Deck 4: Cost Advantage

Question 1

MediDose Inc., a pharmaceutical company, has been studying and experimenting with a few drugs.After 10 years of conducting and standardizing tests, the company comes up with positive results that would help many patients.These drugs become popular and effective among millions of patients and enable the company to expand its operations across the globe while spreading out the cost of the studies.Which of the following is the subject of economies of scale in the described scenario?

A) Research and development expenses
B) Advertising expenses
C) General and administrative costs
D) Production costs

Answer 1

A

Question 2

The expenses and taxes that are directly related to the wide-ranging operation of a company best define the term _____.

A) sunk costs
B) research and development costs
C) incentives and promotional costs
D) general and administrative costs

Answer 2

D

Question 3

Nirvana Publishing House invested on high-end printing equipment.After a year of production, the company had to double the amount of production of its newspapers and weekly magazine because of high customer demand.However, the company did not have to invest in another similar equipment to meet demands.This is an example of a _____.

A) fixed cost of demand
B) fixed cost of scale
C) fixed cost of production
D) fixed cost of supply

Answer 3

C

Question 4

A reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases best defines the term _____.

A) economies of scope
B) economies of finance
C) economies of scale
D) economies of wealth

Question 5

Blaze Corp., a car company, shared its costs of producing cars.It did so by introducing the production of car accessories that are used by customers to upgrade or customize their cars.Blaze Corp.started selling car accessories such as engine oils, wheels, and music player and thus shared its market research costs between cars and car accessories.This led to a definite decrease in the overall cost of production.This scenario best illustrates _____.

A) economies of scale
B) economies of finance
C) economies of wealth
D) economies of scope

Question 6

Turbine Industries breaks down its manufacturing process into smaller segments that are performed by employees who are trained very well.This also helps the firm to save time because this way the employees do not need to juggle between various tasks.This scenario best illustrates _____.

A) minimum efficient scale
B) competitive parity
C) employee specialization
D) task specialization

Question 7

The Finance Department of Neptune Industries has to audit expenses and profits made each year.It creates separate databases for costs accrued in the form of equipment used in the company and for other costs such as costs of accounting, rent, and managerial salaries.Which of the following is the subject of economies of scale in the described scenario?

A) Research and development expenses
B) General and administrative costs
C) Incentives and promotional costs
D) Advertising expenses

Question 8

Which of the following is a primary characteristic of employing automated equipment in a company with high levels of production?

A) They help employees to acquire specialized knowledge that helps them complete tasks more efficiently.
B) The general and administrative costs would be high for large companies.
C) They do not help in spreading out the fixed cost of production.
D) Large companies can reduce per-unit cost of production.

Question 9

Which of the following is a feature of task specialization?

A) It causes workers to be confused about the task at hand.
B) It enables employees to choose tasks that they are most capable of performing.
C) It enables workers to be more efficient and thus enables them to avoid loss of time.
D) It results in job dissatisfaction because employees have to repeat the same functions over time.

Question 10

What is true about a minimum efficient scale?

A) It shows the optimal quantity for a company to produce.
B) It can be most efficiently maintained in large industries by increasing the level of production.
C) It proves that the costs per unit decrease with increases in volume till they reach and then maintain the minimal level.
D) It can be achieved by large industries during economic downturns because they can easily spread their fixed costs when demand declines.

Question 11

Connections Communications Inc.has been able to achieve optimal efficiency by identifying a task for each employee and enabling them to become thoroughly proficient in their tasks.The company has realized that employees develop an expertise in their specified job profile over time and they gradually begin to work faster than when they started the job.This is an example of _____.

A) task specialization
B) employee specialization
C) minimum efficient scale
D) competitive parity

Question 12

The increased efficiency that results when employees perform a narrow range of tasks over and over again leading them to acquire specialized knowledge that helps them complete the task more efficiently accurately defines the term _____.

A) competitive parity
B) minimum efficient scale
C) task specialization
D) employee specialization

Question 13

Breaking a large process into smaller elements that require specialized knowledge is known as _____.

A) professional specialization
B) employee specialization
C) task specialization
D) process specialization

Question 14

The relatively fixed costs such as the costs of plant and equipment, which do not increase with an increase in the number of units manufactured, are known as _____.

A) fixed cost of production
B) fixed cost of supply
C) fixed cost of demand
D) fixed cost of scale

Question 15

Taurus Inc.usually produces 5,000 handcrafted products in a day.Recently, the demand for handcrafted products drastically increased as one of its products became a popular item for home décor.Due to this increase, the company had to up its production level to 10,000 products per day.This, however, decreased the price of individual products.This scenario best illustrates _____.

A) economies of wealth
B) economies of finance
C) economies of scope
D) economies of scale

Question 16

Attire Corp., a garment manufacturing company, explains to its employees why its previous year's sales had not met the required standards.The management uses a diagram of the cost acquired for each item manufactured against the volume of items produced in a particular period of time.The pictorial representation is an example of the _____.

