Question 1

Understanding a firm's general environment can help the firm identify some of the threats and opportunities it faces.

Accepted Answer

Understanding the general environment helps firms to identify external factors such as economic, social, technological, and political changes that can create threats or opportunities for the business. This enables the firm to better position itself to respond to these changes and adjust its strategies accordingly.

Question 2

Proprietary technology often is more important as a barrier to entry than is managerial know-how.

Accepted Answer

False

Question 3

In general, technological change creates opportunities, but not threats.

Accepted Answer

Technological change can bring both opportunities and threats. It can disrupt entire industries and lead to job losses, while also creating new and innovative products and services. It is important for individuals and businesses to adapt and take advantage of opportunities while mitigating potential threats.

Question 4

Diseconomies of scale exist in an industry when a firm's costs fall as a function of that firm's volume of production.

Accepted Answer

Diseconomies of scale occur when a firm's costs increase as it increases production. This can occur due to factors such as increased coordination difficulties or a shortage of skilled labor in the industry.

Question 5

Learning-curve cost advantages are present when the cost of production falls with the cumulative volume of production.

Accepted Answer

Learning-curve cost advantages result in decreasing the cost of production with increasing cumulative volume of production. As workers become more experienced, productivity increases and production costs decrease, resulting in cost savings.

Question 6

The aging of the "baby boomer" generation in American society is an example of a demographic trend.

Accepted Answer

The "baby boomer" generation refers to the large number of individuals born in the United States between 1946 and 1964. As this group ages, it has a major impact on demographic trends within the country, including changes in population size and age distribution. Therefore, the aging of the baby boomer generation is indeed an example of a demographic trend.

Question 7

Monopolistically competitive industries consist of only a single firm.

Accepted Answer

Monopolistically competitive industries consist of multiple firms competing with each other by offering slightly different products or services. Each firm has some control over the price they charge, but there are still many substitutes available to consumers.

Question 8

In the structure-conduct-performance model, the term "structure" refers to industry structure, which can be measured by such factors as the number of competitors in an industry.

Accepted Answer

In the structure-conduct-performance model, the term "structure" refers to industry structure, which can include factors such as the number of competitors, barriers to entry, and product differentiation.

Question 9

Within the five forces framework, when all five threats are very high, competition in the industry begins to approach a monopoly.

Accepted Answer

When all five threats are very high, competition in the industry increases, leading to a more competitive market rather than a monopoly. A monopoly occurs when there is little to no competition.

Question 10

The five forces framework is based on the S-C-P model and identifies the five most common threats facing firms from their local competitive environment and the conditions under which these threats are more or less likely to be present.

Accepted Answer

The statement accurately describes the five forces framework, which is based on the S-C-P model and aims to identify threats from the competitive environment that are most likely to affect firms.

Question 11

Brand identification and customer loyalty serve as entry barriers because new entrants not only have to absorb the standard costs associated with starting production in a new industry, but also have to absorb the costs associated with overcoming an incumbent firm's differentiation advantages.

Accepted Answer

Brand identification and customer loyalty can serve as entry barriers by making it difficult for new entrants to overcome the advantage of incumbent firms. This is because incumbent firms have already established a reputation and loyal customer base, which can be expensive and time-consuming for new entrants to build.

Question 12

In the structure-conduct-performance model, the term "performance" refers solely to the performance of individual firms.

Accepted Answer

In the structure-conduct-performance (SCP) model, the term "performance" refers to the overall performance of the market, including factors such as levels of competition, pricing, and efficiency. It considers the impact of the industry structure and conduct on market outcomes, rather than solely focusing on individual firm performance.

Question 13

The S-C-P model assumes that any competitive advantages a firm has in an industry must benefit society.

Accepted Answer

The S-C-P model (Structure-Conduct-Performance) does not consider the social benefits or consequences of a firm's competitive advantages. It focuses on the market structure, the conduct of firms within that structure, and their resulting performance.

Question 14

According to the S-C-P model, attributes of the industry structure within which a firm operates define the range of options and constraints facing a firm.

Accepted Answer

The S-C-P (Structure-Conduct-Performance) model suggests that the industry structure determines the behavior of firms and their performance. According to this model, the attributes of the industry structure shape the range of opportunities and limitations available to a firm. Therefore, the answer is true.

Question 15

The threat of existing competition tends to be high in an industry when firms are able to meaningfully differentiate their products.

Accepted Answer

When firms can meaningfully differentiate their products, the threat of existing competition is typically lower because differentiation reduces direct comparability and competition on price, allowing firms to capture unique market segments.

Question 16

A firm's general environment consists of broad trends in the context within which the firm operates that can have an impact on the firm's strategic choices.

Accepted Answer

The general environment includes factors such as economic, technological, social, legal, and political trends that can influence a firm's strategic decisions.

Question 17

The threat of entry in an industry depends on the cost of entry, and the cost of entry, in turn, depends upon the existence and "height" of barriers to entry.

Accepted Answer

The statement is true. The threat of entry in an industry is affected by the barriers to entry, which can raise the cost of entry for new competitors.

Question 18

Incumbent firms may have a whole range of cost advantages compared to new competitors.

Accepted Answer

Incumbent firms may have established supply chains, economies of scale, and brand recognition, among other advantages that new competitors may not have.

Question 19

In a perfectly competitive industry, a large number of firms have products and services that are similar to each other and it is not very costly for firms to enter into or exit these markets.

Accepted Answer

This is the basic description of a perfectly competitive industry.

Question 20

Culture is largely the same across the world.

Accepted Answer

Culture varies greatly across the world due to differences in history, beliefs, customs, and geographical location. Each culture has its own unique traits, values, and practices. While there may be some commonalities across cultures, it is inaccurate to say that culture is largely the same across the world.

Quiz 2: Evaluating a Firms External Environment