External Environment – FAQ – 01

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List of FAQs

Q1

An industry can be defined as a group of:

  1. companies offering products or services that are close substitutes for each other
  2. twenty or more companies offering products or services that are close substitutes for each other
  3. companies
  4. companies that offer dissimilar products or services.
  5. companies that offer products or services to dissimilar customers

Q2

What is the impact of shifting industry boundaries on firms within the industry?

  1. Higher exit barriers
  2. More competitors
  3. Reduced threat of substitutes
  4. Greater bargaining power of suppliers
  5. Lesser bargaining power of buyers

Q3

Which of the following is not one of Porter’s five forces, as proposed in his original model?

  1. Threat of complementors
  2. Bargaining power of suppliers
  3. Rivalry among established companies
  4. Threat of new entrants
  5. Threat of market changes

Q4

Which of the following is not a component of Porter’s five forces model?

  1. Risk of entry by potential competitors
  2. The intensity of rivalry among established companies within an industry
  3. The bargaining power of buyers
  4. The bargaining power of suppliers
  5. The lack of substitutes for an industry’s products

Q5

Which of the following is not a barrier to entry?

  1. Economies of scale
  2. Brand loyalty
  3. Absolute cost advantages
  4. High customer bargaining power
  5. High customer switching costs

Q6

If economies of scale are an industry’s primary entry barrier, a new entrant’s major risk is…

  1. its inability to access labor and materials
  2. the inferior quality of its products
  3. its inability to match the innovation of the established firm
  4. its inability to produce in sufficient volume to match the cost advantages of established producers
  5. its inability to get buyers to switch to its product

Q7

As a barrier to new entry, absolute cost advantages can be based on…

  1. continuous advertising of brand and company names
  2. high product quality, service-oriented innovations, and good after-sales service
  3. cost reductions that arise from the mass production of standardized output
  4. the unique ability of established companies to spread fixed costs over a large volume
  5. control over low-cost inputs required for production, be they labor, materials, equipment, or management skills

Q8

Which of the following industry structures consists of a large number of small and medium-sized companies, none of which is in a position to determine industry price?

  1. Fragmented industry
  2. Consolidated industry
  3. Oligopoly
  4. Monopoly
  5. Sector

Q9

Which of the following industry structures is dominated by a small number of large companies?

  1. Fragmented industry
  2. Consolidated industry
  3. Oligopoly
  4. Monopoly
  5. Sector

Q10

Which of the following is not a determinant of the extent of rivalry among established companies?

  1. The number and size distribution of companies in the industry
  2. Demand conditions
  3. The cost structure of firms in an industry
  4. Exit barriers
  5. The power of buyers

Q11

The extent of rivalry among established companies is lowest when…

  1. the industry’s product is a commodity
  2. demand is growing rapidly
  3. the industry is entering a decline stage
  4. the industry is dominated by a small number of large companies
  5. exit barriers are substantial

Q12

The risk of a price war is greatest in which of the following circumstances?

  1. A high-growth industry
  2. An industry characterized by a commodity-type product, strong demand, and low exit barriers
  3. A mature industry during an economic upturn
  4. An industry characterized by tacit price agreements
  5. An industry characterized by falling demand, high exit barriers, and excess productive capacity

Q13

The bargaining power of an industry’s suppliers is greater when…

  1. the supply industry is fragmented.
  2. switching costs are high.
  3. the industry buys in large quantities.
  4. many substitutes are available.
  5. firms in the industry can threaten backward vertical integration.

Q14

The competitive force of substitute products tends to be stronger when…

  1. buyers view the prices of substitutes as too high.
  2. the costs that buyers face in switching over to substitutes are low.
  3. the quality and performance of substitutes are relatively low.
  4. substitutes do not embody many characteristics that are similar to those of products already serving the market.
  5. none of these choices

Q15

Sales of complementors’ products tend to…

  1. increase sales of the industry’s product
  2. decrease sales of the industry’s product
  3. have no effect on sales of the industry’s product
  4. increase sales of substitute products
  5. decrease sales of substitute products

Q16

Economies of scale may arise from…

  1. cost reductions gained through mass production
  2. discounts on bulk purchases of raw material inputs and component parts
  3. advantages gained by spreading production costs over a large production volume
  4. cost savings associated with spreading marketing and advertising costs over a large volume of output
  5. all of these choices

Q17

Which of the following is currently an embryonic industry?

