Q&A Hero

Q: Edward Chamberlin described firms selling differentiated products and facing a downward-sloping demand curve as being in an industry characterized by monopolistic competition.

Q: Firms selling differentiated products face a horizontal demand curve.

Q: It is reasonable to expect that in the near future a marketing specialist will develop a definitive list of bases of product differentiation.

Q: Product differentiation is ultimately an expression of the creativity of individuals and groups within firms and is limited only by the opportunities that exist, or that can be created, in a particular industry and by the willingness and ability of firms to creatively explore ways to take advantage of those opportunities.

Q: What are the responsibilities of the CEO in a functional organization?

Q: Identify the types of compensation policies that are appropriate for firms pursuing a cost-leadership strategy.

Q: Identify the types of control systems that are appropriate for firms pursuing a cost-leadership strategy.

Q: Identify the most appropriate organizational structure for a firm pursuing a cost-leadership strategy.

Q: Identify which bases of cost leadership are more likely to be rare and costly to imitate.

Q: Identify how cost leadership helps neutralize each of the major threats in an industry.

Q: Discuss the difference between the learning curve and economies of scale.

Q: Identify four reasons why economies of scale can exist and four reasons why diseconomies of scale can exist.

Q: Identify six reasons firms can differ in their costs.

Q: Differentiate between business strategies and corporate strategies and define the nature of a cost-leadership strategy.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Sematech were to choose to narrow its product line in an effort to reduce costs, this would be an example ofA) technological software.B) a policy choice.C) a competitive advantage.D) a learning-curve effect.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Sematech decided to focus on building its technological hardware, it would focus on elements such asA) robots.B) organizational culture.C) the quality of organizational controls.D) the quality of relations among labor and management.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. By employing a low-cost competitive strategy, Sematech has made itselfA) less able to withstand industry price wars.B) more vulnerable to rivals.C) less vulnerable to the power of suppliers.D) more vulnerable to the power of buyers.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Lucy Sullivan were a Sematech manager who oversaw the finance operations in the company's functional structure, Lucy would be considered aA) chief executive officer.B) divisional manager.C) chief operating officer.D) functional manager.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. Given Sematech's business level strategy, which organizational structure is the most appropriate?A) matrix structureB) U-form structureC) multidivisional structureD) product-divisional structure

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Sematech were to continue seeking methods to maintain the company's cost-leadership position that would be costly to duplicate, which of the following is most likely to be a basis of cost leadership that may be costly to duplicate?A) establishing economies of scaleB) exploiting learning-curve economiesC) purchasing new technological hardwareD) securing differential access to low-cost productive inputs

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Sematech's expansion plans did not produce the desired cost savings but the company decided to continue production expansion in an effort to capture cost reductions, this would be an example ofA) economies of scale.B) escalation of commitment.C) diseconomies of scale.D) managerial diseconomies.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. If Sematech's efforts to increase its production capacity resulted in increased complexity and an inability of managers to control and operate the firm efficiently, this would be an example ofA) physical limits to efficient size.B) worker de-motivation.C) distance to markets and suppliers.D) managerial diseconomies.

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. By increasing production volume in an effort to reduce costs, Sematech is pursuing which sources of cost advantage?A) size differences and diseconomies of scaleB) differential access to productive inputsC) size differences and economies of scaleD) technological advantages

Q: Sematech is a producer of computer chips. To gain an advantage over other computer chip makers, Sematech focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of Sematech's competitors have begun to reduce the company's competitive advantage. In response to this threat, Sematech has decided to add production capacity in an effort to lower costs. Sematech is pursuing which strategy?A) cost-leadership business strategyB) product-differentiation business strategyC) cost-leadership corporate strategyD) product-differentiation corporate strategy

Q: Firms implementing cost-leadership strategies will have ________ layers in their reporting structure.A) manyB) relatively simpleC) relatively fewD) relatively complex

Q: A marketing manager leading the marketing department is an example of a(n) ________ manager. A) ambidextrous B) divisional C) functional D) unitary

Q: In ________ structures, employees report to two or more people. A) unilateral B) functional C) divisional D) matrix

Q: The U in U-form structure stands for A) "uniform." B) "unitary." C) "unilateral." D) "unambiguous."

Q: Cost-leadership firms are typically characterized by very ________ cost-control systems. A) tight B) flexible C) loose D) decentralized

Q: Which of the following compensation policies is most likely to enhance a firm's ability to pursue a low-cost strategy? A) awarding employees bonuses based on the total amount of goods produced B) awarding employees bonuses based on customer comment cards C) awarding employees bonuses that are equal to 50% of the total cost savings achieved based on employee suggestions and initiatives D) awarding employees bonuses based solely on how long they have been employed with the company

Q: Firms pursuing a cost-leadership strategy are typically characterized by A) loose cost control systems. B) a de-emphasis on quantitative cost goals and costs. C) infrequent cost control reports. D) close supervision of labor, raw materials,inventory, and other costs.

