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Question 1: Which of the following statements regarding the existence of substitute products is true?
A. The impact of substitutes will have more of an effect on the competitive environment of a firm if
the
substitutes are readily available for customers to obtain.
B. When the cost of buyers switching to new products is high, the effect of substitutes on the
competitive
environment of a firm is high.
C. If many close substitutes exist, buyers have little choice of products and may be willing to pay a
higher
price for the products that are available.
D. If substitutes have equal performance and are priced at or below the firm's product, the
competitive
force of substitutes with respect to the firm is weak.
Correct Answer: A
Explanation:
Choice "a" is correct. The impact of substitutes will have more of an effect on the competitive
environment
of a firm if the substitutes are readily available to consumers.
Choice "b" is incorrect. When the cost of buyers switching to new products is low (not high), the
effect of
substitutes on the competitive environment of a firm is high.
Choice "c" is incorrect. If few (not many close) substitutes exist, buyers have little choice of products
and
may be willing to pay a higher price for the products that are available.
Choice "d" is incorrect. If substitutes have equal performance and are priced at or below the firm's
product,
the competitive force of substitutes with respect to the firm is strong (not weak).
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