  1. Personal computers
  2. Biotechnology
  3. Internet retailing
  4. Nanotechnology
  5. Wireless communications

Q18

Members of a strategic group…

  1. compete directly with members of other strategic groups
  2. are affected by Porter’s five competitive forces to the same degree that members of other strategic groups are affected
  3. follow a business model that is similar to that pursued by other companies in the group
  4. earn the same rate of return
  5. move easily to other groups as desired

Q19

A market segment is a group of…

  1. customers within a market that can be different from each other on the basis of their distinct attributes and specific demands
  2. companies that produce similar goods or services
  3. customers within a market that purchase goods or services in similar quantities
  4. customers within a market that have similar levels of profitability
  5. none of these choices

Q20

Brand loyalty may be created by…

  1. continuous advertising
  2. patent protection of products
  3. product innovation achieved through company research and development
  4. emphasis on high product quality
  5. all of these choices

Q21

Switching costs may arise when…

  1. changing from one computer system to another
  2. substitute products are available at a lower unit cost
  3. when there are a large number of interchangeable products
  4. products are commodity-like in nature
  5. all of these choices

Q22

Historically, government reputation has…

  1. encouraged new entrants into an industry
  2. constituted a major entry barrier into major industries
  3. neither hampered nor encouraged new entrants into an industry
  4. encouraged the growth of new companies
  5. none of these choices

Q23

Rivalry refers to…

  1. competition
  2. the intensity of competition among established companies within an industry
  3. a struggle among firms using price, product design, and advertising
  4. all of these choices
  5. none of these choices

Q24

The competitive structure of an industry refers to the…

  1. number of segments in the industry
  2. number and size distribution of companies in the industry
  3. the number of consumers in the industry
  4. number of competing products in the industry
  5. form that competition in the industry takes

Q25

Common exit barriers include…

  1. investments in specific assets
  2. emotional attachments to an industry
  3. high fixed costs associated with leaving the industry
  4. bankruptcy regulations
  5. all of these choices

Q26

Mobility barriers…

  1. prevent movement within a strategic group
  2. inhibit the movement of companies between strategic groups in an industry
  3. inhibit the movement of a company from one industry to another
  4. include exit barriers of the strategic group that a company wants to enter
  5. are low when exit barriers in the strategic group that a company is a member of are high

Q27

In growth industries…

  1. replacement demand is increasing rapidly
  2. technological expertise is the most important entry barrier
  3. rivalry is high
  4. distribution channels are poorly developed
  5. buyers are familiar with the industry’s product

Q28

Entry barriers in the embryonic stage are frequently based on…

  1. brand loyalty
  2. economies of scale
  3. absolute cost advantages
  4. economies of scope
  5. technological know-how

Q29

Growth industries…

  1. typically suffer from high mobility barriers
  2. tend to be characterized by weak rivalry
  3. have high rivalry among established companies
  4. increase prices because customers are more aware of the industry’s product
  5. provide economies of scale to existing companies

Q30

An industry’s buyers have high bargaining power when…

  1. buyers purchase in large quantities.
  2. switching costs are low.
  3. it is economically feasible for buyers to purchase inputs from several companies at once.
  4. buyers can threaten to enter an industry and produce the product themselves.
  5. all of these choices

Q31

Demand reaches total saturation in which of the following stages of the industry life cycle?

  1. Embryonic
  2. Growth
  3. Shakeout
  4. Maturity
  5. Decline

Q32

The threat from new entrants is greatest in the ____ stage of the industry life cycle.

  1. embryonic
  2. growth
  3. shakeout
  4. maturity
  5. decline

Q33

Which of the following is not one of the factors in the economic forces of the macroenvironment?

