Test Prep Test Prep Certifications BUSINESS-ENVIRONMENT-AND-CONCEPTS Questions & Answers

• Question 241:

  Which of the following is not an external factor that directly affects the competitive environment of the firm?

  A. Barriers to market entry.

  B. Bargaining power of suppliers.

  C. Political issues.

  D. Existence of substitute products.

  Correct Answer: C

  Choice "c" is correct. Political issues are external factors that affect the overall industry, not simply the

  competitive environment of the firm.

  Choices "a", "b", and "d" are incorrect, as all of these factors directly affect the competitive environment of

  the firm.

• Question 242:

  When does competition not become an even stronger force impacting the profitability of a firm?

  A. Various firms use various types of strategic plans.

  B. Customers do not have strong brand preferences.

  C. The market is not growing fast.

  D. The costs of exiting the market are less than the costs of continuing to operate.

  Correct Answer: D

  Choice "d" is the proper choice, as it is not a factor that would cause market competitiveness to be even

  stronger.

  Choices "a", "b", and "c" are incorrect because they are all reasons that competition becomes an even

  stronger force that impacts the firm's profitability. Following are situations that would cause competition to

  be an even stronger force impacting the profitability of a firm:

  ?The market is not growing fast.

  ?There are several equal-sized firms in the market.

  ?Customers do not have strong brand preferences.

  ?The costs of exiting the market exceed the costs of continuing to operate.

  ?Some firms profit from making certain moves to increase market share.

  ?The various firms in the market use different types of strategic plans.

• Question 243:

  Which of the following statements regarding the existence of substitute products is true?

  A. The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are readily available for customers to obtain.

  B. When the cost of buyers switching to new products is high, the effect of substitutes on the competitive environment of a firm is high.

  C. If many close substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available.

  D. If substitutes have equal performance and are priced at or below the firm's product, the competitive force of substitutes with respect to the firm is weak.

  Correct Answer: A

  Choice "a" is correct. The impact of substitutes will have more of an effect on the competitive environment of a firm if the substitutes are readily available to consumers. Choice "b" is incorrect. When the cost of buyers switching to new products is low (not high), the effect of substitutes on the competitive environment of a firm is high. Choice "c" is incorrect. If few (not many close) substitutes exist, buyers have little choice of products and may be willing to pay a higher price for the products that are available. Choice "d" is incorrect. If substitutes have equal performance and are priced at or below the firm's product, the competitive force of substitutes with respect to the firm is strong (not weak).

• Question 244:

  Which of the following activities is considered a primary activity?

  A. Delivery of products.

  B. Procurement of materials.

  C. Human resources.

  D. Accounting.

  Correct Answer: A

  Choice "a" is correct. Primary activities are those that are involved with the direct manufacture of products, the delivery of products through distribution channels, and the support of the product that exists after the sale is made (e.g., handling the raw materials, the manufacturing process, taking orders for the product, advertising the product, and servicing the product after it is sold). Choices "b", "c", and "d" are incorrect, as these are all considered support activities. Support activities are those activities that are performed by the support staff of an organization (e.g., purchasing of materials and supplies, development of the technology used, management of employees, accounting, finance, strategic planning, etc.).

• Question 245:

  When applying value chain analysis, a firm asks it accounting department to perform an analysis of the sources of profits and costs of activities that exist within the firm. The firm is performing which form of value chain analysis?

  A. Internal differentiation analysis.

  B. Internal costs analysis.

  C. Vertical linkage analysis.

  D. None of the above.

  Correct Answer: B

  Choice "b" is correct. Internal costs analysis includes analyzing the internal value-creating ability of a firm,

  so the sources of profit and costs of the internal activities of the firm must be analyzed.

  Choices "a", "c", and "d" are incorrect, per the above Explanation.

• Question 246:

  If a nation has many rival domestic firms which are all competitive in the global marketplace for a product, which of the four major factors that Michael Porter has indicated impact the global competitive environment would allow this nation to fare better with respect to global competitive advantage?

