Deck 16: Business Strategy

Question 1

Which of the following is NOT one of the five forces that determine the structure of competition in a market?

A)the bargaining power of buyers
B)the existing market price
C)competition from existing competitors
D)potential competitors

Answer 1

B

Question 2

The five forces that determine the structure of competition in a market do NOT include:

A)existing competitors.
B)bargaining power of buyers.
C)bargaining power of suppliers.
D)potential regulation.

Answer 2

D

Question 3

The competitive forces in a market largely determine the _____ of the companies in the market.

A)demand
B)short-term vision
C)long-term profitability
D)product

Answer 3

C

Question 4

Which of the following is one of the five forces that determine the long-term profitability of a company in a market?

A)potential competitors
B)size and prominence of the company
C)talent of the company's staff
D)quality of the company's product

Question 5

The five forces that determine the long-term profitability of a company in a market include the:

A)quality of the company's product.
B)talent of the company's staff.
C)size of the company.
D)bargaining power of suppliers.

Question 6

The Five Forces framework focuses on competitive forces. Which of the following is NOT one of the five forces?

A)suppliers
B)substitute products
C)prices
D)existing competitors

Question 7

Under the Five Forces framework, how can the market power of customers impact a seller's profitability?

A)The market power increases the total number of customers, raising market demand.
B)The market power reduces the total number of customers, raising market demand.
C)They can raise the selling price sellers charge.
D)Customers with market power can use their leverage to lower the selling price that sellers charge.

Question 8

According to the Five Forces framework, how do suppliers with market power impact a company's profitability?

A)Suppliers with market power can charge higher prices on inputs the company needs to purchase, reducing the company's profits.
B)Suppliers with market power can charge higher prices on output the company needs to sell, raising the company's profits.
C)Suppliers with market power charge lower prices on inputs the company needs to purchase, raising the company's profits.
D)Suppliers with market power charge lower prices on output the company needs to sell, reducing the company's profits.

Question 9

According to the Five Forces framework, how can producers of potential substitute goods impact a company's profits?

A)The producers of potential substitute goods may exit the market, signaling that the market demand is weak and profits are low.
B)The producers of potential substitute goods may become actual competitors, causing the market demand to be spread across a larger number of companies and thereby reducing the profits of the original companies.
C)The producers of potential substitute goods indicate that the market supply is shrinking, leading to higher company profits.
D)The producers of potential substitute goods indicate that the market demand is weak, leading to lower company profits.

Question 10

According to the Five Forces framework, a seller's existing competitors determine the _____ and _____ of existing competition.

A)level; price
B)market supply; market demand
C)type; intensity
D)seller demand; market demand

Question 11

_____ the long-term profitability of a company.

A)Product type determines
B)The seven forces determine
C)Market demand determines
D)Market structure determines

Question 12

Market structure has significant impact on:

A)the long-term profitability of sellers in a market.
B)the market demand in the market.
C)whether the product in a market is a good or a service.
D)whether the product is worth purchasing.

Question 13

According to the Five Forces framework, the _____ the degree of rivalry in an industry, the _____ the average profits will be in the industry.

A)lower; lower
B)more variable; greater
C)lower; more variable
D)greater; lower

Question 14

According to the Five Forces framework, the greater the _____ in an industry, the lower the _____ in the industry will be.

A)degree of rivalry; average profits
B)product variation; average company profits
C)average company profits; average price
D)rivalry; number of companies

Question 15

The degree of rivalry in a market moves from high to low in the following order:

A)monopoly, imperfect competition, and perfect competition.
B)perfect competition, imperfect competition, and monopoly.
C)imperfect competition, monopoly, and perfect competition.
D)monopoly, perfect competition, and imperfect competition.

Question 16

In which of the following situations would the level of competition be most intense?

A)Price is higher.
B)Product characteristics vary less across producers.
C)Demand is growing faster.
D)More firms are in the market.

Question 17

Marcella is a tomato farmer. Under which of the following conditions would she face the most intense competition?

