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

| September 29, 2018

61. The existence of high
exit barriers such as ownership of specialized assets (e.g., large aircraft) in
the airline industry indicates that

a.

customers are
relatively weak because of the high switching costs created by frequent flyer
programs.

b.

the industry is
moving toward differentiation of services.

c.

the competitive
rivalry in the industry is severe.

d.

the economic
segment of the external environment has shifted, but airline strategies have
not changed.

62. A manufacturer of washing machines has expanded its plant and has
created excess capacity, just as the general economy has taken a downturn. The
company is likely to

a.

raise prices on
washing machines to offset lost sales.

b.

be vulnerable to
new entrants to an attractive market.

c.

suffer from intense
rivalry from international manufacturers.

d.

offer rebates and
incentives for customers who purchase washing machines.

63. When rival firms compete aggressively by trying to attract
competitors’ customers, this might be an indication of

a.

an industry with
low exit barriers.

b.

increasing
economies of scale.

c.

slow industry
growth.

d.

high bargaining
power among buyers.

64. Mighty Green, a residential lawn chemical manufacturer, is
committed to gaining market share in its industry. Mighty Green

a.

is likely to raise
the level of competitive rivalry in the industry.

b.

probably has top
management who are affected by emotional barriers to exit.

c.

has decided that
long-run above-average returns are not important.

d.

will probably
embark on an acquisition strategy.

65. Rivalry between Dell, Hewlett-Packard, and other computer
manufacturers is intense in part because

a.

low geographic
saturation of the market.

b.

the high
differentiation among competing products.

c.

the low threat of
supplier forward integration.

d.

these companies are
trying to find ways to differentiate their products.

66. Circuit Corp. is a manufacturer of a broad range of consumer
electronics products. These consumer products are all highly profitable. The
firm also manufactures a low-cost component which is an essential
differentiating feature for most of their consumer products. The costs to
manufacture this component have risen sharply in recent months. Internal cost
accounting estimates now indicate the company is breaking even on the
manufacture of this component. Which of the following is most likely?

a.

Circuit will likely
continue to manufacture the component, even at a loss, due to low supplier
power.

b.

Circuit will likely
continue to manufacture the component, even at a loss, due to high strategic
stakes.

c.

Circuit will likely
discontinue manufacture the component due to low strategic stakes.

d.

Circuit will likely
discontinue manufacture the component due to high supplier stakes.

67. Exit barriers to a firm include all of the following EXCEPT

a.

generic assets.

b.

loyalty to
employees.

c.

governmental
concern about job loss.

d.

restrictive labor
agreements.

68. An owner of a stable of racehorses has been earning below-average
returns for over 15 years. To a colleague, he expressed his determination to
stay in horse racing until he died because “racing is in my blood.”
This individual is probably still racing horses because of

a.

high barriers to
exit.

b.

high switching
costs.

c.

high fixed costs.

d.

low levels of
competitive rivalry.

69. According to the five forces model, an attractive industry would
have all of the following characteristics EXCEPT

a.

low barriers to
entry.

b.

suppliers and
buyers with little bargaining power.

c.

a moderate degree
of rivalry among competitors.

d.

few good product
substitutes.

70. According to the five forces model, an unattractive industry would
include all of the following characteristics EXCEPT

a.

low economies of
scale needed for new firms to enter.

b.

low supplier power
due to commodity inputs.

c.

high threat of
substitute products due to a large number of low cost alternatives.

d.

high bargaining
power of buyers due to low switching costs.

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