1. The actions that managers take to attain the goals of the firm are referred to as a firm’s
strategy.
2. Profit growth is measured by the percentage increase in net profits over time.
3. The amount of value a firm creates is measured by the difference between its costs of
production and the value that consumers perceive in its products.
4. The price a firm charges for a good or service is typically more than the value placed on
that good or service by the customer.
5. Consumer surplus captures some of the value of a product thereby reducing the price a
firm can charges for it.
6. The greater the consumer surplus, the lower the value for the money the consumer gets.
7. The higher the firm’s profit per unit sold is, the greater its profitability will be, all else
being equal.
8. A strategy that focuses primarily on increasing the attractiveness of a product is referred
to as a low-cost strategy.
9. Superior value creation relative to rivals requires that the gap between the value and cost
of production achieved by a company be lesser than the gap attained by its competitors.
10. Diminishing returns imply that when a firm already has significant value built into its
product offering, increasing value by a relatively small amount requires only minimal additional
costs.
11. According to Michael Porter, all positions on the efficiency frontier are viable.
12. The various value creation activities that a firm undertakes are referred to as operations.
13. For services such as banking or health care, production typically occurs when the service
is being designed by in-house professionals.
14. In terms of attaining a competitive advantage, support activities can be as important as
the primary activities of the firm.
15. The human resource function controls the transmission of physical materials through the
value chain.
16. Maintaining the company infrastructure is a support activity.
17. The term organizational structure refers to the totality of a firm’s organization, including
organization architecture, control systems and incentives, organizational culture, processes, and
people.
18. Processes are the manner in which decisions are made and work is performed within the
organization.
19. Firms that operate internationally are able to realize location economies by dispersing
individual value creation activities to locations where they are performed most efficiently and
effectively.
20. Successful global expansion requires the transfer of core competencies to foreign
markets where indigenous competitors lack them.
21. Location economies are the economies that arise from performing a value creation
activity in the optimal location for that activity, wherever in the world that might be.
22. The experience curve refers to systematic increase in production costs that have been
observed to occur over the life of a product.
23. Learning effects will be more significant in an assembly process which involves 100
simple steps than in an assembly process which involves 1,000 complex steps.
24. The ability to spread fixed costs over a large volume is one of the sources of economies
of scale.
25. The firm that moves up the experience curve most rapidly will have a cost advantage vis-
à-vis its competitors.
26. One key to progressing downward on the experience curve is to decrease the volume
produced by a single plant.
27. Strategies that increase profitability can also expand a firm’s business and thus enable it
to attain a higher rate of profit growth.
28. Responding to pressures for cost reduction requires a firm to try to lower the costs of
value creation.
29. Universal needs exist when the tastes and preferences of consumers in different nations
are different.
30. Pressures for local responsiveness imply that it may not be possible to leverage skills and
products associated with a firm’s core competencies wholesale from one nation to another.
31. Firms that pursue an international strategy focus on increasing profitability by reaping the
cost reductions that come from economies of scale, learning effects, and location economies.
32. A global standardization strategy makes most sense when there are strong pressures for
cost reductions and demands for local responsiveness are minimal.
33. A localization strategy involves some duplication of functions and smaller production
runs.
34. According to researchers, firms facing strong pressures for local responsiveness should
pursue a global standardization strategy.
35. An international strategy involves taking products first produced for their domestic
market and selling them internationally with only minimal local customization.
36. Strategic alliances allow firms to share the fixed costs of developing new products or
processes.
37. _____ is a support activity.
38. The rate of return that a firm makes on its invested capital is referred to as _____.