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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. A moat protects the business and does not let other businesses in.
2.
Why might a restaurant company be unlikely to ever have anything more than a narrow moat?
Because consumer switching costs are so low. Many restaurants are quite profitable, and not all of them spend money on branding. Still, there is a lot of competition in the industry, and it's very easy to walk across the street to a rival restaurant, so the switching costs are very low.
3.
High switching costs help companies _______.
Raise prices without the risk of losing customers.
4.
In the terminology of economic moats, a concept developed by Warren Buffett, a moat can be described by which of the following terms?
Both of the above. A moat has width and depth, and these characteristics help describe its value to the business.
5.
Determining the goal of a business is normally easy.
False. Sometimes it is not easy, because a business might combine different objectives.