A) scale curve
B) value curve
C) learning curve
D) experience curve

Question 17

Fuchsia Corp., a retail chain, opens four outlets in different locations of a city.It markets itself for attracting customers to these locations.The company invests in promotional campaigns for one of the outlets and then divides the expenses among the four outlets.Which of the following is the subject of economies of scale in the described scenario?

A) Production costs
B) General costs
C) Research and development expenses
D) Advertising expenses

Question 18

Which of the following statements is true of a company's general and administrative costs (G&A)?

A) They are part of a company's production costs.
B) They exclude the expenses of operating a company.
C) They include Research and Development (R&D) expenses.
D) They help a company with high sales volume that creates cost advantage by managing its G&A across more units.

Question 19

Which of the following statements is true of research and development (R&D)?

A) Small volumes of production enable firms to spread the cost of research and development (R&D), advertising, and general and administrative expenses.
B) The higher a firm's R&D costs, the more the scope for the company to expand globally allowing costs to be spread across more customers.
C) Adding R&D allows a firm to have a cost advantage over competitors.
D) Eliminating R&D helps firms to lead in launching new product designs.

Question 20

DFN Inc.expanded its manufacturing plant to employ more equipment because the management of the company thought this would help them attain more sales.Unfortunately, this affected the cost of each unit produced because the company invested more finances for better equipment.This also led to a decrease in sales as customers were not willing to buy the product for an increased price.This scenario best illustrates _____.

A) competitive failure
B) diseconomies of scale
C) economies of scale
D) virtuous circle

Question 21

A group of students studying a firm named Sanders & Collins Corp.found that the workers initially learned their task-related activities very fast.In turn, this helped the firm reduce the labor cost incurred in producing each product.However, their rate of learning these tasks reduced over time.This scenario best illustrates the _____.

A) experience curve
B) learning curve
C) value curve
D) scale curve

Question 22

Orange Superstore is largely customer centric and economical in its methods.The store sells the best quality products at prices that are lower than other stores.The store depends on the fact that its salespeople get better at completing their tasks over time.This method used by Orange Superstore is an example of _____.

A) cost limitation strategy
B) cost advantage strategy
C) proprietary knowledge strategy
D) sustained competitive advantage strategy

Question 23

Suppose a garment manufacturer named Vogue Inc.buys materials from another country that is well known for its cotton and silk exports.Recently, the currency of this country fell, which enabled Vogue Inc.to purchase more raw materials.Vogue Inc.achieved cost advantage through _____.

A) labor rates
B) wage rates
C) exchange rates
D) transportation rates

Question 24

VisionZed Inc., a computer software company, spends a lot of finances on research.It tries to implement the latest technologies available and provides services that are matchless when compared to any of its competitors.At the same time, Xtron Technologies Corp., another computer software company, pays half the price that VisionZed pays on research as it combines the intelligence of different software companies and creates its product.This enables Xtron to have a cost advantage over VisionZed.Xtron Technologies Corp.is an example of a company that eliminates steps in the _____.

A) supply chain
B) growth chain
C) value chain
D) pricing chain

Question 25

In a recent presentation by the management of Seas Inc., the presenters conducted a discussion with a pictorial chart on the cumulative units of production of the company and its correlation with the cost per unit of the product.Which of the following charts did the presenters of Seas discuss?

A) The learning curve
B) The experience curve
C) The scale curve
D) The value curve

Question 26

Yellow Corp., a supplier that provides raw materials to a leading computer brand, had to lower its costs by 7 percent as the computer brand doubled its order.As a result, Yellow Corp.experienced economies of scale.This negotiation tactic is an example of _____.

A) task specialization
B) purchasing volume
C) learning curves
D) competitive advantage

Question 27

Rinkon Inc., an automobile company, purchased its competitor TrackRoads Inc.that had similar production quantities and a sufficient amount of raw materials.This takeover was done to decrease the unit cost production of Rinkon and to increase its production using more equipment in Rinkon.This strategy led to record profits and more customers investing their finances on cars manufactured by Rinkon.The scenario best illustrates the:

A) acquisition strategy.
B) pricing strategy.
C) cost-management strategy.
D) investment strategy.

Question 28

Five Checkers Inc.has been able to purchase more supplies for less money than its competitors.Five Checkers makes use of a set of communication skills that create compromising deals with its suppliers.Sound reasons are stated by Five Checkers to show why the suppliers must reduce their prices.The reasons are accepted by the suppliers and thus have helped increase profits for Five Checkers Inc.In this scenario, Five Checkers Inc.used _____.

A) purchasing volume
B) negotiating volume
C) learning curves
D) negotiating tactics

Question 29

Indigo Inc.experienced a drop in the price of each product as the overall volume of production increased.This relationship or method caused an increase in profits accrued by the company.This is an example of the _____.

A) law of motion
B) law of experience
C) law of value
D) law of knowledge

Question 30

Vladimir, the CEO of Autumn Inc., claims that a learning curve is a better option of identifying the growth of the company.His assistant, Mark, states that growth can be better assessed if a scale curve is used as it reflects reliable and validated results and moreover it shows results of a specific time period.Which of the following statements strengthens Vladimir's claim?