A)Each tomato farmer in the market produces its own hybrid variety of tomato.
B)Marcella is one of 1,200 tomato farmers who sell in the same tomato market.
C)There are six suppliers in the market for the main input used by firms in the tomato market.
D)There is little threat of new entrants into the market.

Question 18

Leonardo owns a semiconductor factory. Under which of the following conditions would he face the most intense level of competition in his semiconductor market?

A)There are 12 sellers in the market, each producing its own type of semiconductor.
B)There are 12 sellers in the market, each producing identical semiconductors.
C)There are 1,400 sellers in the market, each producing its own type of semiconductor.
D)There are 1,400 sellers in the market, each producing identical semiconductors.

Question 19

Which of the following sellers faces the least competitive pressure?

A)an oligopolist with a few direct rivals
B)one of 800 sellers in a market, each producing identical products
C)a monopolist with no direct rivals
D)one of 800 sellers in a market, each producing a differentiated product

Question 20

What is price competition?

A)Sellers compete with each other by charging as high a price as possible.
B)Sellers force competitors to lower their prices until the competitors have losses.
C)Sellers try to win customers through charging as low a price as possible.
D)Sellers differentiate products so they can charge a higher price.

Question 21

Price competition is most likely to occur in each of the following situations EXCEPT when:

A)all sellers in the market sell identical products.
B)market demand is rising.
C)switching costs are low.
D)the prices charged by sellers are easy to observe.

Question 22

When price competition occurs:

A)product differentiation rises, and price rises.
B)profits rise, and the number of sellers rises.
C)price rises as competitive pressures increase.
D)price is pushed down, reducing profits.

Question 23

Customers would be less loyal and more price sensitive in which of the following situations?

A)The switching costs are low.
B)There is only one seller in the market.
C)The market's companies sell differentiated products.
D)Customers are aware of the prices of all sellers.

Question 24

In which of the following situations would a company have a lower chance of losing customers when it raises the price of its product?

A)There are low switching costs.
B)Customers have many sellers to choose from.
C)Companies advertise their prices.
D)The product is differentiated across companies.

Question 25

Lena owns a cookie bakery in a small city. There are six other bakeries that offer cookies in the city. Which of the following is NOT an example of the threat of entry that Lena faces in her local baked goods market?

A)A cookie bakery in another city might add a new location by opening a cookie bakery in Lena's city.
B)One of the six bakeries that offer cookies in the city may decide to cease cookie production in order to focus on cakes.
C)A doughnut shop in Lena's city might expand its product lines to include cookies.
D)A skilled baker who just finished culinary training might open a new cookie bakery in the city.

Question 26

The threat of entry includes the:

A)expansion of existing businesses into the market, the creation of a new product market, and new entrants.
B)addition of new distribution channels by existing businesses, the expansion of existing businesses into the market, and the creation of a new product market.
C)creation of a new product market, the addition of new inputs, and the expansion of an existing business into new distribution channels.
D)expansion of existing businesses into the market, the addition of new distribution channels by existing businesses, and new entrants.

Question 27

What protects a business from the threat of entry by potential competitors?

A)low price
B)barriers to entry
C)potential substitutes
D)high costs

Question 28

Heri owns one of three shoe repair shops in his city. Then he loses some of his customers when a luggage repair shop expands its services to include shoe repair as well as luggage repair. Which of the five forces in the Five Force framework is Heri facing when the luggage shop expands its services?

A)bargaining power of buyers
B)threat of existing competitors
C)threat of potential substitutes
D)threat of entry

Question 29

Malia's auto repair shop faces the threat of entry. This intensifies _____ in her market and pushes _____ prices and pushes _____ profits.

A)competition; down; down
B)competition; down; up
C)production; up down
D)production; up; up

Question 30

Barriers to entry _____ existing businesses _____.

A)protect; from price wars
B)expose; to limited pools of customers
C)protect; from competition by new entrants
D)expose; to competitive pressures

Question 31

In the long run, the strength of the barriers to entry in a market have an impact on the _____ and the _____ in the market.

