Deck 4: Cost Leadership

Question 1

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.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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.

Question 5

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

Question 6

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

Question 7

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.

Question 8

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

Question 9

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.

Question 10

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

Question 11

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

Question 12

Efforts to move down the learning curve quickly by acquiring market share are likely to generate only normal economic performance.

Question 13

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.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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.

Question 19

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.

Question 20

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).

Question 21

One of the least important productive inputs in almost all companies is labor and it is unlikely that differential low cost access to labor can give a firm a cost advantage.

Question 22

If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm.

Question 23

Compensation at cost-leadership firms is usually tied directly to product innovation and customer service efforts.

Question 24

In general, firms that are attempting to implement a cost-leadership strategy will choose to produce relatively simple standardized products that sell for relatively low prices compared to the products and prices of firms pursuing other business or corporate strategies.

Question 25

Even the best formulated strategy is competitively irrelevant if it is not implemented.

Question 26

Physical technology-based cost advantages apply only in manufacturing firms.

Question 27

Cost advantages based on diseconomies of scale are likely to be rare.

Question 28

A cost-leadership competitive strategy helps reduce the threat of entry by creating cost-based barriers to entry.

Question 29

Technological software includes things like the quality of relations among labor and management, an organization's culture, and the quality of managerial controls.

Question 30

The U in U-form structure stands for "unitary."

Question 31

Given the relatively low margins of firms pursuing a cost-leadership strategy, firms pursuing this strategy are especially vulnerable to buyers having their revenues reduced to a point where they are unable to earn normal or above-normal performance.

Question 32

Sources of cost advantage that are unlikely to be rare include learning-curve economies, differential low-cost access to productive inputs and technological software.

Question 33

Productive inputs are any supplies used by a firm in conducting its business activities.

Question 34

A cost-leadership competitive strategy can reduce both the threat of substitutes and the threat of suppliers that a firm may face.

Question 35

Firms for whom the price of the products or services they sell is determined by market conditions and not by the individual decisions of the firms themselves are known as price makers.

Question 36

In general, economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.

Question 37

Firms implementing cost-leadership strategies will generally adopt what is known as a functional organizational structure.

Question 38

The threat of rivalry is increased when low-cost firms set their prices equal to those of higher cost competitors.

Question 39

When the efficient size of a firm or plant is significantly smaller than the total size of an industry, there will usually be numerous efficient firms/plants in that industry, and a cost-leadership strategy based on economies of scale will be rare.

Question 40

Cost-leadership firms are typically characterized by very tight cost control systems; frequent and detailed cost control reports; an emphasis on quantitative cost goals and targets; and close supervision of labor, raw materials, inventory, and other costs.

Question 41

Which of the following statements regarding the learning curve and economies of scale is accurate?

A) Just as diseconomies of scale are presumed to exist if a firm gets too large, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
B) Where diseconomies of scale are presumed to exist if a firm gets too large, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
C) Where diseconomies of scale are presumed to exist if a firm gets too small, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.
D) Just as diseconomies of scale are presumed to exist if a firm gets too small, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.

Question 42

In order to create a cost advantage, the cost of acquiring low-cost productive inputs must be ________ the cost savings generated by these factors.

A) greater than
B) equal to
C) less than
D) greater than or equal to

Question 43

________ are any supplies used by a firm in conducting its business activities.

A) Productive assets
B) Productive inputs
C) Productive outputs
D) Productive inventory

Question 44

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 of production begin to rise because of

A) diseconomies of scale.
B) economies of scope.
C) diseconomies of scope.
D) economies of scale.

Question 45

The best example of a firm following a cost-leadership business strategy is

A) Mercedes Benz.
B) Macy's.
C) Wal-Mart.
D) Rolls Royce.

Question 46

Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as

A) business-level strategies.
B) corporate-level strategies.
C) functional-level strategies.
D) macro-level strategies.

Question 47

If Temper Company, a manufacturer of mattresses, was considering moving its production facilities to China but decided against it because the additional costs of shipping the mattresses back to the U.S. would offset the cost savings associated with moving the production facilities, the increased costs associated with shipping would be an example of

A) learning-curve economies.
B) diseconomies of scale.
C) economies of scale.
D) competitive advantages.

Question 48

A firm that chooses a ________ focuses on gaining advantages by reducing its cost below all of its competitors.

A) diversification strategy
B) product-differentiation business strategy
C) corporate strategy
D) cost-leadership business strategy

Question 49

Choices that firms make about the kinds of products and services they will sell that impact their relative cost position are known as

A) technological hardware.
B) policy choices.
C) technological software.
D) corporate level strategies.

Question 50

The quality of relations among labor and management, an organization's culture, and the quality of management controls are all examples of

A) technological hardware.
B) technological software.
C) productive inputs.
D) economies of scale.

Question 51

Actions that firms take to gain competitive advantage in a single market or industry are known as

A) business-level strategies.
B) corporate-level strategies.
C) functional-level strategies.
D) macro-level strategies.

Question 52

________ focus(es) on the relationship between the volume of production and a given point in time and average unit costs, the ________ focus(es) on the relationship between cumulative production and average costs.

A) Economies of scale; learning curve
B) Competitive advantage; economies of scale
C) Learning curve; economies of scale
D) Economies of scale; competitive advantage

Question 53

The link between volume of production and the cost of building manufacturing operations is particularly important in industries characterized by

A) process innovations.
B) product manufacturing.
C) product innovation.
D) process manufacturing.

Question 54

Cost-leadership and product-differentiation strategies are so widely recognized that they are often called

A) common business strategies.
B) generic corporate strategies.
C) generic business strategies.
D) common corporate strategies.

