare or unique, and some of these resources may be essential just to keep up with competitors. However, having these resources alone may not be enough to achieve sustained competitive advantage.

Question 15

In general, firms that use their resources and capabilities to exploit opportunities or neutralize threats will see no increase in their net revenues nor a decrease in their net costs compared to the situation where they are not using these resources and capabilities to exploit opportunities or neutralize threats.

Accepted Answer

Firms that use their resources and capabilities to exploit opportunities or neutralize threats can see an increase in net revenues or a decrease in net costs, which can result in higher profits or better performance. Therefore, the statement is false.

Question 16

The assumption of resource immobility holds that it may be very costly for firms without certain resources and capabilities to develop or acquire them.

Accepted Answer

The assumption of resource immobility states that resources and capabilities cannot be easily transferred from one firm to another, and may be costly to develop or acquire. Thus, the statement is true.

Question 17

Capabilities are a subset of a firm's resources and are defined as tangible and intangible assets that enable a firm to take full advantage of other resources it controls.

Accepted Answer

This statement is true. Capabilities refer to the specific abilities or competencies that a firm possesses, which allow it to effectively utilize its resources and generate sustainable competitive advantages. These capabilities can be tangible (such as physical assets or technologies) or intangible (such as a well-trained workforce, strong brand reputation, or organizational culture).

Question 18

Organizational resources include the training, experience, judgment, intelligence, relationships and insight of individual managers and workers in a firm, while human resources are an attribute of collections of individuals.

Accepted Answer

Organizational resources refer to the collective assets and capabilities of a firm, including human resources, which are the skills and attributes of individual employees.

Question 19

Inputs whose quantity of supply is fixed and whose demand does not respond to price increases are said to be elastic in supply.

Accepted Answer

This statement describes goods with inelastic supply. Elastic supply means that the quantity supplied can easily adjust to changes in price, while inelastic supply means that the quantity supplied is relatively fixed and does not respond much to price changes.

Question 20

A resource can be a source of competitive advantage even if the resource is controlled by numerous firms.

Accepted Answer

A resource can only be a source of competitive advantage if it is rare and not easily accessible or controlled by numerous firms.

Quiz 3: Evaluating a Firms Internal Capabilities