Question 1

The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. Which of the following factors in a firm's general environment does this mandate best indicate?

Accepted Answer

This mandate best indicates legal factors in a firm's general environment. The legal environment captures the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions-all of which can have a direct bearing on a firm's profit potential.

Question 2

A local manufacturer that wants to be a global manufacturer faces few mobility barriers because it has not yet invested in supply chains, which can become outdated and expensive.

Accepted Answer

Mobility barriers restrict movement between groups. Creating a supply chain is expensive, risky, and time-consuming, so the existing global manufacturers have at least a temporary advantage over a local manufacturer.

Question 3

A small coffee shop faces significant potential competition because of the low capital requirements compared with business environments such as universities and laboratories.

Accepted Answer

Capital requirements describe the "price of the entry ticket" into a new industry. To open a coffee shop, a person must rent a small storefront, buy furnishings, equipment, and supplies, and hire one or two people to work at the store. Capital requirements for a university or laboratory include highly trained personnel and expensive equipment.

Question 4

Marina manages the supply chain for a company that sells diamond watches. She learns that economists are predicting a moderate to severe recession in the next six to eight months. Based on that information, what action should Marina recommend to the company's owner?

Accepted Answer

While it is true that businesses that focus on low-cost solutions can make significant profits during a recession, most other businesses do not. For customers, expenditures on luxury products (such as diamond watches) are often the first to be cut during recessionary periods.

Question 5

When smartphone manufacturers began including cameras and voice recorders in their products, that was an example of industry convergence.

Accepted Answer

Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.

Question 6

In 2008, BlackBerry's market cap peaked at $75 billion. By 2017 this valuation had fallen more than 90 percent, to $3.9 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline?

Accepted Answer

Although BlackBerry devices were great in productivity applications, such as receiving and responding to email via typing on its iconic physical keyboard, they did not provide effective access to texting, surfing the web, taking pictures, or playing games. Because of this, BlackBerry declined because it could not compete with iPhone, which performed multiple tasks effectively.

Question 7

Kirsten, a manager, is writing an analysis of her employer's current and possible future revenues. Which of the following could she identify as an economic factor in her firm's external general environment?

Accepted Answer

The overall economic growth rate is a measure of the change in the amount of goods and services produced by a nation's economy. It indicates what stage of the business cycle the economy is in-that is, whether business activity is expanding (boom) or contracting (recession).

Question 8

Luz manages a chain of bars and restaurants in a tri-county area that has recently experienced an economic boom because of fracking and high oil prices. What is most likely to happen when there is too much money in the tri-county economy?

Accepted Answer

Too much money in an economy is characterized by rising prices-inflation. Inflation tends to go along with higher interest rates and lower economic growth.

Question 9

For-profit businesses operating in long-standing fields such as energy and transportation usually operate in an environment of price stability.

Accepted Answer

Price stability-the lack of change in price levels of goods and services-is rare. Therefore, companies will often have to deal with changing price levels.

Question 10

Because competitors in oligopolistic industries are so interdependent, it is especially important for managers in those firms to monitor and respond to changes their competitors make.

Accepted Answer

A key feature of an oligopoly is that the competing firms are interdependent. With only a few competitors in the mix, the actions of one firm influence the behaviors of the others. Each competitor in an oligopoly, therefore, must consider the strategic actions of the other competitors.

Question 11

A company that owns failing movie theaters could leverage existing assets by turning the buildings into performance spaces and conference sites.

Accepted Answer

To leverage existing assets means to think about a new combination of resources and capabilities that firms already possess. In this case, the firm already had large buildings and parking lots that could accommodate hundreds of people at each site.

Question 12

Firms within the same industry automatically belong to the same strategic group.

Accepted Answer

Even within the same industry, firm performances differ depending on strategic group membership. Some strategic groups tend to be more profitable than others. This difference implies that firm performance is determined not only by the industry to which the firm belongs, but also by its strategic group membership.

Question 13

The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

Accepted Answer

The PESTEL framework allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

Question 14

Federal and regional laws prevent incumbent firms from dramatically lowering prices or otherwise retaliating when a new entrant joins an industry.

Accepted Answer

Incumbents with deeper pockets than new entrants are able to withstand price competition for a longer time and wait for the new entrants to exit the industry-then raise prices again. Other weapons of retaliation include increased product and service innovation, advertising, sales promotions, and litigation.

Question 15

Anders is researching sociocultural factors related to his employer, a sporting goods manufacturer. Which of the following would be part of the sociocultural forces in a firm's external environment?

Accepted Answer

Sociocultural factors capture a society's cultures, norms, and values. Demographic trends are also important sociocultural forces. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Question 16

In a firm's external environment, ________ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Accepted Answer

Demographic trends are important sociocultural forces. These trends capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

Question 17

Managers at Sandburg Real Estate are surprised to hear that interest rates are likely to remain low for the next six months. Which of the following is an implication of low interest rates?

Accepted Answer

Low interest rates have a direct bearing on consumer demand. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, computers, and even vacations on credit; in turn, all of this demand fuels economic growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates lowers the cost of capital and enhances a firm's competitiveness.

Question 18

A video-streaming service provider such as Netflix is a complement to a manufacturer of streaming video devices such as Roku.

Accepted Answer

A complement is a product, service, or competency that adds value to the original product offering when the two are used in tandem. Complements increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm.

Question 19

Sleeprite Mattresses Inc. wants to become the largest and most profitable mattress supplier in a three-state area. To do this, Sleeprite should try to create the smallest possible difference between the value that its mattresses create and the expense that the company must spend to produce the mattresses.

Accepted Answer

A firm's strategic position relates to its ability to create value for customers while containing the cost to do so. Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it.

Question 20

Which of the following external forces is a part of a firm's task environment?

Accepted Answer

External factors in a firm's task environment are ones that managers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry.

Quiz 3: External Analysis: Industry Structure, Competitive Forces, and Strategic Groups