Q: The only person in a functional organization who has to have a multifunctional perspective is the A) CFO. B) CEO. C) COO. D) marketing manager.

Q: In a functional structure, each of the major business functions is managed by a A) functional manager. B) divisional manager. C) chief executive officer. D) line manager.

Q: Firms implementing cost-leadership strategies will generally adopt a A) multidivisional structure. B) product divisional structure. C) functional organizational structure. D) matrix structure.

Q: Cost advantages based on learning-curve economies are A) rare, but they usually are not costly to duplicate. B) costly to duplicate, but they usually are not rare. C) both rare and usually costly to duplicate. D) not rare and usually are not costly to duplicate.

Q: When managers committed to an incorrect course of action increase their commitment to this action even as its limitations become manifest, this is known as A) de-escalation of commitment. B) diseconomies of scale. C) escalation of commitment. D) economies of scale.

Q: Which of the following statements is accurate? A) In general, economies of scale are relatively easy-to-duplicate bases of cost leadership, but diseconomies of scale are not. B) In general, diseconomies of scale are relatively easy-to-duplicate bases of cost leadership, but economies of scale are not. C) In general, neither economies of scale nor economies are relatively easy-to-duplicate bases of cost leadership. D) In general, both economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.

Q: Perhaps the only time economies of scale are not subject to low-cost duplication is when the ________ size of operations is a significant percentage of ________ in an industry. A) minimum; marginal demand B) efficient; total demand C) maximum; marginal demand D) efficient; marginal demand

Q: Which of the following is less likely to be a rare source of cost advantage? A) technological software B) learning-curve economies of scale C) differential low-cost access to productive inputs D) policy choices

Q: Which of the following is likely to be a rare source of cost advantage? A) technological software B) if the efficient size of a firm or plant is significantly smaller than the total size of an industry C) cost disadvantages based on diseconomies of scale D) technological hardware

Q: Which of the following statements about cost leadership and the threat of buyers is accurate? A) If buyers demand increased quality or service, cost leaders can absorb these costs and may still have a cost advantage over the competition. B) Being a cost leader encourages buyer backward vertical integration. C) Firms pursuing a cost-leadership strategy are especially vulnerable to powerful buyers who insist on low prices or higher quality and service from their suppliers. D) Cost leaders are not able to absorb costs associated with buyers' demands for increased quality or service.

Q: If the potential responses of competing firms are likely to be very detrimental to the costs advantages of cost leaders, firms pursuing a cost-leadership competitive strategy should A) drop their prices below competitors' prices to increase overall economic performance through increased volumes of profitable sales. B) raise their prices above competitors, increasing overall economic performance through higher margins. C) focus on a specific niche market to avoid direct competition with aggressive competitors. D) set their prices equal to competitors' prices, sacrificing some market share for increased profit margins.

Q: Which of the following statements is accurate? A) A cost-leadership competitive strategy increases the threat of new entrants by lowering cost-based barriers to entry. B) Firms with a low-cost position can reduce the threat of rivalry in an industry. C) Cost leaders are especially vulnerable to substitute products. D) Cost leaders are especially vulnerable to the threat of suppliers.

Q: Firms for whom the price of the products or services they sell is determined by market conditions and not by the individual decision of the firms are known as A) profit takers. B) price makers. C) price takers. D) profit makers.

Q: Choices which firms make about the kinds of products and services they will sell that impact their relative cost position are known as A) technological hardware. B) policy choices. C) technological software. D) corporate level strategies.

Q: The quality of relations among labor and management, an organization's culture, and the quality of management controls are all examples of A) technological hardware. B) technological software. C) productive inputs. D) economies of scale.

Q: Machines and robots are examples of A) technological software. B) economies of scale. C) learning-curve effects. D) technological hardware.

Q: In order to create a cost advantage, the cost of acquiring low-cost productive inputs must be ________ the cost savings generated by these factors. A) greater than B) equal to C) less than D) greater than or equal to

Q: ________ are any supplies used by a firm in conducting its business activities. A) Productive assets B) Productive inputs C) Productive outputs D) Productive inventory

Q: Learning-curve-cost advantages are A) restricted only to manufacturing firms. B) restricted only to firms in services industries. C) restricted only to firms in extraction industries. D) not restricted to manufacturing.

Q: Which of the following statements regarding the learning curve and economies of scale is accurate? A) Just as diseconomies of scale are presumed to exist if a firm gets too large, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows. B) Where diseconomies of scale are presumed to exist if a firm gets too large, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows. C) Where diseconomies of scale are presumed to exist if a firm gets too small, there is no corresponding increase in costs in the learning-curve model as the cumulative volume of production grows. D) Just as diseconomies of scale are presumed to exist if a firm gets too small, there is a corresponding increase in costs in the learning-curve model as the cumulative volume of production grows.