A)number of customers; number of sellers
B)number of sellers; profit level
C)fixed costs; number of substitute products
D)profit level; number of substitute products

Question 32

In the long run, the number of sellers and the level of profit in a market are both affected heavily by the _____ in the market.

A)type of product
B)level of variable costs
C)strength of the barriers to entry
D)income tax levels

Question 33

If more acceptable substitutes are available for a product, the market for the product will:

A)be more profitable.
B)be less profitable.
C)face higher costs.
D)face lower costs.

Question 34

Jorge is considering what to give his wife for their wedding anniversary. He is choosing between flowers, dinner at a restaurant, a weekend at a resort hotel, skydiving together, or a visit to her favorite museum. Based on Jorge's consideration of these options for a gift, Jorge considers them to be:

A)complements.
B)the same product.
C)substitute products.
D)potential new entrants.

Question 35

When a seller considers the threat of potential substitutes, what is a substitute product?

A)It is anything that a company could produce using the same inputs as needed to produce its current product.
B)It is a new company that enters the market by producing a product identical to other companies.
C)It is what is made when a company can use more labor and less capital or less labor and more capital to produce its product.
D)It is anything that could be consumed in place of a given product to satisfy the need or want of the consumer for the given product.

Question 36

How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the:

A)business may gain customers from the substitute market, adding to its profits.
B)business may reduce its costs by substituting one input for another input.
C)business may lose customers to the substitute good's market unless it lowers price.
D)addition of new substitutes will raise the level of customer satisfaction, allowing higher prices to be charged.

Question 37

Potential substitutes for a given product:

A)are always similar to the given product.
B)are produced using the same mix of inputs.
C)must be used in the same way as the given product.
D)may be quite different from the given product.

Question 38

The threat of potential substitutes is larger when:

A)the product market is differentiated.
B)the substitutes are more expensive.
C)switching costs are low.
D)barriers to entry are high.

Question 39

The threat of potential substitutes is high when the substitutes:

A)offer greater value for their price than the original product.
B)face high barriers to enter the market.
C)have higher production costs than the original product.
D)cause customers to incur high switching costs.

Question 40

When the emergence of new substitutes reduces the demand for a given product, the product's producer may benefit from:

A)raising product price.
B)reducing the switching cost for its product.
C)reducing barriers to entry into the market.
D)pursuing new complement opportunities.

Question 41

A strategy to reduce the threat posed by substitutes is to:

A)raise price.
B)increase supply.
C)make it more difficult for substitutes to enter the broad market.
D)help customers understand that they have numerous options.

Question 42

Which of the following strategies would NOT reduce the threat posed by substitutes?

A)Lobby for government policies that reduce the attractiveness of substitutes.
B)Raise barriers to entry into the relevant market or markets.
C)Raise switching costs to retain current customers.
D)Raise price to show that product demand is strong.

Question 43

In which of the following situations would the supplier have the greatest power to hurt a business that is its customer?

A)The supplier rents building space to a bakery in a real estate market with a vacancy rate of less than .5%.
B)The supplier is one of 100 companies selling the input needed by the business.
C)The business could use an alternative input mix that uses significantly less of the supplier's product.
D)The cost for the business to switch to a different supplier is low.

Question 44

In which of the following situations would the supplier of an input to Andrea's Herbal Supplement Products have the greatest market power to hurt Andrea's Herbal Supplement Products?

A)The supplier is one of 200 sellers of the input in the input market.
B)Andrea's company can easily change the mix of inputs used to produce its product.
C)The supplier is the only available provider of a critical input.
D)The switching costs for Andrea's company to change input suppliers are low.

Question 45

When an input seller has market power in the input market, its customers:

A)have the ability to charge a higher price for their products.
B)may earn higher profits.
C)gain market power in their product markets.
D)may end up paying a higher price for inputs.

Question 46

In which of the following cases would a company's profits be threatened?

A)The threat of potential substitutes for its product diminishes.
B)Barriers to entry into its industry rise.
C)Its customers face higher switching costs.
D)One of its key input providers gains market power in the input market.