A) A scale curve captures the effects of economies of scale.
B) A learning curve assesses the overall company from its inception.
C) Results of the assessment will definitely contain certain irregularities.
D) Both the processes are cumbersome and will require expertise to acquire necessary data.

Question 31

BizTechno Inc.has always retained competitive advantage over its competitors.The company has offered customer satisfaction for many years by providing the best services and benefits for them.The resources, capabilities, and the organizational structure of the organization have also created an increased edge over its competitors.Which of the following does this scenario best illustrate?

A) Business model
B) Employee specialization
C) Value chain
D) Task specialization

Question 32

Ming Gardens Corp., an interior design company, is solely owned by Veronica.The company has been able to achieve competitive advantage due to the knowledge acquired by Veronica over the years.This knowledge was attained under the protective custody of Veronica and she does not want to publish them to anyone.This scenario reflects the development of _____.

A) procedural wisdom
B) proprietary knowledge
C) collective intellect
D) explicit knowledge

Question 33

The board of directors of Colors Corp., a new startup, chalked out a list of resources that would be needed to optimize the efficiency of the company.It needed a human resources department to take care of recruitment, a few suppliers to provide raw materials, a few data recording equipment such as computers to store and manage data, and a large geographical area to start the company.The board stated that these provisions would help the company obtain desired profits.The resources and provisions mentioned in this scenario are examples of _____.

A) outputs
B) incomes
C) inputs
D) outcomes

Question 34

TrueBiz Corp.follows a system wherein all the activities of the company are directed toward converting parts of a product into an entire finished good.These activities are done in tandem so that a perfected product can be created which can be sold to a prospective customer.This is an example of a _____.

A) supplier chain
B) value chain
C) product line
D) pricing chain

Question 35

Lavender Inc., a computer manufacturing company, sells its products at costs that are lesser than its competitors as it wishes to gain profits in order to cover more of the competitive market.The company follows this method as it has high unit volumes.The scenario best illustrates the _____.

A) acquisition strategy
B) cost-management strategy
C) pricing strategy
D) investment strategy

Question 36

Li, the president of Lavender Inc., believes that when employees are trained, they should work on one particular task till they know how to perform it perfectly.Thus, the employees are usually encouraged to repeatedly perform their designated tasks.Li claims that the more an employee engages in a particular task, the more skilled he or she will become at it.Which of the following statements strengthens Li's belief?

A) Employees will feel a sense of job dissatisfaction and will lose their overall enthusiasm for their jobs.
B) The work of employees will speed up while compromising their attention to detail.
C) This method of training requires a lot of time, effort, patience, and finances.
D) Employees will find better ways at completing the same task.

Question 37

Mercury Corp., a startup company, is sure that it will achieve a steep curve of 75 percent as it is selling a unique product that has not been introduced into the market before.The company is confident that this product will be sold at a fast rate due to two reasons: the product is a necessity in every home and it is a break-through solution.Mercury sees this product as helping the company grow at a fast pace.Which of the following strategies has Mercury Corp.adopted?

A) The growth/investment strategy
B) The pricing strategy
C) The cost-management strategy
D) The acquisition strategy

Question 38

String Line Inc.has established a loyal supplier base.The management at String Line had created a system in which it chooses a supplier that is reasonably affordable, and instead of quoting the company's price and demanding that it be met, it complies with the supplier's quotes.Over time, this has established a bond of loyalty with the supplier.When String Line opened a new branch, the supplier built its plant close to the branch so as to save transportation costs.Which of the following has String Line Inc.established with the supplier?

A) Rivalry
B) Cooperation
C) Competition
D) Access

Question 39

Techno Inc.is a computer hardware company that gets its computer parts from countries that manufacture them for lesser price than what its competitors pay and at a better quality.This allows Techno to save on the prices paid for the raw materials and use them to increase its production volume.Which of the following is Techno Inc.practicing in order to attain cost advantage?

A) Transportation rates
B) Raw material rates
C) Exchange rates
D) Wage rates

Question 40

Trends Inc.has been awarded the best branded clothing company award for three years consecutively.The CEO of the company stated that this was possible due to the company strategically lowering the cost of each unit produced, and successfully maintaining that method in order to effectively contain finances.While comparing Trends with other similar production companies, it was found out that the company did certainly collect more profit than the others.The scenario best illustrates the:

A) acquisition strategy.
B) investment strategy.
C) pricing strategy.
D) cost-management strategy.

Question 41

Which is an important source of proprietary knowledge?

Question 42

Explain why a learning curve is more complex than a scale curve.

Question 43

Define the cost advantage strategy and its characteristics.

Question 44

A strategy in which the unique value offered to customers is lower-priced products or services is known as _____.

Question 45

Explain proprietary knowledge and its important sources.

Question 46

Information that is not public and that is viewed as the property of the holder is called _____.

Question 47

When do economies of scope come into existence?

Question 48

Mention the four ways that companies achieve cost advantage through lower-cost inputs and explain bargaining power over suppliers.

Question 49

Define economies of scale and list out its four principle sources.

Question 50

Define learning curve, experience curve, and scale curve.Compare them with each other.