CFA Level I · CFA Level I Exam · Business Models
A firm invests heavily in research to develop a patented process that competitors cannot easily copy. In terms of its business model, this is most likely intended to:
The investment is most likely intended to create a sustainable competitive advantage. A patented process that rivals cannot easily copy protects the firm's differentiation and margins over time, whereas research spending does not immediately cut fixed costs or remove demand cyclicality.
- ACreate a sustainable competitive advantageCorrect
- BReduce the firm's fixed costs immediately
- CEliminate demand cyclicality
Explanation
Patented, hard-to-copy processes protect the firm's value proposition and margins from imitation, supporting a sustainable competitive advantage. Research spending adds costs and does not remove cyclicality.
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