Question 47

When there is only one buyer in a product market, a seller in the market:

A)has great market power in the monopoly market.
B)has no opportunities in substitute markets.
C)may be pressured to sell at a lower price than if there were many buyers.
D)is able to sell at a higher price than if there were many buyers.

Question 48

Clarice's factory has invested in expensive equipment to produce a specialized weapon for her government's military. There are no other buyers of this type of weapon, and the equipment is not useful for the production of other goods. Which of the following statements describes Clarice's vulnerability based on the Five Forces framework?

A)Clarice is vulnerable because the number of existing competitors is high.
B)Clarice is vulnerable because barriers to entry into her market are low.
C)Clarice is vulnerable because her customer can choose from many products.
D)Clarice is vulnerable because her customer has market power.

Question 49

When the demand side of a market holds a high level of market power, then the sellers _____ than they would otherwise.

A)are likely to sell at a lower price
B)are likely to sell at a higher price
C)will face higher switching costs
D)will face lower switching costs

Question 50

The two dimensions of the rivalry between current competitors in a product market are _____ and _____.

A)barriers to entry; switching costs
B)price competition; non-price competition
C)market power; switching costs
D)non-price competition; barriers to entry

Question 51

A key thing for managers to remember regarding product differentiation is that:

A)differences across the products of different companies are innate to the products.
B)if the producer views its product as different, customers will view it as different.
C)consumers don't really care if a product is differentiated.
D)differentiation stems from choices made by the company.

Question 52

When a product is NOT differentiated and price competition prevails, then:

A)the sellers are not likely to earn economic profits.
B)barriers to entry will rise.
C)barriers to entry will fall.
D)the sellers are likely to earn high economic profits.

Question 53

In the absence of product differentiation, _____ to prevail, leading to _____ profits.

A)barriers to entry tend; high
B)barriers to entry tend; low
C)price competition tends; low
D)price competition tends; high

Question 54

Price competition with a product that is identical across sellers leads to an outcome of:

A)positive economic profits for the sellers.
B)zero economic profits for the sellers.
C)rising barriers to entry in the market.
D)falling barriers to entry in the market.

Question 55

Price competition with identical products across producers leads to _____ because _____.

A)a high price; sellers are competing to sell at a high price
B)high profits; more consumers enter the market
C)a low price; consumers choose a seller based on price
D)low profits; more consumers enter the market

Question 56

Market power can be gained through:

A)increased product differentiation.
B)decreased barriers to entry.
C)higher price competition.
D)increased entry of substitute products.

Question 57

Without product differentiation, the presence of _____ can lead to _____ economic profits.

A)one or more rivals; zero
B)barriers to entry; zero
C)no switching costs; high
D)suppliers with market power; high

Question 58

Another name for product differentiation is:

A)product rivalry.
B)variation barriers.
C)non-price competition.
D)price differentiation.

Question 59

When Joe's Manufacturing Company successfully differentiates its product, then from the perspective of consumers:

A)the product may be different, but price remains the key factor in purchase decisions.
B)there are different prices charged by different sellers, but the product is the same.
C)rival sellers produce different but equally desirable products.
D)the output of rival sellers is not a good substitute for Joe's output.

Question 60

Med-Ready Supplies produces and sells thermometers that are basically identical to those sold by other companies in the market. However, Med-Ready thermometers sell for twice the price of the other thermometers. Why can Med-Ready charge higher prices than other sellers yet still maintain customers?

A)Med-Ready must have lower production costs than other producers.
B)Med-Ready has successfully used barriers to entry to maintain its dominance.
C)Consumers are not interested in price but only in getting a thermometer that works.
D)In the minds of customers, Med-Ready must have successfully differentiated its thermometers from the others.

Question 61

Ways to differentiate a product do NOT include:

A)adding features to a company's product.
B)changing the quality of the company's product.
C)providing different types of customer service for a product.
D)charging a lower price than other companies for a given product.

Question 62

Which of the following statements about product differentiation is FALSE?

A)It can be achieved even when the product is identical to that for sale by other firms.
B)It is charging a lower price than other sellers.
C)It is a key way for a seller to maintain long-term profits.
D)It can be achieved through customer service.