  A. Conditions of the factors of production.

  B. Conditions of domestic demand.

  C. Related and supporting industries.

  D. Firm strategy, structure, and rivalry.

  Correct Answer: C

  Choice "c" is correct. The factor of related and supporting industries deals with whether there are suppliers of material inputs that exist within a nation or whether there are rival firms who are competitive in the international environment, both of which would increase the nation's competitive advantage. Choice "a" is incorrect. If a nation has a strong set of factors of production (such as low-cost, high quality raw material inputs), that are required in a given industry, it will fare better with regard to competitive advantage. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question. Choice "b" is incorrect. The factor of conditions of domestic demand related to the nation's domestic demand for the product, which is directly related to the ability of the nation to fare better with regard to competitive advantage. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question. Choice "d" is incorrect. The factor of firm strategy, structure, and rivalry relates to the practices of a nation with respect to how the companies are managed and organized, along with the laws of the nation that regulate the formation of the companies, and how intense the rivalry is with respect to competing firms in the nation. However, this factor is different from the "many rival domestic firms which are all competitive in the global marketplace for a product" as stated in the question.

• Question 247:

  If a product has a price elasticity of demand of 2.0, the demand is said to be:

  A. Perfectly elastic.

  B. Perfectly inelastic.

  C. Relatively elastic.

  D. Relatively inelastic.

  Correct Answer: C

  Choice "c" is correct. A price elasticity of demand of 2.0 means demand will change by 2?(as a

  percentage) for any change in price. This is called elastic.

  Choice "a" is incorrect. Perfectly elastic demand does not exist.

  Choice "b" is incorrect. Perfectly inelastic demand means the quantity demanded will not change when

  price changes.

  Choice "d" is incorrect. Inelastic demand responds less than 1?(as a percentage) for a change in price.

• Question 248:

  In the pharmaceutical industry where a diabetic must have insulin no matter what the cost, the diabetic's demand is considered to be:

  A. Perfectly elastic.

  B. Perfectly inelastic.

  C. Relatively elastic.

  D. Relatively inelastic.

  Correct Answer: B

  Choice "b" is correct. When a good is demanded, no matter the price, demand is described as perfectly

  inelastic. The demand "curve" is a vertical line at the quantity demand with price making no difference.

  Choices "a" and "c" are incorrect. There is no such thing as perfect elasticity. However, the more elastic

  demand is, the greater the change in quantity demand for price changes.

  Choice "d" is incorrect. Insulin is an example of perfectly inelastic.

• Question 249:

  If, in a competitive market, a price ceiling is imposed establishing a maximum price below the market equilibrium price, this price ceiling would result in:

  A. Shortages because the quantity demanded would exceed the quantity supplied.

  B. No effect on the quantity supplied or demanded.

  C. Surpluses because the quantity supplied would exceed the quantity demanded.

  D. Surpluses because the supply curve would shift to the right.

  Correct Answer: A

  Choice "a" is correct. Setting a ceiling price below the price dictated by the market (as established by the

  equilibrium price) would create excess demand and a shortage.

  Choices "b", "c", and "d" are incorrect, per above Explanation.

• Question 250:

  Government price regulations in competitive markets that set maximum or ceiling prices below the equilibrium price will in the short run:

  A. Cause demand to increase.

  B. Cause supply to increase.

  C. Create shortages of that product.

  D. Produce a surplus of the product.

  Correct Answer: C

  

  Choice "c" is correct. Government price regulations in competitive markets that set maximum or ceiling

  prices below the equilibrium price will create shortages of that product in the short run because quantity

  supplied will be less than quantity demanded at that price.

  Choice "a" is incorrect. Quantity demand will increase at the lower price.

  Choice "b" is incorrect. Quantity supplied will decrease at the lower price.

  Choice "d" is incorrect. A price set below the market's equilibrium price causes shortages, not surpluses,

  per the graph above.