Q: ________ focus(es) on the relationship between the volume of production at a given point in time and average unit costs, the ________ focus(es) on the relationship between the cumulative volume of production and average unit costs. A) Economies of scale; learning curve B) Competitive advantage; economies of scale C) Learning curve; economies of scale D) Economies of scale; competitive advantage

Q: If Temper Company, a manufacturer of mattresses, was considering moving its production facilities to China but decided against it because the additional costs of shipping the mattresses back to the U.S. would offset the cost savings associated with moving the production facilities, the increased costs associated with shipping would be an example of A) learning-curve economies. B) diseconomies of scale. C) economies of scale. D) competitive advantages.

Q: Which of the following is not a potential source of diseconomies of scale? A) physical limits to efficient size B) worker de-motivation C) distance to markets and suppliers D) learning-curve economies

Q: ________ levels of production are associated with ________ levels of employee specialization. A) High, high B) High, low C) Low, high D) Low, moderate

Q: The link between volume of production and the cost of building manufacturing operations is particularly important in industries characterized by A) process innovations. B) product manufacturing. C) product innovation. D) process manufacturing.

Q: As the volume of production in a firm increases, the average cost per unit decreases until some optimal volume of production is reached, after which the average costs of production begin to rise because of A) diseconomies of scale. B) economies of scope. C) diseconomies of scope. D) economies of scale.

Q: ________ are said to exist when the increase in firm size (measured in terms of volume of production) are associated with lower costs (measured in terms of average costs per unit of production). A) Sustainable competitive advantages B) Economies of scale C) Temporary competitive advantages D) Economies of scope

Q: The best example of a firm following a cost-leadership business strategy is A) Mercedes Benz. B) Macy's. C) Ryanair. D) Rolls Royce.

Q: A firm that chooses a ________ focuses on gaining advantages by reducing its cost below all of its competitors. A) diversification strategy B) product-differentiation business strategy C) corporate strategy D) cost-leadership business strategy

Q: Cost-leadership and product-differentiation strategies are so widely recognized that they are often called A) common business strategies. B) generic corporate strategies. C) generic business strategies. D) common corporate strategies.

Q: Actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously are known as A) business-level strategies. B) corporate-level strategies. C) functional-level strategies. D) macro-level strategies.

Q: Actions that firms take to gain competitive advantage in a single market or industry are known as A) business-level strategies. B) corporate-level strategies. C) functional-level strategies. D) macro-level strategies.

Q: Limiting the involvement of functional managers in strategy formulation can limit their commitment to the chosen strategy.

Q: Even the best formulated strategy is competitively irrelevant if it is not implemented.

Q: Compensation at cost-leadership firms is usually tied directly to product innovation and customer service efforts.

Q: Cost-leadership firms are typically characterized by very tight cost control systems; frequent and detailed cost control reports; an emphasis on quantitative cost goals and targets; and close supervision of labor, raw materials, inventory, and other costs.

Q: Even when a particular source of cost advantage is rare, it must be costly to imitate in order to be a source of sustained competitive advantage.

Q: In general, economies of scale and diseconomies of scale are relatively easy-to-duplicate bases of cost leadership.

Q: Cost advantages based on diseconomies of scale are likely to be rare.

Q: When the efficient size of a firm or plant is significantly smaller than the total size of an industry, there will usually be numerous efficient firms/plants in that industry, and a cost-leadership strategy based on economies of scale will be rare.

Q: Sources of cost advantage that are unlikely to be rare include learning-curve economies, differential low-cost access to productive inputs and technological software.

Q: If cost-leadership strategies can be implemented by numerous firms in an industry, or if no firms face a cost disadvantage in imitating a cost-leadership strategy, then being a cost leader does not generate a sustained competitive advantage for a firm.

Q: Given the relatively low margins of firms pursuing a cost-leadership strategy, firms pursuing this strategy are especially vulnerable to buyers having their revenues reduced to a point where they are unable to earn normal or above-normal performance.

Q: A cost-leadership competitive strategy can reduce both the threat of substitutes and the threat of suppliers that a firm may face.

Q: The threat of rivalry is increased when low-cost firms set their prices equal to those of higher cost competitors.

Q: A cost-leadership competitive strategy helps reduce the threat of entry by creating cost-based barriers to entry.

Q: Firms for whom the prices of the products or services they sell are determined by market conditions and not by the individual decisions of the firms themselves are known as price makers.

Q: In general, firms that are attempting to implement a cost-leadership strategy will choose to produce relatively simple standardized products that sell for relatively low prices compared to the products and prices of firms pursuing other business or corporate strategies.

Q: Technological software includes things like the quality of relations among labor and management, an organization's culture, and the quality of managerial controls.