28 terms

Chapter 12 T/F Questions (Test #2)

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The actions that managers take to attain the goals of the firm are referred to as a firm's strategy
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.
Profit growth is measured by the percentage increase in net profits over time.
TRUE
Profit growth is measured by the percentage increase in net profits over time.
The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.
TRUE
The way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. In general, the more value customers place on a firm's products, the higher the price the firm can charge for those products.
Consumer surplus captures some of the value of a product thereby reducing the price a firm can charge for it.
TRUE
The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus.
The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.
TRUE
The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.
FALSE
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy.
Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.
FALSE
Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.
According to Michael Porter, all positions on the efficiency frontier are viable.
FALSE
Porter emphasizes that it is very important for management to decide where the company wants to be positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage them efficiently to make sure the firm is operating on the efficiency frontier. However, not all positions on the efficiency frontier are viable.
The various value creation activities that a firm undertakes are referred to as operations.
TRUE
Operations are the different value creation activities a firm undertakes.
In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.
TRUE
The support activities of the value chain provide inputs that allow the primary activities to occur. In terms of attaining a competitive advantage, support activities can be as important as, if not more important than, the primary activities of the firm.
Maintaining the company infrastructure is a support activity.
TRUE
The company infrastructure, a support activity, is the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm.
The term organizational structure refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.
FALSE
The term organization architecture can be used to refer to the totality of a firm's organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people.
Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.
TRUE
Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively.
Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.
TRUE
Since core competencies are, by definition, the source of a firm's competitive advantage, the successful global expansion is based not just on leveraging products and selling them in foreign markets, but also on the transfer of core competencies to foreign markets where indigenous competitors lack them.
Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.
TRUE
Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.
The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.
FALSE
The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles.
Learning effects will be more significant in an assembly process which involves 100 simple steps than in an assembly process which involves 1,000 complex steps.
FALSE
Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps.
The ability to spread fixed costs over a large volume is one of the sources of economies of scale.
TRUE
Economies of scale have a number of sources. One is the ability to spread fixed costs over a large volume. Fixed costs are the costs required to set up a production facility, develop a new product, and the like.
The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
FALSE
Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.
TRUE
Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.
Universal needs exist when the tastes and preferences of consumers in different nations are different.
FALSE
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.
Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another.
TRUE
Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. Concessions often have to be made to local conditions.
Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
FALSE
Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale.
A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
TRUE
Firms pursuing a global standardization strategy prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. Their strategic goal is to pursue a low-cost strategy on a global scale. This strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
A localization strategy involves some duplication of functions and smaller production runs.
TRUE
Since customization, as a result of a localization strategy, involves some duplication of functions and smaller production runs, it limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.
According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy.
FALSE
When a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, it should pursue a transnational strategy.
An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.
TRUE
International strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of firms following an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors.
Strategic alliances allow firms to share the fixed costs of developing new products or processes.
TRUE
Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes.