Question 1

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Accepted Answer

A) Firm 1 will reduce its output. 
B) Firm 2 will gain lose share. 
C) Firm 1 will enjoy higher profits. 
D) None of the statements associated with this question are correct. 
A) Firm 1 will reduce its output. 
B) Firm 2 will gain lose share. 
C) Firm 1 will enjoy higher profits. 
D) None of the statements associated with this question are correct.

Question 2

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that, inadvertently, lowers firm 1's marginal cost:

Accepted Answer

A) Firm 1's reaction function will shift up. 
B) Firm 2's reaction function will shift up. 
C) Firm 2's reaction function will shift down. 
D) Firm 1's reaction function will shift down. 
A) Firm 1's reaction function will shift up. 
B) Firm 2's reaction function will shift up. 
C) Firm 2's reaction function will shift down. 
D) Firm 1's reaction function will shift down.

Question 3

A single firm that charges the monopoly price in the market earns $500.If another firm successfully enters the market, the incumbent's profits fall to $325 and the entrant earns $250.If the incumbent engages in limit pricing, its profits are $400.For what interest rate, i, is limit pricing a profitable strategy for the incumbent?

Accepted Answer

A) i  1.33. 
A) i  1.33.

Question 4

Consider a monopolist attempting to engage in limit pricing with total costs, C(Q) = 100 + 2Q.The market (inverse) demand for its product is P = 100 - 2Q.Currently, monopolist produces 30 units of output.Assuming the potential entrant has the same cost structure as the incumbent monopolist, is it profitable for the entrant to produce 10 units of output?

Accepted Answer

A) Yes, since the market price of $20 is greater than the average total cost of producing 10 units. 
B) No, since the market price of $20 is less than the average total cost of producing 10 units. 
C) Yes, since the market price of $50 is greater than the average total cost of producing 10 units. 
D) No, since the market price of $50 is less than the average total cost of producing 10 units. 
A) Yes, since the market price of $20 is greater than the average total cost of producing 10 units. 
B) No, since the market price of $20 is less than the average total cost of producing 10 units. 
C) Yes, since the market price of $50 is greater than the average total cost of producing 10 units. 
D) No, since the market price of $50 is less than the average total cost of producing 10 units.

Question 5

Under limit pricing, the incumbent will produce

Accepted Answer

A) more than the monopoly output and charge a price that is greater than the monopoly price. 
B) less than the monopoly output and charge a price that is greater than the monopoly price. 
C) more than the monopoly output and charge a price that is less than the monopoly price. 
D) less than the monopoly output and charge a price that is less than the monopoly price. 
A) more than the monopoly output and charge a price that is greater than the monopoly price. 
B) less than the monopoly output and charge a price that is greater than the monopoly price. 
C) more than the monopoly output and charge a price that is less than the monopoly price. 
D) less than the monopoly output and charge a price that is less than the monopoly price.

Question 6

When the average cost curve lies above the entrant's residual demand curve, an entrant

Accepted Answer

A) can profitably enter the market. 
B) cannot profitably enter the market. 
C) is indifferent between entering and not entering the market. 
D) lower the incumbent's average cost curve. 
A) can profitably enter the market. 
B) cannot profitably enter the market. 
C) is indifferent between entering and not entering the market. 
D) lower the incumbent's average cost curve.

Question 7

A network linking 6 users is typically

Accepted Answer

A) less likely to exhibit bottlenecks than a network linking 2 users. 
B) three times as valuable as a network linking 2 users. 
C) more than three times as valuable as a network linking 2 users. 
D) less than three times as valuable as a network linking 2 users. 
A) less likely to exhibit bottlenecks than a network linking 2 users. 
B) three times as valuable as a network linking 2 users. 
C) more than three times as valuable as a network linking 2 users. 
D) less than three times as valuable as a network linking 2 users.