  1. Interest rates
  2. Inflation
  3. Regulation
  4. Currency exchange rates
  5. Economic growth rate

Q34

Suppliers in an industry are most powerful when…

  1. there are few substitutes for the product suppliers sell.
  2. switching costs are low.
  3. companies in the industry can threaten to enter the suppliers industry.
  4. substitute products are readily available.
  5. all of these choices

Q35

Julian is asked to examine the demographic environment facing his employer, a clothing manufacturer. Which of the following should Julian examine?

  1. Government regulations
  2. Inflation
  3. Aging of the population
  4. Society’s growing interest in exercise
  5. Manufacturing technology

Q36

Beverage makers are finding that water sales are increasing due to consumers’ preferences for healthy drinks. Which part of the macroenvironment does this represent?

  1. Economic forces
  2. Demographic forces
  3. Embryonic forces
  4. Political forces
  5. Social forces

Q37

The level of industry demand…

  1. has little effect on competition in the industry
  2. is one of the determinants of the intensity of rivalry in the industry
  3. increases as the number of customers grows
  4. is influenced by bankruptcy regulations
  5. all of the choices

Q38

Due to a recent relaxation in pollution standards, Ford Motors is withdrawing its electric-powered cars from sales in the U.S. market. Ford is responding to a change in which of the following macroenvironmental forces?

  1. Economic
  2. Demographic
  3. Political and legal
  4. Social
  5. Strategic

Q39

All of the companies in a strategic group are…

  1. pursuing different business models
  2. pursuing a similar business model
  3. all of these choices
  4. none of these choices
  5. of similar size

Q40

The industry life cycle model includes which of the following stages?

  1. Growth
  2. Shakeout
  3. Maturity
  4. Decline
  5. All of these choices

Q41

As an industry enters the shakeout stage:

  1. rivalry among companies declines
  2. demand is still growing at a high rate
  3. prices rise
  4. excess capacity emerges
  5. new entrants come into the market

Q42

When an industry enters the mature stage,

  1. the market is totally saturated.
  2. demand is limited to replacement demand.
  3. growth is low or zero.
  4. what growth there is in the industry comes from population expansion.
  5. all of these choices

Q43

Eventually most industries enter a decline stage where…

  1. growth becomes negative.
  2. rivalry among established companies usually decreases.
  3. competitive pressures abate.
  4. excess capacity declines.
  5. demand continues to hold steady.

Q44

Which of the following is not a force within the macro environment?

  1. Level of interest rates
  2. Currency exchange rates
  3. Inflation
  4. Deflation
  5. Rates of social change

Q45

Which of the following identifies the main difference between an opportunity and a threat for a company’s environment?

  1. Opportunities open a company up for risks to their profitability while threats allow for implementation of strategies which can increase profitability.
  2. Opportunities provide a company the freedom to take advantage of conditions in the environment while threats can mean peril for a company’s integrity and profitability.
  3. Opportunities arise in the external environment while threats primarily play out in the internal environment of a company.
  4. Opportunities generally relate to the increased competition provided by new arrivals to the industry and threats are focused on the exiting of competitors in the industry.
  5. The only difference between an opportunity and a threat is whether a company decides to pursue new strategies or to stick with proven strategies as a result of the new element or condition.

Q46

A group of firms manufactures writing implements such as pens, pencils, and markers. This group should be referred to as a(n):

  1. substitute
  2. market segment
  3. service provider
  4. regulator
  5. industry

Q47

An impact that the changing industry boundaries have had is that:

  1. owners of companies can now define boundaries.
  2. there is an increase in the number of competitors within an industry.
  3. technological changes do not affect companies anymore.
  4. the pattern of customer needs does not affect companies anymore.
  5. the number of product substitutes available for customers has reduced.

Q48

Porter’s Five Forces model did not recognize the:

  1. power of complement providers
  2. risk of entry by potential competitors
  3. intensity of rivalry among established companies within an industry
  4. bargaining power of suppliers
  5. closeness of substitutes to an industry’s products

Q49

Which of the following statements correctly describes potential competitors in an industry?

