Question 1

Brand identification and customer loyalty serve as entry barriers because new entrants not only have to absorb the standard costs associated with starting production in a new industry,but also have to absorb the costs associated with overcoming an incumbent firm's differentiation advantages.

Accepted Answer

Brand identification and customer loyalty can serve as powerful entry barriers for new firms, as they must not only invest in traditional start-up costs, but also work to overcome these advantages of established competitors.

Question 2

In an industry,the products or services provided by a firm's direct competition meet approximately the same customer needs in the same way as the products or services provided by the firm itself,whereas substitutes meet approximately the same customer needs but do so in different ways.

Accepted Answer

This statement accurately describes the difference between direct competition and substitutes in an industry. Direct competitors provide similar products or services in the same way, while substitutes may offer different solutions to the same customer needs.

Question 3

The level of direct competition in the fastfood industry can best be described as
A)low because of the numerous firms in the industry and the slowing growth rate.
B)low because of the slowing growth rate and the competition from composite wood furniture.
C)high because of the numerous firms in the industry and the slowing growth rate.
D)moderate because the slowing growth rate offsets the numerous firms in the industry.

Accepted Answer

The numerous firms in the fast-food industry, coupled with the slowing growth rate, results in high levels of direct competition.

Question 4

The five forces framework is based on the S-C-P model and identifies the five most common threats facing firms from their local competitive environment and the conditions under which these threats are more or less likely to be present.

Accepted Answer

The statement accurately describes the five forces framework, which is based on the S-C-P model and identifies the five most common threats facing firms from their local competitive environment. The framework helps firms understand the conditions under which these threats are more or less likely to be present.

Question 5

Jay Z recently started Tidal,an "artist friendly" streaming company.This would be an example of
A)complementors.
B)backward vertical integration.
C)consolidation.
D)forward vertical integration.

Accepted Answer

Forward vertical integration involves a company moving forward into the supply chain to acquire closer control over its distribution channels. starting Tidal is an instance of forward vertical integration as Jay Z is entering into the streaming market in order to have greater control over the way his music is distributed and consumed.

Question 6

Diseconomies of scale exist in an industry when a firm's costs fall as a function of that firm's volume of production.

Accepted Answer

Diseconomies of scale occur when a firm's costs increase as its production increases. This can be caused by a variety of factors, such as increased management difficulties, coordination problems, and communication breakdowns.

Question 7

Incumbent firms may have a whole range of cost advantages compared to new competitors.

Accepted Answer

Incumbent firms may have cost advantages due to economies of scale, established supplier relationships, brand recognition, and access to resources and technology. These advantages can make it difficult for new competitors to compete on price or effectively penetrate the market.

Question 8

The threat of existing competition tends to be high in an industry when firms are able to meaningfully differentiate their products.

Accepted Answer

The threat of existing competition tends to be low in an industry when firms are able to meaningfully differentiate their products. When products are highly differentiated, customers may be more willing to pay a premium for one company's product over another, reducing the level of competition between firms.

Question 9

A firm's supplier poses a greater threat if the supplier's industry has a large number of firms,none of which dominate the supplying industry,than if the supplier's industry is dominated by a small number of firms.

Accepted Answer

If the supplier's industry is dominated by a small number of firms, then those firms have significant power and can exert control over prices and supply. On the other hand, if there are a large number of suppliers, each firm has less power and the buyer has more leverage to negotiate prices and terms. Therefore, a supplier poses a greater threat if they operate in an industry dominated by a few large firms.

Question 10

In the hardwood furniture industry,composite wood furniture would be an example of a(n)
A)substitute.
B)rival.
C)new entrant.
D)complementor.

Accepted Answer

Composite wood furniture is a substitute for hardwood furniture, as it serves the same function as hardwood furniture but is made of different materials.

Question 11

The threat of suppliers in the legal industry can best be described as
A)low because there are a large number of suppliers selling an undifferentiated product.
B)high because there are a large number of suppliers selling an undifferentiated product.
C)moderate because the large number of suppliers is offset by the undifferentiated products they are selling.
D)moderate because of the slowing growth rate in the industry and the commodity nature of the products produced by suppliers.

Accepted Answer

The threat of suppliers in the legal industry is considered low because there are many suppliers (law firms, legal service providers) offering similar, undifferentiated services, which gives clients a wide range of choices and reduces the bargaining power of any single supplier.

Question 12

Proprietary technology often is more important as a barrier to entry than is managerial know-how.

Accepted Answer

The answer of Proprietary technology often is more important as...

Question 13

Within the five forces framework,when all five threats are very high,competition in the industry begins to approach a monopoly.

Accepted Answer

When all five threats in Porter's Five Forces framework (threat of new entrants, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers, and intensity of competitive rivalry) are very high, competition in the industry is intense, not approaching a monopoly. A monopoly would be indicated by low levels of these threats.

Question 14

The threat of buyers in the hardwood furniture industry is best described as
A)high because there are many suppliers,none of which represents a significant portion of the hardwood furniture industry's sales.
B)low because of the slow industry growth and the commodity nature of the suppliers.
C)low because there are many suppliers,none of which represents a significant portion of the hardwood furniture industry's sales.
D)high because of the slow industry growth and the commodity nature of the suppliers.

Accepted Answer

The threat of buyers in the hardwood furniture industry is low because there are many suppliers and none of them represents a significant portion of the industry's sales. This means that buyers have less bargaining power to dictate prices or terms of a sale.

Question 15

The threat of entry in an industry depends on the cost of entry,and the cost of entry,in turn,depends upon the existence and "height" of barriers to entry.

Accepted Answer

This statement accurately describes the relationship between the threat of entry and barriers to entry in an industry. The higher the barriers to entry, the higher the cost of entry, and therefore the lower the threat of new entrants into the industry.

Question 16

In general,it is rarely the case that all five forces in the five forces framework will be equally threatening at the same time.

Accepted Answer

It is unlikely that all five forces in the five forces framework will be equally threatening at the same time, as each force will have different levels of impact and influence depending on the industry and market conditions.

Question 17

Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes.

Accepted Answer

Suppliers are a greater threat to firms in an industry when there are few substitutes for the materials or components they provide, making it harder for firms to switch suppliers and giving suppliers more power over prices and terms.

Question 18

Learning-curve cost advantages are present when the cost of production falls with the cumulative volume of production.

Accepted Answer

Learning-curve cost advantages occur due to increased efficiency and worker skill that comes with increased production volume, resulting in lower production costs per unit. Therefore, the cost of production falls with the cumulative volume of production.

Question 19

The threat of buyers is greater if the products or services that are being sold to buyers are standard and not differentiated than if the products sold to buyers are highly differentiated.

Accepted Answer

If the products or services are standard and not differentiated, buyers have more power to switch to a different supplier or negotiate better prices as they have more options available in the market. If the products are highly differentiated, the threat of buyers is lower as they have limited options to switch to and are often willing to pay premium prices for differentiated products.

Question 20

If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open his own diamond brokerage firm,this would be an example of forward vertical integration.

Accepted Answer

This scenario is an example of backward vertical integration because the jewelry store owner is moving up the supply chain by acquiring or establishing a firm that supplies the raw materials (diamonds) needed for his business, rather than moving down the supply chain towards the customer.

Quiz 2: Evaluating a Firms External Environment