CFA Institute Exam CFA-Level-I Topic 1 Question 7 Discussion

Actual exam question for CFA Institute's CFA-Level-I exam

Question #: 7
Topic #: 1

Daniel Tipton and Jesse Torrez are first-year MBA students at the Haas School of Business. Torrez has an economics background, but Tiptonâ€™s background is in music. To help Tipton study one of the main tenets of competition theory, Torrez creates the following question and asks Tipton to identify the statement that is most inconsistent with Porterâ€™s five forces. Which statement should Tipton select?

ASupplier power is higher when there are only a few suppliers to an industry.

BTo sustain above average returns on invested capital, firms should strive for economies of scale.

DRivalry increases when firms of equal size compete within an industry.

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by Tomoko at Sep 13, 2024, 06:48 PM

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Ceola

2 months ago

Haha, I bet Tipton's music background is really helping him here. Maybe he should've chosen a different major if he wanted to ace this exam!

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Dion

29 days ago

Tipton: Oh, I see. Thanks for the help, Torrez.

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Mari

1 months ago

Torrez: Actually, the correct answer is option D.

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Annabelle

2 months ago

Tipton: I think I should go with option B.

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Dominga

2 months ago

D) Rivalry increases when firms of equal size compete within an industry. This is literally one of the key points of Porter's five forces, so it can't be the most inconsistent statement.

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Twana

1 months ago

B) To sustain above average returns on invested capital, firms should strive for economies of scale.

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Brande

2 months ago

A) Supplier power is higher when there are only a few suppliers to an industry.

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Melina

2 months ago

But doesn't Porter emphasize the importance of supplier power in his framework?

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Salome

2 months ago

I disagree, I believe option A is the most inconsistent with Porter's five forces.

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Melina

2 months ago

I think Tipton should select option B.

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Earleen

3 months ago

I think B) is the most inconsistent statement. Economies of scale are a key competitive advantage, not something that goes against Porter's framework.

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Rima

3 months ago

A) Supplier power is higher when there are only a few suppliers to an industry. This seems like the most inconsistent statement with Porter's five forces.

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Ernestine

2 months ago

It's important to understand these concepts for our MBA studies at Haas School of Business.

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Glendora

2 months ago

D) Rivalry increases when firms of equal size compete within an industry also fits with Porter's five forces.

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Layla

2 months ago

I agree, B) To sustain above average returns on invested capital, firms should strive for economies of scale, is more in line with Porter's theory.

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Joye

2 months ago

I think you're right, A) Supplier power is higher when there are only a few suppliers to an industry does not align with Porter's five forces.

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