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Entrepreneurship: Starting & Operating a Small Business, 4e (Mariotti)
Chapter 3 Creating Business From Opportunity
1) Which of the following is not an element of business definition?
A) the offer
B) the acceptance
C) target market
D) production and delivery capability
Learning Object.: 3.1 Define your business.
AACSB Category: Analytical thinking
2) A target market of every adult in the United States is too ________.
A) narrow
B) broad
C) specific
D) limiting
Learning Object.: 3.1 Define your business.
AACSB Category: Reflective thinking
3) Business definition answers the questions of who, what, and ________.
A) how
B) when
C) why
D) None of the above.
Learning Object.: 3.1 Define your business.
AACSB Category: Reflective thinking
4) A ________ is a group of people who would be interested in buying a given product or
service.
A) market
B) consumer
C) customer
D) target
Learning Object.: 3.1 Define your business.
AACSB Category: Analytical thinking
2
5) The business definition has three elements: ________.
A) target market, potential customers, and production capability
B) offer, target market, and production/delivery capability
C) offer, acceptance, and consideration
D) business definition, target market, and market analysis
Learning Object.: 3.1 Define your business.
AACSB Category: Reflective thinking
6) A solid business definition has three elements: 1) the offer, 2) target market, 3) production and
delivery capability.
Learning Object.: 3.1 Define your business.
AACSB Category: Analytical thinking
7) Before you can start your business, you must define it. Describe the questions the business
definition answers and its three elements.
Answer: The business definition answers three questions: Who, What, and How?
a) Who will the business serve? In other words, who is in the market for your product or service?
b) What will the business offer the customers? What are the products (or services) the business
will sell?
c) How will the business provide the products or services it offers? What are the primary actions
and activities required to conduct this business? For example:
• Buying or developing or manufacturing the product.
• Identifying its prospective customers and selling the product to them.
• Producing and delivering the product or service.
• Receiving payment.
The definition of the business has three elements:
1) The Offer - What will you sell to your customers? That is called your offer. This includes
2) Target Market - Which segment of the consumer market are you aiming to serve? This is
called your target market. Defining your target market in a way that helps you to identify
3) Production and Delivery Capability - How will you provide your offer to your targeted
customers? This includes how you will perform all key activities required to produce the product
or service, deliver it to your customers, and ensure that they are satisfied.
Learning Object.: 3.1 Define your business.
4
12) Your company's vision defines the work environment.
Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.
AACSB Category: Reflective thinking
13) Which item below is not a competitive advantage?
A) using a new patented manufacturing process that reduces manufacturing costs by 25%
B) offering free samples during a two week promotion
C) consistently providing better customer service than the competition
D) reducing operating costs by 7%
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Analytical thinking
14) Business definition + competitive advantage is ________.
A) competitive tactics
B) competitive strategy
C) business mission
D) business plan success
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Reflective thinking
15) For a business to be successful, a competitive advantage must be ________.
A) expensive
B) legal
C) sustainable
D) profitable
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Analytical thinking
16) A competitive advantage can be based on any of six factors. Which factor below is not one
of the six?
A) opportunity
B) selection
C) service
D) quality
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Analytical thinking
5
17) For your business to be successful you will need a strategy for beating the competition, i.e.,
your ________.
A) competitive advantage
B) customer analysis
C) target market
D) market analysis
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Reflective thinking
18) In analyzing competitive advantage, you will need to ask three questions. Among these are:
A) Cost structure - are you at a cost advantage or disadvantage?
B) What is your unique selling proposition? What do you have that competitors cannot or will
not match?
C) Competitive offers - how do you compare with competitors on a feature-by-feature basis?
D) All of the above.
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Analytical thinking
19) Entrepreneurs tend to be ________.
A) risk averse
B) negative
C) optimistic
D) dispassionate
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Reflective thinking
20) The six factors of competitive advantage are quality, price, location, selection, service, and
speed/turnaround.
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Analytical thinking
6
21) Describe the six factors of competitive advantage.
6) Speed/Turnaround - Can you deliver your product or service more quickly than the
competition?
Learning Object.: 3.3 Analyze your competitive advantage.