  1. They threaten the profitability of established companies.
  2. They are usually encouraged by established companies.
  3. They find it easier to enter an industry when the entry barriers are high.
  4. They find it easier to enter an industry when established companies have economies of scale.
  5. They usually have an absolute cost advantage over established companies.

Q50

Which of the following would not diminish the risk of entry of potential competitors for an established company within an industry?

  1. Government prohibition of market entry in the company’s industry.
  2. Consumers prefer the established company’s product.
  3. Potential competitors cannot match the established company’s lower cost structure.
  4. The established company does not benefit from cost reductions due to mass production of standardized products.
  5. Customers are locked into the established company’s product due to the high amount of energy, time, and money it would take to switch to a new product.

Q51

If economies of scale are an industry’s primary entry barrier, a new entrant’s major concern is:

  1. its inability to counter brand loyalty that customers have for established companies in the industry.
  2. the inferior quality of its products.
  3. its inability to match the innovation of the established firm.
  4. its inability to produce in sufficient volume to match the cost advantages of established producers.
  5. its inability to get buyers to switch to its product.

Q52

As a barrier to new entry, absolute cost advantages can be based on:

  1. continuous advertising of brand and company names, and product innovation achieved through research and development
  2. high product quality, service-oriented innovations, and good after-sales service
  3. cost reductions that arise from the mass production of standardized output
  4. the unique ability of established companies to spread fixed costs over a large volume
  5. superior production operations and processes due to accumulated experience, patents, or trade secrets

Q53

Which of the following is not a result of intense rivalry within an industry?

  1. Raised costs
  2. Lowered prices
  3. Reduced spending on non-price-competitive strategies
  4. Threat to profitability
  5. None of these are results of intense rivalry within an industry

Q54

Which of the following industry structures is made up of a several small or medium-sized companies, none of which is positioned to determine industry price?

  1. Fragmented industry
  2. Consolidated industry
  3. Oligopoly
  4. Monopoly
  5. Monopolistic competition

Q55

A consolidated industry structure:

  1. consists of several small companies or medium-size companies, none of which is positioned to determine industry price
  2. constitutes a threat rather than an opportunity
  3. is dominated by a small number of companies or, in extreme cases, by just one company, and such companies often are positioned to determine industry prices
  4. provides no scope for an oligopoly to exist
  5. is characterized by low-entry barriers and commodity-type products

Q56

The bargaining power of an industry’s suppliers is greater when:

  1. the supply industry is fragmented.
  2. switching costs are minimal for companies because of little difference among products offered by different suppliers.
  3. the industry buys in large quantities.
  4. the product that suppliers sell has many substitutes and is not vital to the companies.
  5. the industry is not an important customer to the suppliers.

Q57

Which of the following is a difference between the bargaining power of buyers and the bargaining power of suppliers?

  1. A powerful buyer lower costs, while suppliers raise costs to squeeze profits out of an industry.
  2. Buyers have the most bargaining power in a monopoly, while suppliers need multiple product substitutes to have bargaining power.
  3. Only suppliers have the ability to make demands based on their power relative to that of the company.
  4. Buyers bargaining power can raise costs by demanding better quality, while suppliers can raise costs by providing lower quality products.
  5. The potential of a supplier with strong bargaining power is considered a threat, while a buyer with strong bargaining power does not pose a threat to the industry.

Q58

Which of the following statements about complementors is true?

  1. Their impact on industries was first recognized by Porter’s Five Forces model.
  2. They have little importance in high-technology industries.
  3. They have the power to impact the sales of the industry to which they supply complement products.
  4. They tend to increase the sales of the industry they are supplying complements to by producing fewer low-quality complement products.
  5. They cannot gain enough power to extract profits from the industry to which they supply complement products.

Q59

Economies of scale can arise from:

  1. cost reductions gained through decreased production
  2. high prices on bulk purchases of raw material inputs and component parts
  3. an advantage gained by spreading fixed production costs over a large production volume
  4. increased spending on marketing and advertising activities
  5. poor production operations

Q60

Brand loyalty can be created by:

  1. minimal advertising
  2. not using patents to protect products
  3. cutting the costs for research and development
  4. emphasizing high-quality products
  5. minimizing after-sales service

Q61

Which of the following statements about government regulations in the context of entry barriers of an industry is true?