Question 63

The basis of product differentiation is to convince your customers that your product _____ so that customers will _____ for your firm's product.

A)is different from the output of other sellers; have a more elastic demand
B)will more completely satisfy their wants; pay a higher price
C)is the best version; be more price sensitive
D)is as good as any other version; pay an equal price

Question 64

One negative aspect of product differentiation is that it:

A)reduces market demand.
B)makes demand more elastic.
C)reduces consumer choice.
D)adds to costs.

Question 65

In differentiating a product, the demand-side consideration is to _____ as possible.

A)be as attractive to buyers
B)raise market demand as much
C)increase demand elasticity as much
D)sell as much

Question 66

In differentiating a product, the supply-side consideration is to _____ as possible.

A)be as different from competitors
B)create as many barriers to entry
C)increase the number of competitors as much
D)cut price as much

Question 67

A company will be subject to price competition if:

A)other producers are selling in the product market.
B)there is successful product differentiation in the product market.
C)customers view its product as the same as or very similar to the products of rival companies.
D)barriers to entry reduce the number of firms participating in the product market.

Question 68

To gain as many customers as possible through product differentiation, a producer must consider _____ as the producer makes decisions about how to distinguish its product.

A)how rivals are positioning their products
B)what the desired product price should be
C)how to decrease market demand
D)how to increase demand elasticity

Question 69

When differentiating its product, a company should strive to:

A)increase the demand elasticity for its product.
B)supply the underserved part of its market.
C)change the market demand for its product.
D)duplicate the features of rivals.

Question 70

A new vendor wants to position his cart on a beach where another seller is already selling from a cart. To attract as many customers are possible, the new vendor should choose:

A)the spot as far from the current seller as possible.
B)the middle spot on the beach.
C)the side of the beach with the most customers and as close to the current seller as possible.
D)a location with as many customers between the two vendors as possible.

Question 71

To reduce price competition as much as possible, a seller should:

A)position its product to be as similar to those of rivals as possible.
B)position its product to be as different from those of rivals as possible.
C)strive to increase product demand as much as possible.
D)strive to keep product demand as steady as possible.

Question 72

To gain as many customers as possible, a seller should position its product to serve _____ while also being as _____ rival products as possible.

A)the average preferences; similar to
B)the average preferences; different from
C)an underserved segment of customers; similar to
D)an underserved segment of customers; different from

Question 73

As a general rule, the more similar a firm's product is to those of its rivals, the more intense _____ will be, and the _____ likely customers will be to switch between sellers.

A)non-price competition; less
B)price competition; less
C)non-price competition; more
D)price competition; more

Question 74

If you want to reduce the incentive of rivals to undercut your company's product price, your company needs to _____ as much as possible.

A)differentiate its product
B)increase substitution
C)enhance bargaining power of suppliers
D)lower switching costs

Question 75

Your company should position its product _____ its rival to attract as many customers as possible and _____ its rivals to reduce price competition.

A)far from; close to
B)far from; far from
C)close to; close to
D)close to; far from

Question 76

Positioning your product closer to those produced by rivals will increase your company's _____, but positioning it further from those produced by rivals will increase its _____.

A)barriers to entry; switching costs
B)switching costs; barriers to entry
C)quantity sold; profit margin
D)profit margin; quantity sold

Question 77

As a basic rule of thumb, when price competition is intense, business owners should try to:

A)differentiate their products as much as possible.
B)charge as low a price as possible.
C)charge as high a price as possible.
D)produce a product as similar to rivals as possible.

Question 78

As a basic rule of thumb, business owners should differentiate their products as much as possible when:

A)costs are high.
B)costs are low.
C)price competition is subdued.
D)price competition is intense.

Question 79

As a basic rule of thumb, when price competition is subdued, a company owner should:

A)minimize product differentiation.
B)emphasize product differentiation.
C)reduce switching costs.
D)reduce barriers to entry.

Question 80

As a basic rule of thumb, a company owner should minimize product differentiation when:

A)there are many sellers.
B)there are only a few sellers.
C)price competition is minimal.
D)price competition is intense.