Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
If a company is involved in doing a lot of different things very well, that is a sign that it has a deep economic moat.
True. In this case, they are really good at more than one competitive advantage.
2.
Being unable to enter a market because it would cost a huge amount of money just to break into it is an example of _______.
Threat of new entrants. In this case, the threat is low.
3.
Why is pricing power so important to wide-moat companies?
Firms with pricing power are able to generate higher profits. Pricing power depends on a competitive advantage of some sort, a strong brand or a unique asset, and permits the firm to generate stronger operating margins and profits over time. These profits contribute to above-average returns.
4.
If a company is in an industry with low supplier power, what type of moat might it most easily be able to build?
Low-cost producer. Supplier power relates to how cheaply a company is able to get the goods it needs to run its operations, so firms in industries with low supplier power could be more likely to build a moat based on being low-cost producers. Intangible assets and switching costs help a company with its prices, but not its cost of goods.
5.
What does an economic moat provide to a company?
A competitive advantage. Though the others may be true for many (or should be), a moat is the competitive advantage that one company has over other companies in its industry. As such, it has a lot of power to do what it wants.