  1. Government deregulation in an industry results in significant reduction in competition.
  2. Government regulation is not a major entry barrier for any industries.
  3. Falling entry barriers due to government deregulation results in higher competition and lower industry profit rates.
  4. The threat of new entrants is reduced when the government deregulates an industry.
  5. Companies that enjoy brand loyalty and have significant scale economies are the ones who face major threat of competition due to government deregulation.

Q62

Which of the following costs arise when a customer invests time, energy, and money shifting from the products offered by one established company to the products offered by a new entrant?

  1. Overhead
  2. Incremental
  3. Marginal
  4. Opportunity
  5. Switching

Q63

Which of the following statements about rivalry in the context of established companies is true?

  1. It significantly reduces the costs of established companies.
  2. It squeezes profits out of an industry.
  3. It enables companies to lower their spending on non-price-competitive strategies.
  4. It forces companies to reduce prices when it is less intense.
  5. It is unaffected by the demand conditions of an industry.

Q64

What makes up the competitive structure of an industry?

  1. Market segments
  2. The number and size distribution of companies
  3. The number of consumers
  4. The number of manufacturing plants
  5. The quality of products produced

Q65

Common exit barriers include all the following except:

  1. investments in assets such as specific machines, equipment, or operating facilities that are of little or no value in alternative uses
  2. emotional attachments to an industry
  3. high fixed costs associated with leaving an industry
  4. bankruptcy regulations that keep unprofitable assets in the industry
  5. economic independence because a company is able to rely on a single industry for its entire revenue and all profits

Q66

An industry’s buyers have high bargaining power when:

  1. they purchase in small quantities.
  2. switching costs are low.
  3. it is economically impossible for them to purchase an input from several companies at once.
  4. the supply industry depends upon buyers for a very small percentage of its total orders.
  5. the industry is a monopoly.

Q67

The level of industry demand:

  1. has little effect on competition in the industry
  2. is one of the determinants of the intensity of rivalry in the industry
  3. increases when customers exit a marketplace
  4. does not impact the market share that established companies hold
  5. decreases the rivalry among established companies, when in decline

Q68

When shopping for clothing such as shirts and jeans, Tyrone only buys products from Eastern Clothing Company even if there are several other companies that offer similar products at lower prices. Tyrone’s preference for Eastern Clothing Company demonstrates:

  1. lack of demand
  2. bargaining power
  3. risk of entry
  4. brand loyalty
  5. lack of economies of scale

Q69

The Smith boys want to get the new Xbox console for Christmas, but their parents are hesitant to buy it because the family already owns the two latest versions of the PlayStation consoles with multiple games and extra controllers. Their decision to remain with the PlayStation is due to which of the following?

  1. Switching costs
  2. Bargaining power
  3. Risk of entry
  4. Brand loyalty
  5. Lack of economies of scale

Q70

Suppliers in an industry are most powerful when:

  1. there are few substitutes for the products that they sell.
  2. switching costs are low.
  3. companies in the industry threaten to enter the suppliers’ industry.
  4. their profitability is significantly affected by the purchases of companies in a particular industry.
  5. they refrain from entering their customers’ industry because of lack of resources.

Q71

Which of the following is not considered a benefit of industry analysis?

  1. It can be a powerful tool to aid in a manager’s strategic thinking.
  2. It recognizes how competitive forces are isolated and do not impact each other.
  3. It stimulates systematic thinking about strategic choices.
  4. It makes it easier to identify opportunities and threats within an industry.
  5. It can result in profitable changes to existing strategies.

Q72

Which of the following is not an implication that strategic groups must address when considering threats and opportunities?

  1. Threats to profitability come from rivals within the strategic group.
  2. Customers see the products of those in a strategic group as substitutes for on another.
  3. Competition comes on two fronts, from those within the strategic group as well as those in other strategic groups within the industry.
  4. Different strategic groups have distinctive and varied relationships with each of the identified competitive forces.
  5. The strength of competitive forces facing strategic groups is a result of the competitive positioning approach chosen by the group.

