Term Best Describes Quiz Questions

Regression to the mean is the term that describes the situation where a firm experiences exceptional success or failure due to luck, but eventually returns to its normal level of performance. This concept suggests that extreme outcomes are likely to be followed by more average or expected outcomes. In other words, a firm that has had an unusually good or bad performance is expected to revert back to its average performance over time.

Resources best describe firm-specific assets such as patents and trademarks, brand-name reputation, installed base, and organizational culture. Resources refer to the tangible and intangible assets that a firm possesses and can use to create value and gain a competitive advantage in the market. These assets can include physical resources like factories and equipment, as well as intangible resources like patents, trademarks, and brand reputation. By leveraging these resources effectively, a firm can differentiate itself from competitors and achieve sustainable success in the long run.

Vonage attempted to position itself as the high-quality, high reliability player in the market to deflect the impact of intense price competition in the U.S. This means that Vonage focused on highlighting the superior quality and reliability of its services compared to its competitors. By doing so, Vonage aimed to differentiate itself and attract customers who valued these factors over price. This strategy allowed Vonage to compete effectively in the market and mitigate the negative effects of intense price competition.

Cospecialized is the term that best describes assets that are more valuable when used together than when separated. This means that these assets have a synergistic effect when combined, resulting in higher value compared to when they are used individually. The term "cospecialized" implies a close interdependence and mutual reliance between the assets, highlighting the importance of their joint utilization.

This statement is least true because Muller's study suggests that firms with abnormally high levels of profitability tend, on average, to decrease in profitability over time. This contradicts the theory of perfect competition, which predicts that the profit rates of all firms, regardless of their initial levels of profitability, will converge to a common mean.

Profit persistence refers to the ability of firms to sustain above-average profits over time. The given answer, "Economic profits should quickly converge to zero," is least likely to be a characteristic of profit persistence. This statement suggests that firms' profits will diminish rapidly and eventually reach zero, which contradicts the concept of profit persistence. In industries with profit persistence, firms are expected to continue earning above-average profits in the future, indicating that economic profits do not quickly converge to zero.

Capabilities best describes clusters of activities that a firm does especially well in comparison with other firms. Capabilities refer to the unique combination of resources, knowledge, skills, and processes that a firm possesses, which enable it to perform certain activities better than its competitors. These capabilities can be developed and leveraged to gain a competitive advantage in the market.

Imperfectly mobile best describes a resource that cannot "sell itself" to the highest bidder. This term refers to a resource that is not easily transferable or adaptable to different uses or locations. It implies that the resource is limited in its ability to move or be traded freely in the market, making it less responsive to changes in demand and unable to maximize its value through competitive bidding.

The correct answer is Resource-based theory of the firm. This theory suggests that for a competitive advantage to be sustainable, it must be supported by resources that are scarce and not easily transferable or replicated by competitors. It emphasizes the importance of a firm's unique resources and capabilities in achieving and maintaining a competitive advantage in the long term.

The term "cospecialized" refers to the idea that the athletes possess unique skills or abilities that are difficult to replicate or replace. In this context, the explanation is suggesting that the reason superstar athletes capture most of the extra value they create for a firm in the form of higher salaries is because they are not cospecialized. This means that their skills are not easily duplicated or substituted by other individuals, making them more valuable and allowing them to negotiate higher salaries.

Isolating mechanisms refers to the term coined by Richard Rumlet that refers to economic forces that limit the extent to which a competitive advantage can be duplicated or neutralized through resource-creation activities of other firms. It suggests that there are certain mechanisms or barriers that prevent other firms from imitating or replicating a firm's competitive advantage, thereby protecting the firm's position in the market. These isolating mechanisms can include factors such as patents, copyrights, unique capabilities, brand reputation, or exclusive access to resources, which make it difficult for competitors to imitate or neutralize the advantage.