Question 55

________ 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).

A) Sustainable competitive advantages
B) Economies of scale
C) Temporary competitive advantages
D) Economies of scope

Question 56

Learning-curve-cost advantages are

A) restricted only to manufacturing firms.
B) restricted only to firms in services industries.
C) restricted only to firms in extraction industries.
D) not restricted to manufacturing.

Question 57

________ levels of production are associated with ________ levels of employee specialization.

A) High, high
B) High, low
C) Low, high
D) Low, moderated

Question 58

According to the "two-thirds rule," it would cost a firm ________ to build a plant with a capacity of 100,000 units.

A) 2/3*100,000
B) 100,000 / 2/3
C) 100,000 raised to the 2/3 power
D) 2 * 100,000 / 3

Question 59

Machines and robots are examples of

A) technological software.
B) economies of scale.
C) learning-curve effects.
D) technological hardware.

Question 60

Which of the following is not a potential source of diseconomies of scale?

A) Physical limits to efficient size
B) Worker de-motivation
C) Distance to markets and suppliers
D) Learning-curve economies

Question 61

In ________ structures, employees report to two or more people.

A) unilateral
B) functional
C) divisional
D) matrix

Question 62

Perhaps the only time economies of scale are not subject to low-cost duplication is when the ________ size of operations is a significant percentage of ________ in an industry.

A) minimum; marginal demand
B) efficient; total demand
C) maximum; marginal demand
D) efficient; marginal demand

Question 63

Which of the following is less likely to be a rare source of cost advantage?

A) Technological software
B) Learning-curve advantages
C) Differential low-cost access to productive inputs
D) Policy choices

Question 64

Firms for whom the price of the products or services they sell is determined by market conditions and not by the individual decision of the firms are known as

A) profit takers.
B) price makers.
C) price takers.
D) profit makers.

Question 65

A marketing manager is an example of a(n) ________ manager.

A) ambidextrous
B) divisional
C) functional
D) unitary

Question 66

Which of the following statements is accurate?

A) In general, economies of scale are relatively easy-to-duplicate bases of cost leadership, but diseconomies of scale are not.
B) In general, diseconomies of scale are relatively easy-to-duplicate bases of cost leadership, but economies of scale are not.
C) In general, neither economies of scale nor economies are relatively easy-to-duplicate bases of cost leadership.
D) In general, both economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.

Question 67

Cost-leadership firms are typically characterized by very ________ cost-control systems.

A) tight
B) flexible
C) loose
D) decentralized

Question 68

Which of the following is likely to be a rare source of cost advantage?

A) Technological software
B) If the efficient size of a firm or plant is significantly smaller than the total size of an industry
C) Cost disadvantages based on diseconomies of scale
D) Technological hardware

Question 69

Firms pursuing a cost-leadership strategy are typically characterized by

A) loose cost control systems.
B) a de-emphasis on quantitative cost goals and costs.
C) infrequent cost control reports.
D) close supervision of labor, raw materials and inventory.

Question 70

Firms implementing cost-leadership strategies will have ________ layers in their reporting structure.

A) many
B) relatively simple
C) relatively few
D) relatively complex

Question 71

Firms implementing cost-leadership strategies will generally adopt a

A) multidivisional structure.
B) product divisional structure.
C) functional organizational structure.
D) matrix structure.

Question 72

When managers committed to an incorrect course of action increase their commitment to this action even as its limitations become manifest, this is known as

A) de-escalation of commitment.
B) diseconomies of scale.
C) escalation of commitment.
D) economies of scale.

Question 73

The only person in a functional organization to have a multifunctional perspective is the

A) CFO.
B) CEO.
C) COO.
D) marketing manager.

Question 74

Which of the following statements about cost leadership and the threat of buyers is accurate?

A) If buyers demand increased quality or service, cost leaders can absorb these costs and may still have a cost advantage over the competition.
B) Being a cost leader encourages buyer backward vertical integration.
C) Firms pursuing a cost-leadership strategy are especially vulnerable to powerful buyers who insist on low prices or higher quality and service from their suppliers.
D) Cost leaders are not able to absorb costs associated with buyers' demands for increased quality or service.

Question 75

Which of the following statements is accurate?

A) A cost-leadership competitive strategy increases the threat of new entrants by lowering cost-based barriers to entry.
B) Firms with a low-cost position can reduce the threat of rivalry in an industry.
C) Cost leaders are especially vulnerable to substitute products.
D) Cost leaders are especially vulnerable to the threat of suppliers.

Question 76

Cost advantages based on learning-curve economies are

A) rare, but they usually are not costly to duplicate.
B) costly to duplicate, but they usually are not rare.
C) both rare and usually costly to duplicate.
D) not rare and usually are not costly to duplicate.

Question 77

The U in U-form structure stands for

A) "uniform."
B) "unitary."
C) "unilateral."
D) "unambiguous."

Question 78

If the potential responses of competing firms are likely to be very detrimental to the costs advantages of cost leaders, firms pursuing a cost-leadership competitive strategy should

A) drop their prices below competitors' prices to increase overall economic performance through increased volumes of profitable sales.
B) raise their prices above competitors, increasing overall economic performance through higher margins.
C) focus on a specific niche market to avoid direct competition with aggressive competitors.
D) set their prices equal to competitors' prices, sacrificing some market share for increased profit margins and the release of less information.

Question 79

Which of the following compensation policies is most likely to enhance a firm's ability to pursue a low-cost strategy?

A) Awarding employees bonuses based on the total amount of goods produced
B) Awarding employees bonuses based on customer comment cards
C) Awarding employees bonuses that are equal to 50% of the total cost savings achieved based on employee suggestions and initiatives
D) Awarding employees bonuses based solely on how long they have been employed with the company

Question 80

In a functional structure, each of the major business functions is managed by a

A) functional manager.
B) divisional manager.
C) chief executive officer.
D) line manager.