prashantsahni

Technological changes are most likely to result in which of the following effects? Evolving technology is likely to result in changes in:

A) educational curriculum and the relative demand for various products.

B) educational curriculum only.

C) the relative demand for various products only.

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If technological changes result in changes in the set of skills required of workers, this is likely to lead to changes in educational curriculum (and possibly delivery). Such changes often result in the production and demand for new or different products.

prashantsahni

Which of the following statements about the industry life cycle is most accurate?

A) The mature stage is followed by a shakeout stage and a decline stage.

B) The growth stage is typically characterized by decreasing prices.

C) Industry growth rates are highest in the embryonic stage.

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Prices tend to decrease in the growth stage as firms begin to realize economies of scale in production. The stages of the industry life cycle, in order, are embryonic, growth, shakeout, mature, and decline. Industry growth is slow during the embryonic stage as firms develop products and attempt to gain customer acceptance.

prashantsahni

Declining prices that result from the development of substitute products are most likely to characterize an industry in the:

A) shakeout stage.

B) decline stage.

C) mature stage.

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The decline stage of the industry life cycle is often characterized by declining prices as substitute products or global competition emerge, or as a result of decreasing demand due to societal changes.

prashantsahni

A firm is most likely to have pricing power if:

A) costs to exit the industry are high.

B) its product is differentiated.

C) its market share is high.

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Firms offering products that are differentiated in terms of quality and features are more likely to have pricing power than firms that produce undifferentiated (commodity-like) products. High market share does not necessarily imply pricing power; for example, if four firms each have 25% market share, none of them are likely to have significant pricing power. High exit costs can create overcapacity in an industry and result in a high degree of price competition as firms try to maintain production volume during a period of reduced demand.

prashantsahni

Market share stability within an industry is least likely to result from a high level of:

A) barriers to entry.

B) switching costs.

C) product innovation.

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Frequent introductions of new products and innovations tend to make firms’ market shares within an industry less stable. High barriers to entry into the industry and high switching costs for customers to change to a competing product both contribute to market share stability.

prashantsahni

Which of the following conditions is most likely to indicate that barriers to entry into an industry are low?

A) The industry has significant economies of scale.

B) Investment capital is available at low cost.

C) Market shares have been stable over the last two business cycles.

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Readily available capital tends to make entry into an industry easier. If an industry is composed of the same firms over a long period of time, barriers to entry are likely high. Economies of scale are a barrier to entry because existing firms are likely to be producing at a lower cost per unit than a new competitor can achieve.

prashantsahni

Pricing power for the firms in an industry is most likely to result from low:

A) levels of capacity.

B) barriers to entry.

C) industry concentration.

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Low capacity is associated with pricing power because it increases the likelihood that supply in the short run will be less than demand at current prices. Low barriers to entry and low industry concentration (a fragmented market) typically suggest firms have little pricing power.

prashantsahni

Economic profits are most likely to be earned by firms in an industry that is characterized by:

A) low threat of substitute products and high rivalry among existing competitors.

B) high barriers to entry and low bargaining power of buyers.

C) high bargaining power of suppliers and low threat of new entrants.

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High barriers to entry (low threat of new entrants) and low bargaining power of suppliers both increase the potential for economic profits within an industry. The five forces that shape industry competition are rivalry among existing competitors, threat of new entrants, threat of substitute products, bargaining power of buyers, and bargaining power of suppliers. The stronger any of these forces are within an industry, the less potential that industry has to generate (or continue to earn) economic profits.

prashantsahni

The competitive forces identified by Michael Porter include:

A) threat of substitute products and rivalry among suppliers.

B) rivalry among existing competitors and bargaining power of buyers.

C) bargaining power of existing competitors and threat of new entrants.

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Porter’s five competitive forces are: (1) rivalry among existing competitors; (2) threat of new entrants; (3) threat of substitute products; (4) bargaining power of buyers; (5) bargaining power of suppliers.

prashantsahni

Which of the following industries is most likely to operate in a fragmented market?

A) Oil services.

B) Pharmaceuticals.

C) Confections.

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Most areas of the oil services industry are characterized by many small competitors. The confections and pharmaceutical industries each have a small number of very large firms.