IIA IIA Certifications IIA-CIA-PART3 Questions & Answers

• Question 591:

  What strategy seeks to gain a larger share of a current market for a current product?

  A. Market penetration.

  B. Market development.

  C. Product development.

  D. Diversification.

  Correct Answer: A

  Market penetration is the percentage of potential users of a product in a current market who buy the product. A firm's market penetration strategy may be to (1) convince its current customers toincrease their usage frequency, (2) convince other firms' customers to switch, or (3) convert nonusers in the target market.

• Question 592:

  A runner-up firm in a market may choose a market-challenger strategy. Which general attack strategy adopted by a market challenger is directed at a gap in customer need fulfillment?

  A. Guerilla warfare.

  B. Bypass attack.

  C. Frontal attack.

  D. Flank attack.

  Correct Answer: D

  A flank attack may be directed at a geographic or segmental weakness of the target (an underserved market) or an unmet need (such as the desire for more healthful fast food). A flank attack succeeds when market segments shift. The result is a gap in need fulfillment that the attacker can convert into a strong position in a profitable segment.

• Question 593:

  Michael E. Porter's generic strategies are responses to the five competitive forces. How do focus strategies respond to the threat of buyers' bargaining power?

  A. A cost leader may be able to pass along suppliers' price increases.

  B. Substitute products may not be able to compete on quality.

  C. Core competencies in a broad market may not be matched by new entrants.

  D. Brand loyalty may not be matched by new entrants.

  Correct Answer: B

  Differentiation may reduce the leverage enjoyed by strong buyers because of the uniqueness of the product and the resulting lack of close substitutes. Focus strategies also may reduce buyers' ability to negotiate in a narrow market. Substitutes may not be able to compete on price, quality, etc.

• Question 594:

  According to Michael E. Porter's generic strategies model, a firm that successfully adopts a cost focus strategy is most likely to:

  A. Have weak customer loyalty.

  B. Have a strong RandD function.

  C. Know its market well.

  D. Enjoy economies of scale.

  Correct Answer: C

  Cost focus is the generic strategy favored by firms that seek competitive advantage through lower costs and that have a narrow competitive scope (e.g., a regional market or a specialized product line). The rationale for a cost focus strategy is that the narrower market can be better served because the firm knows it well.

• Question 595:

  According to Michael E Porter's generic strategies model, a firm that successfully adopts a differentiation strategy is most likely to:

  A. Tend to disregard cost control.

  B. Risk overlooking product changes.

  C. Closely supervise its labor force.

  D. Be able to pass supplier cost increases on to its customers.

  Correct Answer: D

  Differentiation is the generic strategy favored by firms that seek competitive advantage through providing a unique product or service and that have a broad competitive scope. A successful differentiation strategy creates a consumer perception that few, if any, substitutes are available. Thus, a firm that adopts this strategy may have the additional advantage of being able to pass supplier cost increases to consumers.

• Question 596:

  In accordance with Michael E Porter's generic strategies model, a firm with a broad competitive scope that has high sales volume, low margins, and efficient supply and distribution channels will most likely choose a

  A. Cost leadership strategy.

  B. Cost focus strategy.

  C. Differentiation strategy.

  D. Focused differentiation strategy.

  Correct Answer: A

  Cost leadership is the generic strategy favored by firms that seek competitive advantage through lower costs and that have a broad competitive scope. Such a firm can earn higher profits than its competitors at the industry average price or charge a lower price to increase market share. The typical firm that follows a cost leadership strategy has low profit margins, a high volume of sales, and a substantial market share.

  Such a firm has efficient supply and distribution channels; is capable of large capital investment; if it is a manufacturer, has strengths in product design and process engineering; and closely supervises its labor force.

• Question 597:

  A manufacturing company produces plastic utensils for a particular segment at the lowest possible cost. The company is pursuing a cost:

  A. Leadership strategy.

  B. Focus strategy.

  C. Differentiation strategy.

  D. Containment strategy.

  Correct Answer: B

  A cost focus strategy aims at cost leadership in a particular segment, such as a regional market or a specialty product line. The rationale for a focus strategy is that the narrower market can be better served.

• Question 598:

  If the price elasticity of demand for a normal good is estimated to be 2.5, a 5% reduction in its price causes:

  A. Total revenue to fall by 5%.

  B. Total revenue to fall by 12.5%.

  C. Quantity demanded to rise by 12.5%.

  D. Quantity demanded to decrease by 5%.

  Correct Answer: C

  Price elasticity is the percentage change in quantity demanded divided by the percentage change in price. An elasticity of 2.5 means that the change in demand will increase by 250% of any change in price measured in absolute terms (the minus sign is ignored). Hence, a 5% price reduction increases demand by 12.5% (2.5 5%).

• Question 599:

  If the demand for a product is inelastic,

  A. A price decrease causes total revenue to increase.

  B. A price increase causes total revenue to increase.

  C. A price decrease leaves total revenue unchanged.

  D. A price increase leaves total revenue unchanged.

  Correct Answer: B

  If the demand for a product is inelastic, the coefficient of price elasticity of demand (percentage change in quantity demanded - percentage change in price) is less than 1.0. The relationship between price changes and total revenue (TR) changes is TR = price x quantity. The result is that a price increase causes total revenue to increase.

• Question 600:

  Rivalry among existing firms in an industry is more likely to be strong when:

  A. The industry is in the rapid growth stage.

  B. Investment intensity is low.

  C. A few firms are dominant.

  D. Capacity must be expanded in large increments.

  Correct Answer: D

  The intensity of rivalry and the threat of entry may vary with the extent of capacity expansion dictated by the need to achieve economics of scale. If it must be made in large increments to achieve economics of scale, competition will be more intense. The need for large-scale expansion to achieve production efficiency may result in an excess of industry capacity over demand. However, if capacity may be expanded in small increments, industry capacity is less likely to be excessive, the supply-demand balance is less likely to be upset, and price cutting is less likely to be necessary.