Equity Investments - Equity Investments Section 2
46. Which of the following is not one of Porter’s five forces?
- Option : C
- Explanation : This is not one of the five internal forces though it is part of external forces.
47. Industry competition is less intense and firm profitability is greater when there is:
- Option : B
- Explanation : Industry competition is less intense and firm profitability is greater when there is (1) less rivalry among existing industry firms. (2) less bargaining power of customers. (3) less bargaining power of suppliers.
- Option : A
- Explanation : The economic profit (which is computed as the spread between return on capital and the cost of capital) tends to be larger in industries with differentiated products, greater pricing power, and high switching costs to consumers. Firms in Industry 2 have these features, whereas firms in Industry 1 have the exact opposite conditions.
- Option : A
- Explanation : The factor that most influences customer purchase decisions is likely to also be the focus of competitive rivalry in the industry. In general, industries where price is a large factor in customer purchase decisions tend to be more competitive than industries in which customers value other attributes more highly.
50. Which of the following most accurately results in increased competition within
an industry?
| Barriers toEntry | Capacity | Concentration | |
| A. | Low | Unused | Low |
| B. | High | Unused | Low |
| C. | High | Near full capacity | High |
- Option : A
- Explanation : Low barriers to entry increase competition as they allow new entrants. Unused capacity results in intense price competition. Low concentration refers to a fragmented market which increases competition.
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