Deck 3: The Microeconomics of Strategy

Question 1

Porter's Five Forces analysis derives from macro-economic principles

Answer 1

True

Question 2

Compare the characteristics of a perfect market with the characteristics of an imperfect market.

Answer 2

In a perfect market all firms are producing the same product i.e. there is no differentiation. Prices are set by the market forces of supply and demand. No one firm has competitive advantage over another. In an imperfect market firms are different from each other in some way and thus have the ability gain advantage over their competitors.

Question 3

What is the purpose of doing a Porter's Five Forces analysis?

Answer 3

A Porter's Five Forces analysis can provide us with some idea of the attractiveness of an industry i.e. how easy or difficult it would be to make above average profit in a particular industry. For example, understanding the power relationships between a firm and its suppliers and buyers can give us an idea of how the firm should position itself in order to deal with these relationships.

Question 4

How might a firm achieve a generic strategy of cost leadership?

Question 5

What intangible aspects of a product can be sources of differentiation advantage?

Question 6

Porter argued that there are particular ways of competing which are appropriate for dealing with the competitive forces within an industry. The term used to describe these different ways of competing is

A) Diversification strategies
B) General strategies
C) Differentiation strategies
D) Generic strategies

Question 7

Competitive advantage can be defined as

A) Delivering superior value to customers and in doing so earning an above average return for the company and its stakeholders
B) Profits = total revenue - total costs
C) Delivering superior value to customers and in doing so creating high barriers to entry
D) Delivering superior value to customers and in doing so creating opportunities for growth

Question 8

For economists 'cost' can be viewed as opportunity cost.

Question 9

Economies of scale is present for an organization if

A) Unit costs increase as production increases
B) Fixed costs increase as production increases
C) Unit costs decrease as production increases
D) Fixed costs decrease as production increases

Question 10

_________________ curve effects occur when costs fall as production doubles.

Question 11

In general economies of scale and economies of learning (experience curve) provide an element of competitive advantage for firms pursuing which type of strategy

A) Cost leadership
B) Differentiation
C) Diversification
D) Price leadership

Question 12

Economies of _______________ can be achieved when the same resource is used to produce more than one product.

Question 13

Economies of scope can be achieved in knowledge intensive industries as well as capital intensive industries.

Question 14

Volume and _____________ are crucially important factors governing organizational survival.

Question 15

In a market with __________________ competition all firms in the market produce the same product and the prices is determined by the forces of supply and demand.

Question 16

It is in the interest of individual firms to create __________________ in the marketplace. This is to avoid the situation where survival is solely determined by the market.

Question 17

Porter's Five Forces is a framework for analysing the economic characteristics of an industry. The five forces consist of threat of entrants, bargaining power of suppliers, bargaining power of buyers, competitive rivalry and

A) threat of substitute brands
B) threat of substitute products
C) threat of innovation
D) threat of innovative products

Question 18

In Porter's Five Forces analysis, which of the following would likely act as a barrier to entry?

A) If the potential entrant has higher costs per unit than incumbent firms
B) If the potential entrant has lower costs per unit than incumbent firms
C) If the encumbent firms have benefits of the experience curve
D) If distribution channels are widely available

Question 19

In Porter's Five Forces, the power of suppliers is included in the analysis. The argument is that suppliers will want to raise their prices at the buying firm's expense.

Question 20

In Porter's Five Forces supplier power will be relatively low if

A) The buying firm has many suppliers to chose from
B) For the buyer, switching costs between suppliers are low
C) The supplying firm has many buyers to chose from
D) The buying firm has few suppliers to chose from

Question 21

For food manufacturers the biggest source of power they face in their industry is from food producers.

Question 22

Which of the following could be considered to be substitutes for purchasing a mug of coffee from a Starbucks coffee shop?

A) Purchasing a cup of coffee from Costa coffee shop
B) Purchasing a cup of coffee from an independent (non-chain) coffee shop
C) Making a coffee at home with a Gaggia coffee machine
D) Making a cup of Nescafe instant coffee at home

Question 23

The intensity of rivalry in the supermarket industry is low

Question 24

The pharmaceutical industry is 'imperfect'.

Question 25

Which of the following are characteristics of an 'imperfect industry'?

A) Brand names exist
B) No entry or exit barriers
C) Patent protection is common
D) There are many small firms

Question 26

In economic terms, the essence of ________________ is finding ways of making the industry 'imperfect'.

Question 27

According to Porter, there are two basic ways of creating competitive advantage in an industry. These are through building cost advantages or through building ____________________ advantages.

Question 28

Firms that are following a cost leadership strategy are likely to

A) Spend a lot of money on creating a brand image for which the customer is willing to pay a relatively high price
B) Pursue economies of scale and scope
C) Use the cheapest technology
D) be relatively unconcerned with innovation

Question 29

The supermarket industry in the UK is an example of which kind of market?

A) Monopoly
B) Oligopoly
C) Perfect competition
D) Dominant firm