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Cost Advantage and Value Chain

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Questions and Answers

What is the primary condition for a firm to achieve a low-cost edge over its rivals?

Its cumulative costs across its overall value chain must be higher than competitors' cumulative costs.

Its cumulative costs across its overall value chain must be lower than competitors' cumulative costs. (correct)

Its cumulative costs across its overall value chain must be comparable to competitors' cumulative costs.

Its cumulative costs across its overall value chain must be equal to competitors' cumulative costs.

What is the primary effect of higher rates of capacity utilization on unit costs?

Reduction in fixed costs per unit (correct)

Rise in shipping and materials handling costs

Increase in inventory carrying costs

Increase in depreciation costs

What are the two major avenues for achieving a cost advantage?

Cost-cutting approaches and revenue-enhancing strategies

Internal value chain activities and external value chain activities

Marketing and advertising strategies

Internal value chain activities and/or value chain system activities (correct)

What is a key factor that can help a firm lower its costs?

Economies of scale Signup and view all the answers

What is the purpose of partnering with suppliers in the context of supply chain efficiency?

To streamline the ordering and purchasing process and reduce costs Signup and view all the answers

What is the result of substituting lower-cost inputs with little or no sacrifice in product quality or performance?

Reduction in costs of certain raw materials and parts Signup and view all the answers

What is an example of how a firm can take advantage of experience and learning-curve effects?

By learning from its experiences and reducing the cost of performing an activity over time Signup and view all the answers

What is the benefit of using a company's bargaining power vis-à-vis suppliers or others in the value chain system?

Gain of concessions from suppliers Signup and view all the answers

What is a benefit of operating facilities at full capacity?

Lower unit costs Signup and view all the answers

What is the primary advantage of outsourcing the performance of certain value chain activities?

Ability to perform activities at lower cost due to outside specialists' expertise and volume Signup and view all the answers

What is a cost driver that a firm can use to lower its costs?

Taking full advantage of experience and learning-curve effects Signup and view all the answers

What is a key consideration when deciding whether to outsource or vertically integrate certain value chain activities?

The cost advantages of outsourcing or vertical integration Signup and view all the answers