IIA IIA Certifications IIA-CIA-PART4 Questions & Answers

• Question 451:

  Ina product's life cycle, the first symptom of the decline stage is a decline in the

  A. Firm's inventory levels.

  B. Product's sales.

  C. Product's production cost.

  D. Product's prices.

  Correct Answer: B

  The sales of most product types and brands eventually decrease permanently. This decline may be slow or rapid. This first symptom of the decline stage of a product's life cycle triggers such other effects as price cutting, narrowing of the product line, and reduction in promotion budgets.

• Question 452:

  During the growthstage of a product's life cycle:

  A. The quality of products is poor.

  B. New product models and features are introduced.

  C. There is little difference between competing products.

  D. The quality of the products becomes more variable and products are less differentiated.

  Correct Answer: B

  In the growth stage, sales and profits increase rapidly, cost per customer decreases, customers are early adopters, new competitors enter an expanding market, new product models and features are introduced, and promotion spending declines or remains stable. The firm enters new market segments and distribution channels and attempts to build brand loyalty and achieve the maximum share of the market. Thus, prices are set to penetrate the market, distribution channels are extended, and the mass market is targeted through advertising. The strategy is to advance by these means and by achieving economies of productive scale.

• Question 453:

  Of the major processes affecting the evolution of an industry, which one affects rivalry, entry, expansion, and supply?

  A. Long-run changes in the industry growth rate.

  B. Changes in input costs.

  C. Structural changes in suppliers' and customers' industries.

  D. Government policies.

  Correct Answer: A

  Long-run changes in the industry growth rate affect rivalry, entry, expansion, and supply. These changes occur because of changes in five external factors:demographic traits (such as consumer ages and income levels), trends in needs of buyers (caused by changes in regulation, tastes,lifestyles), relative positions of substitute and complementary products, sales to new customers (market penetration), and product innovation, an internal factor, alters the industry's position regarding the external factors.

• Question 454:

  Which type of market structure is most apt to demonstrate price leadership by a major firm in the industry?

  A. Pure competition.

  B. Monopoly.

  C. Monopolistic competition.

  D. Oligopoly.

  Correct Answer: D

  Price leadership is typical in oligopolistic industries. Under price leadership, price changes are announced by a major firm in the industry. Once the leader has spoken, everyone else in the industry matches the price charged by the leader.

• Question 455:

  Patents are granted to encourage firms to invest in the research and development of new products. Patents are an example of

  A. Vertical integration.

  B. Market concentration.

  C. Entry barriers.

  D. Collusion.

  Correct Answer: C

  Entry barriers exist in all market structures other than perfect competition. The fewer the firms in an industry, the greater the barriers tend to be. Entry barriers include the existence of substantial economies of scale (low unit costs can be achieved only by large producers). They also include barriers created by existing firms. For example, large advertising expenditures may be necessary to compete. Control of raw materials or technology is another barrier. Consequently, patents held by existing firms may serve as an entry barrier because they prevent potential competitors from using certain technology. Patents are rights granted by the federal government to inventors to allow them the exclusive use of their inventions for a specific.

• Question 456:

  According to a model developed by Arthur D Little, a firm with a better-than-average chance to improve its competitive position is in a

  A. Favorable position.

  B. Dominant position.

  C. Tenable position.

  D. Weak position.

  Correct Answer: A

  A firm in a favorable position has strengths that it can exploit. Thus, it has better-than average chance to improve its position but is not as well placed as a dominant or strong firm.

• Question 457:

  Monopolistic competition is characterized by

  A. A relatively large group of sellers who produce differentiated products.

  B. A relatively small group of sellers who produce differentiated products.

  C. A monopolistic market where the consumer is persuaded that there is perfect competition.

  D. A relatively large group of sellers who produce a homogeneous product.

  Correct Answer: A

  Monopolistic competition is characterized by a large number of firms offering differentiated products. Entry into the market is relatively easy, firms have some price control, and substantial non price competition exists, such as advertising.

• Question 458:

  Firm X is considering entry into an industry. To analyze competition within the industry, Firm X evaluated its strategic groups. According to Michael E. Porter,

  A. The members of a strategic group pursue different competitive strategies.

  B. Intergroup competition is increased by market interdependence.

  C. Low barriers to mobility among strategic groups promote profitability.

  D. High substitutability of products reduces competition among groups.

  Correct Answer: B

  Intergroup competition is increased by market interdependence, which is the extent to which groups pursue the same customers. The greater the interdependence, the stronger the competition among groups.

• Question 459:

  According to a model suggested by Arthur D Little, a consulting organization, market share will tend to

  A. Increase after gains in mind share but not heart share.

  B. Decrease after losses in heart share but not mind share.

  C. Increase after gains in mind share and heart share.

  D. Not be affected by changes in mind share and heart share.

  Correct Answer: C

  Arthur D Little suggests a three-factor model for assessing a competitor's current and future market share. Market share is the share of the target market. Mind share is the percentage of customers who name the firm as the first that comes to mind" in the industry. Heart share is the percentage of customers who name the firm as the one from which they "would prefer to buy." A competitor that improves its mind share and heart share will ultimately increase its market share and profits.

• Question 460:

  According to Bruce Henderson, competitive equilibrium is most likely to be stable when:

  A. One competitor has twice the market share of a second competitor.

  B. Competitors are almost identical.

  C. One major factor is the critical factor.

  D. The product is undifferentiated.

  Correct Answer: A

  Bruce Henderson has analyzed firms' reaction patterns when confronted with competitive attacks. A key to the analysis is competitive equilibrium. When one competitor hasapproximately twice the market share of a second competitor, equilibrium exists. The costs of gaining market share outweigh the benefits to either party.