Diversifying into a New Industry by Forming a New Internal

question 43

Multiple Choice

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when:

• A) all of the potential acquisition candidates are losing money.
• B) it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry.
• C) there is ample time to launch the new business from the ground up and entry barriers can be hurdled at acceptable cost.
• D) the company has built up a hoard of cash with which to finance a diversification effort.
• E) none of the companies already in the industry are attractive strategic alliance partners.

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Definitions:

Marginal Revenue Product Schedule

This schedule outlines how the marginal revenue product (the additional revenue generated by employing one more unit of a resource) changes as the quantity of the resource employed increases, holding other factors constant.

Demand Schedule

A table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices.

Output Per Hour

A measure of productivity calculated by dividing the total output of goods and services by the total hours worked.

Marginal Productivity

The additional output that is produced by adding one more unit of a particular input while holding all other inputs constant.