Chapter 2—The External Environment: Opportunities, Threats, Competition, and Competitor Analysis

| September 29, 2018

41. New entrants to an
industry are more likely when

a.

it is difficult to
gain access to distribution channels.

b.

economies of scale
in the industry are high.

c.

product
differentiation in the industry is low.

d.

capital
requirements in the industry are high.

42. Economies of scale refer to the fact that as the

a.

quantity of product
produced in a given time period increases, the cost of manufacturing each
unit increases.

b.

quantity of product
produced in a given time period increases, the cost of manufacturing each
unit remains constant.

c.

quantity of product
produced in a given time period increases, the cost of manufacturing each
unit decreases.

d.

quantity of product
produced in a given time period decreases, the cost of manufacturing each
unit decreases.

43. The large expenditures on advertising by firms such as Procter
& Gamble and Colgate-Palmolive is an example of what kind of barrier to
entry?

a.

Access to distribution
channels.

b.

Capital
requirements.

c.

Economies of scale.

d.

Product
differentiation.

44. Product differentiation refers to the

a.

ability of the
buyers of a product to negotiate a lower price.

b.

response of
incumbent firms to new entrants.

c.

belief by customers
that a product is unique.

d.

fact that as more
of a product is produced the cheaper it becomes per unit.

45. Switching costs refer to the

a.

cost to a producer
to exchange equipment in a facility when new technologies emerge.

b.

cost of changing
the firm’s strategic group.

c.

one-time costs
suppliers incur when selling to a different customer.

d.

one-time costs
customers incur when buying from a different supplier.

46. Customer loyalty programs such as airline frequent flyer miles are
an attempt to

a.

decrease
competitors’ access to distribution channels.

b.

develop a cost
advantage independent of scale.

c.

increase customers’
switching costs.

d.

overcome the
perishability of the hotel “product.”

47. As customers come to believe that a firm’s product is unique, this
allows the firm to

a.

decrease its
advertising expenditures.

b.

customize its
product.

c.

force other
companies out of the market by lowering prices.

d.

obtain loyal
customers.

48. DWK Foods has developed a line of cookies and candies sweetened
exclusively with organic honey. Although DWK is selling some of the products
over the Internet, in order to gain economies of scale, the products must be
sold in retail outlets. The main barrier to entry DWK is likely to encounter
here is

a.

government
licensing and permits.

b.

access to
distribution channels.

c.

consumers’
switching costs.

d.

cost disadvantages
independent of scale.

49. In the case of a retail business dependent on drive-in customers,
the major cost disadvantage independent of scale would be

a.

favorable locations
are not available.

b.

other competitors
have proprietary product technology.

c.

access to raw
materials is difficult.

d.

other competitors
have government subsidies.

50. A certain marble quarry provides a unique type of marble that is
richly colored and strikingly veined. It has been used for churches and public
buildings throughout the world. The architect of a new headquarters for a
prestigious Fortune 500 firm has specified the use of this marble, and this
marble only, for this project. Which of the following statements is most likely
to be true?

a.

The cost of the
marble will be expensive because of the bargaining power of the supplier.

b.

The cost of the
marble will be moderate because of the bargaining power of the buyer.

c.

The cost of the
marble will be moderate because of economies of scale.

d.

The cost of the
marble will be expensive because of the high strategic stakes involved.

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