A Firm That Is First to the Market with a New

question 209

Multiple Choice

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

• A) The firm is protected by a first-mover advantage: Initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs.
• B) They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.
• C) Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
• D) The firm's cost increases as it improves the product, but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure.

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Definitions:

Bonds

Fixed-income investments representing a loan made by an investor to a borrower, typically corporate or governmental, with terms defining the interest rate and maturity date.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding cost of goods sold (COGS).

Tax Liability

The total amount of tax that an individual or corporation is legally obligated to pay to an authority as the result of the occurrence of a taxable event.

Dividends Paid

Cash or other forms of payouts made by a company to its shareholders from its earnings.