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1.
What is an economic moat?
A long-term competitive advantage that allows a company to earn oversized profits over time. As a moat, it is 'insulated' against the competition.
2.
When a manufacturer starts making parts for another manufacturer, that is an example of the network effect.
True. The first manufacturer would be complementing an existing product and thus raising its value.
3.
Which of the following would not be an intangible asset?
The headquarters building. A headquarters building is tangible, not intangible.
4.
If a company is able to price its products lower than its competition and still make a profit while its competition is in the red, it has what type of moat?
Low-cost producer. Being a low-cost producer allows companies to price their products at lower levels than the competition, attracting buyers. Likewise, companies with low costs can price their products at the same level as competitors and make a higher profit.
5.
Having an efficient scale also means having a wide moat.
False. Although there are some efficient-scales with wide moats, the majority of them have narrow moats.
6.
Which type of moat benefits from making life difficult for its customers?
Switching costs. High switching costs compel customers to stick with a company, because there is a cost to the customers to choose another alternative. Economies of scale make life better for customers because they allow firms to price their products lower.
