Economics Of Strategy 7th Edition By David Dranove – Test Bank

File: ch11, Chapter 11: Sustaining Competitive Advantage

Multiple Choice

1. What term describes the situation where a firm does exceedingly well due to good luck or exceedingly poorly due to bad luck, but returns to normal performance following?
a) Regression to the mean
b) Competitive advantage
c) Persistent performer
d) Sustainable firm
e) Predictable performance

Ans: a
Heading: How Hard Is It to Sustain Profits – Threats to Sustainability Under All Market Structures
Level: Easy

2. What term best describes when quiet periods in markets are punctuated by fundamental “shocks” or “discontinuities” that destroy old sources of advantage and replace them with new ones?
a) Creative destruction
b) Entrepreneurship
c) Innovation
d) Market for ideas
e) Disruptive technologies

Ans: a
Heading: Creative Destruction
Level: Medium

3. What term describes the optimal allocation of society’s resources at a given point in time?
a) Creative destruction
b) Static efficiency
c) Dynamic efficiency
d) Efficient allocation
e) Resource efficiency

Ans: b
Heading: Creative Destruction
Level: Medium

4. Which of the following is least likely a characteristic of profit persistence in an industry?
a) Entry barriers exist
b) Economic profits should quickly converge to zero
c) Barriers to imitation exist
d) Firms earning above-average profits today should continue to do so in the future
e) Low profit firms today should remain low-profit firms in the future

Ans: b
Heading: How Hard Is It to Sustain Profits – Evidence: The Persistence of Profitability
Level: Easy

5. What term best describes clusters of activities that a firm does especially well in comparison with other firms?
a) Competitive advantage
b) Resources
c) Capabilities
d) Threats to sustainability
e) Strategic firm assets

Ans: c
Heading: Sustainable Competitive Advantage – The Resource-Based Theory of the Firm
Level: Medium

6. What term best describes firm-specific assets such as patents and trademarks, brand-name reputation, installed base, and organizational culture?
a) Competitive advantage
b) Capabilities
c) Resources
d) Threats to sustainability
e) Strategic firm assets

Ans: c
Heading: Sustainable Competitive Advantage – The Resource-Based Theory of the Firm
Level: Medium

7. Which of the following terms best describes an idea, developed by Gary Hamel and C. K. Prahalad, which combines commitment to the firm’s ambitions with the flexibility to change with circumstances?
a) Leveraging resources
b) Strategic intent
c) Strategic stretch
d) Hypercompetition
e) Global dominance

Ans: c
Heading: Creative Destruction – Sustainability and Creative Destruction
Level: Hard

8. Which of the following terms best describes the situation when sources of competitive advantage in an industry are being created and eroded at an increasingly rapid rate?
a) Leveraging resources

b) Strategic intent
c) Strategic stretch
d) Hypercompetition
e) Global dominance

Ans: d
Heading: Creative Destruction – Sustainability and Creative Destruction
Level: Hard

9. What term describes a framework used in strategy based on resource heterogeneity which posits that for a competitive advantage to be sustainable, it must be underpinned by resource capabilities that are scarce and imperfectly mobile?
a) Persistence of profitability for the firm
b) Capability-based theory of the firm
c) Regression to the mean
d) Resource-based theory of the firm
e) Five-forces framework

Ans: d
Heading: Sustainable Competitive Advantage – The Resource-Based Theory of the Firm
Level: Medium

10. What term best describes a resource that cannot “sell itself” to the highest bidder?
a) Isolated
b) Value-creating
c) Scarce
d) Imperfectly mobile
e) Profit maximizing

Ans: d
Heading: Sustainable Competitive Advantage – The Resource-Based Theory of the Firm
Level: Medium