Chapter 3
1. Given the plethora of external influences, understanding the external
environment requires managers to:
a. Use a framework or a system that allows them to organise information
and rank factors.
2. The core of a firm’s business environment is determined by:
a. Its relationships with customers, competitors and suppliers
3. Value is created when:
a. The price that the customer is willing to pay for a product exceeds the
cost of supplying it
4. profits earned by firms iIn an industry, are determined by
a) The value of the product for customers, the intensity of competition,
and the relative bargaining powers of producers, their suppliers and
their buyers.
5. The basic premise of industry analysis is that:
a) The level of profitability within an industry is determined by the
systematic influence of the industry structure which determines the
intensity of competition in the industry
6. If an industry earns a return on capital in excess of its cost of capital:
b) It is likely to attract the attention of potential entrants; unless the
industry is protected by high barriers to entry, the return on capital
will fall
7. Firms suppling niche markets are often high profitable because:
, *b. They tend to be sufficiently small that a single firm can establish a
dominant position c. They tend to be disregarded by major corporation
8. Economies of scale are a barrier to entry because:
*d. New entrants face the cost and risk of creating large-scale capacity to
start with or a severe cost disadvantage if they enter on a smaller scale
9. . The American Medical Association encourages limits on the number of
medical school places for training new doctors:
a. In the interests of ensuring that only the the most capable applicants are
admitted to the medical profession
b. To ensure that the United States maintains the highest standards of
training in the world c. To keep doctors’ remuneration high
d. To ensure that medical school graduates will find work at medical
doctors
10. The bargaining power of buyers depends on: @ Pages and References: p76
*c. Buyer’s price sensitivity and the bargaining power of buyers relative
to that of sellers
10. Bargaining power rests, ultimately, on:
c) The perceived or real threat for one party to refuse to deal with the
other party
11. The relative bargaining power of buyers depends on:
*a. All of the items below
b. The size and concentration of buyers relative to suppliers
c. A buyer’s access to information about products and costs
d. The ability or threat to integrate vertically
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