Q73

Mobility barriers:

  1. allow industries to change their strategy and compete in an alternate strategic group
  2. inhibit the movement of companies between strategic groups in an industry
  3. inhibit companies from shifting between suppliers for raw materials
  4. are factors that operate outside of an industry
  5. exclude the barriers to entry into a group and the barriers to exit from a company’s existing strategic group

Q74

In growth industries:

  1. the intensity of rivalry is very high.
  2. technological expertise is the most important entry barrier.
  3. the threat from potential competitors is typically highest.
  4. distribution channels are poorly developed.
  5. buyers are not familiar with the industry’s products.

Q75

Entry barriers in embryonic industries tend to be based on:

  1. brand loyalty
  2. economies of scale
  3. absolute cost advantages
  4. regulatory advantage
  5. technological know-how

Q76

Which of the following statements about growth industries is true?

  1. They typically have high barriers to entry.
  2. They tend to be characterized by weak rivalry.
  3. They are characterized by low demands.
  4. They increase prices because customers are more aware of the industry’s product.
  5. They inhibit the development of distribution channels.

Q77

First-time demand expands rapidly due to new customers entering the market in which of the following stages of the industry life cycle?

  1. Embryonic
  2. Growth
  3. Shakeout
  4. Maturity
  5. Decline

Q78

As an industry enters the decline stage:

  1. growth becomes negative.
  2. rivalry among established companies usually decreases.
  3. competitive pressures abate.
  4. capacity reduces.
  5. demand remains the same.

Q79

In the late 1800s, when the automobile was first manufactured, the automobile industry would have been considered which of the following industries?

  1. Mature
  2. Shakeout
  3. Embryonic
  4. Growth
  5. Declining

Q80

Which of the following occurs immediately after the growth stage of the industry life cycle?

  1. Growth slows because buyers are unfamiliar with the product.
  2. Demand is limited to replacements only and growth is zero.
  3. Saturation of demand is approached because fewer first-time buyers remain.
  4. Growth is dependent on new entrants to the market, such as population increases.
  5. Social changes, demographics, and international competition cause negative growth.

Q81

Which of the following is a benefit of innovation in an industry?

  1. It allows smaller companies the ability to compete with large, established companies by reducing entry barriers and lowering fixed costs of production.
  2. It breaks the life cycle pattern and causes growth so rapid it causes stages to be skipped altogether.
  3. It emphasizes the importance of industry structure.
  4. It secures the profitability of strategic groups within an industry.
  5. It increases the barriers to entry to reduce rivalry and competition.

Q82

Which of the following is not one of the macroeconomic forces?

  1. Interest rates
  2. Inflation rates
  3. Cultural changes
  4. Currency exchange rates
  5. Growth rate of the economy

Q83

Many beverage manufacturers are noticing that sales for bottled water and fruit-based beverages is increasing compared to carbonated drinks because customers are increasingly becoming health conscious. This change in customer preferences can be attributed to which of the following factors of the macroenvironment?

  1. Economic forces
  2. Demographic forces
  3. Technological forces
  4. Political forces
  5. Social forces

Q84

Due to a recent relaxation in the pollution control laws by the government, Alpha Motors has reduced the production of its electric-powered cars. The company is responding to a change in which of the following macroenvironmental forces?

  1. Macroeconomic
  2. Demographic
  3. Political and legal
  4. Social
  5. Global

Q85

Americans are currently living longer now than in the past because of advances in medicine. As a result, the sale of products that meet the needs of older individuals, such as devices that assist in walking and movement, have increased. In the context of an industry’s macroenvironment, age is considered which type of force?

  1. Technological
  2. Demographic
  3. Social
  4. Political
  5. Legal

Q86

Philip Morris capitalized on the growing health consciousness trend when it acquired Miller Brewing Company, and then redefined competition in the beer industry with its introduction of low-calorie beer (Miller Lite). This health trend represents which type of force?

  1. Social
  2. Political
  3. Legal
  4. Technological
  5. Demographic