Question 1

Efforts to move down the learning curve quickly by acquiring market share are likely to obtain a cost advantage over rivals.

Accepted Answer

Acquiring market share quickly can allow a company to spread their fixed costs over a larger sales volume, which can lead to lower costs per unit and a cost advantage over competitors. This is because as production increases, the cost per unit decreases due to economies of scale. Therefore, moving down the learning curve quickly by gaining market share can be beneficial in obtaining a cost advantage.

Question 2

As a firm increases in size, it often increases in complexity; however, the ability of managers to control and operate the firm efficiently are virtually unlimited and therefore costs do not substantially increase.

Accepted Answer

As a firm increases in size, it becomes more complex, which can lead to increased costs in terms of managerial coordination and communication, as well as higher costs for infrastructure and support services. Therefore, the ability of managers to control and operate the firm efficiently can become constrained, and costs may increase substantially.

Question 3

Firms that are successful in pursuing a cost-leadership strategy focus solely on keeping costs low and abandoning other business or corporate strategies.

Accepted Answer

A cost-leadership strategy focuses on keeping costs low but does not necessarily mean abandoning other business or corporate strategies. Firms may still pursue differentiation, innovation, or other strategies alongside cost leadership to maintain competitiveness and meet diverse market demands.

Question 4

Large transportation costs can offset cost reductions attributable to the exploitation of economies of scale in manufacturing.

Accepted Answer

Transporting large quantities of products from manufacturing facilities to distribution centers or customers can incur significant transportation costs that may offset the cost savings achieved through economies of scale in manufacturing.

Question 5

High volumes of production are also associated with high levels of generality in employee tasks and as workers become increasingly generalized in accomplishing a variety of tasks; they can become more effective at these tasks, thereby reducing the firm's costs.

Accepted Answer

The answer of High volumes of production are also associated...

Question 6

Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry.

Accepted Answer

Corporate level strategies are actions firms take to gain competitive advantages across multiple industries and markets, not just in a single market or industry.

Question 7

A firm that chooses a cost-leadership business strategy focuses on gaining advantages by reducing its costs to a level equal to all of its competitors.

Accepted Answer

A cost-leadership strategy focuses on gaining advantages by reducing costs below those of competitors, not just equalizing them.

Question 8

There are physical limitations to the size of some manufacturing processes and when this size is exceeded, diseconomies of scale are experienced.

Accepted Answer

As the size of a manufacturing process increases, it may become more difficult to maintain efficiency and quality due to factors such as increased transportation costs, longer production times, and higher error rates. This can result in diseconomies of scale.

Question 9

Economies of scale are said to exist when the increase in firm size (measured in terms of volume of production) are associated with lower costs (measured in terms of average costs per unit of production).

Accepted Answer

This is the definition of economies of scale. As firms increase in size and volume of production, they can benefit from cost efficiencies such as spreading fixed costs over more units, purchasing inputs in bulk at lower prices, and using specialized equipment that is more efficient than smaller-scale alternatives. These efficiencies result in a lower average cost per unit of production.

Question 10

When a firm has high levels of production, it is often able to purchase and use specialized manufacturing tools that cannot be kept in operation in small firms.

Accepted Answer

This is true, as larger firms have bigger budgets and higher levels of production, which allow them to purchase and invest in specialized tools and technology that smaller firms may not be able to afford or fully utilize.

Question 11

The link between volume of production and the cost of building manufacturing operations is particularly important in industries characterized by product manufacturing, such as chemical and oil refining.

Accepted Answer

The answer of The link between volume of production and...

Question 12

As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs per unit of production begin to rise because of diseconomies of scale.

Accepted Answer

This statement accurately describes the concept of economies of scale, where as firms increase their production volume, they are able to spread their fixed costs over a larger number of units, resulting in a decrease in average cost per unit. However, once the firm reaches a certain size or production volume, it may begin to experience diseconomies of scale where costs per unit increase due to difficulties in managing a larger operation or reduced efficiency.

Question 13

The link between cumulative volumes of production and cost has been formalized in the concept of the learning curve.

Accepted Answer

The learning curve concept illustrates that as the cumulative volume of production increases, the cost per unit decreases due to improvements in efficiency, productivity and experience gained.

Question 14

In general, cost advantages are not possible when competing firms produce similar products.

Accepted Answer

Cost advantages can be attained through different means such as economies of scale, efficient production methods, access to cheaper raw materials or labor, and technological advancements. Therefore, competing firms producing similar products may still have cost advantages over each other.

Question 15

Economies of scale focus on the relationship between the cumulative volume of production and average unit costs, while the learning curve focuses on the relationship between the volume of production at a given time and average unit costs.

Accepted Answer

The statement is incorrect as it reverses the focus of economies of scale and the learning curve. Economies of scale focus on the relationship between the volume of production at a given time and average unit costs, while the learning curve focuses on the relationship between the cumulative volume of production and average unit costs.

Question 16

Increased worker specialization associated with higher levels of production can lead to worker de-motivation and diseconomies of scale.

Accepted Answer

While increased worker specialization can lead to higher levels of production, it may also lead to boredom and de-motivation, which can ultimately result in decreased productivity and efficiency. Additionally, as production becomes more specialized, it may lead to a narrower skill set among workers, which can limit the flexibility and adaptability of the workforce. This can result in diseconomies of scale, where the costs of production increase due to decreased efficiency and productivity.

Question 17

Cost leadership and product differentiation are so widely recognized that they are often called generic business strategies.

Accepted Answer

Cost leadership and product differentiation are two of the most common and well-known strategies that companies can use to compete in their industries. These strategies are often referred to as generic business strategies because they can be applied to a wide range of businesses and industries.

Question 18

Differential low-cost access to productive inputs may create cost differences among firms producing similar products in an industry.

Accepted Answer

If some firms have easier or less expensive access to productive inputs (such as raw materials or labor), they may be able to produce their goods at a lower cost than other firms in the same industry. This can create cost differences that may affect pricing strategies and competitiveness.

Question 19

Learning curve-cost advantages are restricted solely to manufacturing and the advantage associated only with the manufacturing business function.

Accepted Answer

The learning curve-cost advantages can apply to various business functions such as design, sales, and customer service in addition to manufacturing.

Question 20

If a firm gets too large, it will eventually experience both diseconomies of scale and an increase in costs associated with the learning-curve effect as cumulative volume of production grows.

Accepted Answer

Diseconomies of scale occur when a firm becomes too large, leading to inefficiencies and increased per-unit costs. However, the learning-curve effect typically results in reduced costs as cumulative production increases, due to improved efficiency and expertise.

Quiz 4: Cost Leadership