2) Sell to a market where the competition is able to make a profit. For example, right now, the
jury is out on whether hybrid cars will be profitable. However, selling the Honda Accord (the
U.S.'s most purchased car) is obviously profitable for Honda.
3) Sell to a market where competitors are succeeding, but they cannot block your entry or make
4) Sell a product or service that solves problems consumers have with competitors. For example,
FEDEX offered overnight delivery and began to beat the United States Postal Service and United
5) Sell a product or service at a competitive price that will attract customers. For example, UPS
fought back against FEDEX by offering a lower price than FEDEX for overnight delivery.
Learning Object.: 3.3 Analyze your competitive advantage.
Learning Object.: 3.3 Analyze your competitive advantage.
AACSB Category: Reflective thinking
7
24) The cost of selling one unit of a product is called ________.
A) cost of materials
B) cost of goods sold
C) cost of services sold
D) marginal cost
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
25) To help determine whether your business will be profitable, calculate the ________.
A) difference between the costs and profits for one unit
B) economics of one unit
C) cost of goods sold
D) marginal cost of one unit
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
26) Total gross profit = ________.
A) profit - cost of goods sold
B) cost of goods sold - total revenue
C) revenue - cost of goods sold
D) revenue - operating costs
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
27) A typical unit of sale for a wholesaler would be ________.
A) one item
B) one dozen
C) a block of time devoted to a task
D) one hour of work
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Application of knowledge
8
28) Average gross profit per customer is ________.
A) average cost of sale - average sale per customer
B) average cost of tangible product - average cost of intangible product
C) average sale per customer - average cost of sale per customer
D) average sale per consumer + average sale per wholesaler
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
29) Total cost of goods sold per unit consists of ________.
A) volume cost + labor cost
B) labor cost - volume discount per unit
C) materials cost per unit + labor cost per unit
D) selling price per unit + gross profit per unit
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
30) Business leaders create wealth by ________.
A) avoiding the cost of hiring employees
B) reducing their gross margins
C) hiring employees in order to sell more units and generate more profit
D) charging high prices to customers
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Reflective thinking
31) What is the average unit of sale for a restaurant that serves $3,250 per day in meals to 200
customers per day?
A) $32.50
B) $20.00
C) $16.25
D) $15.84
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Application of knowledge
9
32) If the Foreign Exchange rate between the Japanese yen and the Euro is 190 : 1, how many
yen will equal 10 euros?
A) 1900
B) 100
C) 1910
D) 1901
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Application of knowledge
33) The foreign exchange rate is ________.
A) the relative value between one currency and another
B) the rate at which countries do business
C) the relative value between the dollar and foreign currencies
D) the relative value of last year's currency to this year's
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
34) Tray has a T-shirt business that buys shirts from a wholesaler for four dollars each and sells
them to retailers for eight dollars each. He imprints each shirt with a picture of a musical artist
that costs him two dollars. He also pays his cousin to do the printing at five dollars an hour.
LaShawn prints five shirts per hour. A retailer offers to buy 1000 shirts at seven dollars each.
Should Tray agree to the deal?
A) Yes, Tray will make a profit of one dollar per shirt.
B) No, Tray will not make a profit at this price.
C) Yes, Tray will make a marginal profit at this rate.
D) Yes, even though he may lose money he can make up for it in volume.
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Application of knowledge
35) Once you know your ________ you can calculate gross profit.
A) cost of goods sold
B) gross cost
C) unit of sale
D) net profit
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
10
36) The unit of sale for a retailer is ________.
A) a dozen of an item
B) one item
C) one order
D) one hour of time
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
37) The unit of sale for a manufacturer is ________.
A) a dozen of an item
B) one item
C) one order
D) one hour of time
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Analytical thinking
38) The COGS and COSS are equivalent mathematically.
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Reflective thinking
39) Why is it a good idea to figure out your Economics of One Unit?
Learning Object.: 3.4 Prepare viability tests using the economics of one unit.
AACSB Category: Reflective thinking
40) To determine the value of a business you can use asset valuation. It is a method that analyzes
the underlying value of a business's sales and operating costs as a basis for negotiating a price.
Learning Object.: 3.5 Calculate the value of a business.
AACSB Category: Analytical thinking