Question 8

In general, adding one more user to a two-way network tends to

Accepted Answer

A) benefit the new user more than the existing users. 
B) benefit existing users more than the new user. 
C) provide equal benefits to existing users and the new user. 
D) does not provide any benefit to either new or existing users. 
A) benefit the new user more than the existing users. 
B) benefit existing users more than the new user. 
C) provide equal benefits to existing users and the new user. 
D) does not provide any benefit to either new or existing users.

Question 9

Consider an incumbent that is a monopoly currently earning $1 million annually.Given the declining costs of raw materials, the incumbent believes a new firm may enter the market.If successful, a new entrant would reduce the incumbent's profits to $750,000 annually.To keep potential entrants out of the market, the incumbent lowers its price to the out where it is earning $850,000 annually for the indefinite future.If the interested rate is 5 percent, does it make sense for the incumbent to limit price to prevent entry?

Accepted Answer

A) No, since $2 million > $250,000. 
B) Yes, since $2 million > $250,000. 
C) No, since $5 million > $100,000. 
D) Yes, since $250,000 > $5 million. 
A) No, since $2 million > $250,000. 
B) Yes, since $2 million > $250,000. 
C) No, since $5 million > $100,000. 
D) Yes, since $250,000 > $5 million.

Question 10

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Accepted Answer

A) Complete information. 
B) Commitment mechanisms. 
C) Learning curve effects. 
D) A firm's past reputation for being tough on entrants. 
A) Complete information. 
B) Commitment mechanisms. 
C) Learning curve effects. 
D) A firm's past reputation for being tough on entrants.

Question 11

Penetration pricing is a way to

Accepted Answer

A) raise a rival's marginal cost. 
B) lower a rival's input costs. 
C) increase a rival's fixed costs. 
D) gain a critical mass of customers. 
A) raise a rival's marginal cost. 
B) lower a rival's input costs. 
C) increase a rival's fixed costs. 
D) gain a critical mass of customers.

Question 12

Suppose the simultaneous-move game depicted above could be turned into a sequential-move game with player 1 moving first.In this case, a _____________ advantage exists and the equilibrium payoffs will be _____________.

Accepted Answer

A) first-mover; ($15,$30) 
B) second-mover; ($50,$5) 
C) first-mover; ($40,$2) 
D) second-mover; ($15,$30) 
A) first-mover; ($15,$30) 
B) second-mover; ($50,$5) 
C) first-mover; ($40,$2) 
D) second-mover; ($15,$30)

Question 13

Using the following sequential-move production game, determine whether player B has a first-mover advantage and identify the strategy that leads to that advantage:

Accepted Answer

A) Player B has a first-mover advantage.The strategy leading to an advantage is {(low output), (if low output, high output), (if high output, high output). 
B) Player B has a first-mover advantage.The strategy leading to an advantage is {(low output), (if low output, high output), (if high output, low output). 
C) Player B has a first-mover advantage.The strategy leading to an advantage is {(high output), (if low output, high output), (if high output, low output). 
D) Player B does not have a first-mover advantage in the above game. 
A) Player B has a first-mover advantage.The strategy leading to an advantage is {(low output), (if low output, high output), (if high output, high output). 
B) Player B has a first-mover advantage.The strategy leading to an advantage is {(low output), (if low output, high output), (if high output, low output). 
C) Player B has a first-mover advantage.The strategy leading to an advantage is {(high output), (if low output, high output), (if high output, low output). 
D) Player B does not have a first-mover advantage in the above game.

Question 14

Compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest rate is 5 percent.

Accepted Answer

A) $100 million. 
B) $200 million. 
C) $210 million. 
D) $1.05 billion. 
A) $100 million. 
B) $200 million. 
C) $210 million. 
D) $1.05 billion.

Question 15

Bottlenecks

Accepted Answer

A) occur only in one-way networks. 
B) occur only in two-way networks. 
C) occur in both one-way and two-way networks. 
D) are a positive externality associated with networks. 
A) occur only in one-way networks. 
B) occur only in two-way networks. 
C) occur in both one-way and two-way networks. 
D) are a positive externality associated with networks.

