Deck 4: Cost Leadership

Question 1

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

Answer 1

C

Question 2

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.

Answer 2

D

Question 3

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

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

Answer 3

B

Question 4

________ 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 5

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 6

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 7

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

A)High; high
B)High; low
C)Low; high
D)Low; moderate

Question 8

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

A)Mercedes Benz.
B)Macy's.
C)Ryanair.
D)Rolls Royce.

Question 9

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 10

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 11

________ focus(es)on the relationship between the volume of production at a given point in time and average unit costs,the ________ focus(es)on the relationship between the cumulative volume of production and average unit 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 12

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

Question 13

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

Question 14

Machines and robots are examples of

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

Question 15

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 16

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 17

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 18

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 19

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 20

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 21

Sematech is pursuing which strategy?

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

Question 22

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 23

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 24

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 25

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

Question 26

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 27

If Sematech decided to focus on building its technological hardware,it would focus on elements such as

A)robots.
B)organizational culture.
C)the quality of organizational controls.
D)the quality of relations among labor and management.

Question 28

If Sematech's efforts to increase its production capacity resulted in increased complexity and an inability of managers to control and operate the firm efficiently,this would be an example of

A)physical limits to efficient size.
B)worker de-motivation.
C)distance to markets and suppliers.
D)diseconomies of scale.

Question 29

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

Question 30

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

Question 31

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.

Question 32

Choices which 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 33

If Sematech were to choose to narrow its product line in an effort to reduce costs,this would be an example of

A)technological software.
B)a policy choice.
C)a competitive advantage.
D)a learning-curve effect.

Question 34

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

Question 35

By increasing production volume in an effort to reduce costs,Sematech is pursuing which sources of cost advantage?

A)size differences and diseconomies of scale
B)differential access to productive inputs
C)size differences and economies of scale
D)technological advantages

Question 36

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

Question 37

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 38

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 39

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.

Question 40

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

Question 41

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 42

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

Question 43

By employing a low-cost competitive strategy,Sematech has made itself

A)less able to withstand industry price wars.
B)more vulnerable to rivals.
C)less vulnerable to the power of suppliers.
D)more vulnerable to the power of buyers.

Question 44

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.

Question 45

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 46

Identify four reasons why economies of scale can exist and four reasons why diseconomies of scale can exist.

Question 47

Differentiate between business strategies and corporate strategies and define the nature of a cost-leadership strategy.

Question 48

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

Question 49

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

Question 50

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 51

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 52

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

Question 53

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 54

Identify six sources of cost advantages for firms.

Question 55

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

Question 56

Efforts to move down the learning curve quickly by acquiring market share may not necessarily enable the firm to obtain a cost advantage over rivals.

Question 57

Discuss the difference between the learning curve and economies of scale.

Question 58

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 59

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

Question 60

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

Question 61

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 62

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

Question 63

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 64

Identify which bases of cost leadership are more likely to be rare and costly to imitate.

Question 65

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

A)technological software
B)learning-curve economies of scale
C)differential low-cost access to productive inputs
D)policy choices

Question 66

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 67

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

Question 68

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

Question 69

If Sematech were to continue seeking methods to maintain the company's cost-leadership position that would be costly to duplicate,which of the following is most likely to be a basis of cost leadership that may be costly to duplicate?

A)establishing economies of scale
B)exploiting learning-curve economies
C)purchasing new technological hardware
D)securing differential access to low-cost productive inputs

Question 70

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 71

Identify how cost leadership helps neutralize each of the major threats in an industry.

Question 72

If Sematech's expansion plans did not produce the desired cost savings but the company decided to continue production expansion in an effort to capture cost reductions,this would be an example of

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

Question 73

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 74

Firms implementing cost-leadership strategies will generally adopt a

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

Question 75

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 76

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 77

Even when a particular source of cost advantage is rare,it must be costly to imitate in order to be a source of sustained competitive advantage.

Question 78

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

Question 79

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 80

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.