CIPS Exam L4M5 Topic 1 Question 57 Discussion

Actual exam question for CIPS's L4M5 exam

Question #: 57
Topic #: 1

[All L4M5 Questions]

In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier's average costs. Is this assumption true?

ANo, because supplier's average costs will rise as the buyer's demand increases

BNo, because the supplier may need to invest in new facility to meet buyer's demand

CYes, because larger order quantity will bring a considerable profit to supplier

DYes, because larger order quantity will always enable the supplier to reach its economy of scale

Show Suggested Answer

Suggested Answer: B, D

A perfectly competitive market is one with the following features:

- There are many firms producing identical or very similar (homogeneous) goods or services

- There are no barriers to entry to the market or exit from the market - anyone can enter or leave easily

- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply

Under these conditions, the price and quantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.

LO 2, AC 2.2

by Elbert at Apr 22, 2024, 09:24 PM

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Fabiola

6 days ago

I think the assumption is true.

upvoted 0 times

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