Question 16

Which of the following is not a strategy for vertically integrated firms?

Accepted Answer

A) Vertical foreclosure. 
B) Predatory pricing. 
C) Limit pricing. 
D) Penetration pricing. 
A) Vertical foreclosure. 
B) Predatory pricing. 
C) Limit pricing. 
D) Penetration pricing.

Question 17

Suppose the inverse market demand is given by P = 75 - 0.5Q.If the incumbent continues to produce 20 units of output, which of the following equations best summarizes the potential entrant's residual demand curve?

Accepted Answer

A) P = 65 - 2Q 
B) P = 20 - 0.5Q 
C) P = 150 - 2Q 
D) P = 65 - 0.5Q 
A) P = 65 - 2Q 
B) P = 20 - 0.5Q 
C) P = 150 - 2Q 
D) P = 65 - 0.5Q

Question 18

Which of the following is an example of a network?

Accepted Answer

A) Wireless telephone service. 
B) Railroads. 
C) Internet. 
D) All of the examples associated with this question are networks. 
A) Wireless telephone service. 
B) Railroads. 
C) Internet. 
D) All of the examples associated with this question are networks.

Question 19

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Accepted Answer

A) Firm 1 will increase its output. 
B) Firm 2 will lose market share. 
C) Firm 2 will enjoy lower profits. 
D) None of the statements associated with this question are correct. 
A) Firm 1 will increase its output. 
B) Firm 2 will lose market share. 
C) Firm 2 will enjoy lower profits. 
D) None of the statements associated with this question are correct.

Question 20

Firms that can effectively price discriminate will increase profitability when they engage in

Accepted Answer

A) limit pricing. 
B) vertical foreclosure. 
C) a price-cost squeeze. 
D) any of the statements associated with this question are correct. 
A) limit pricing. 
B) vertical foreclosure. 
C) a price-cost squeeze. 
D) any of the statements associated with this question are correct.

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that, inadvertently, lowers firm 1's marginal cost:

Under limit pricing, the incumbent will produce

When the average cost curve lies above the entrant's residual demand curve, an entrant

A network linking 6 users is typically

In general, adding one more user to a two-way network tends to

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Penetration pricing is a way to

Suppose the simultaneous-move game depicted above could be turned into a sequential-move game with player 1 moving first.In this case, a _ advantage exists and the equilibrium payoffs will be _.

Using the following sequential-move production game, determine whether player B has a first-mover advantage and identify the strategy that leads to that advantage:

Compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest rate is 5 percent.

Bottlenecks

Which of the following is not a strategy for vertically integrated firms?

Suppose the inverse market demand is given by P = 75 - 0.5Q.If the incumbent continues to produce 20 units of output, which of the following equations best summarizes the potential entrant's residual demand curve?

Which of the following is an example of a network?

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Firms that can effectively price discriminate will increase profitability when they engage in

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

A Managers Guide to Government in the Marketplace

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Exam 13: Advanced Topics in Business Strategy

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that, inadvertently, lowers firm 1's marginal cost:

Under limit pricing, the incumbent will produce

When the average cost curve lies above the entrant's residual demand curve, an entrant

A network linking 6 users is typically

In general, adding one more user to a two-way network tends to

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Penetration pricing is a way to

Suppose the simultaneous-move game depicted above could be turned into a sequential-move game with player 1 moving first.In this case, a _____________ advantage exists and the equilibrium payoffs will be _____________.

Using the following sequential-move production game, determine whether player B has a first-mover advantage and identify the strategy that leads to that advantage:

Compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest rate is 5 percent.

Bottlenecks

Which of the following is not a strategy for vertically integrated firms?

Suppose the inverse market demand is given by P = 75 - 0.5Q.If the incumbent continues to produce 20 units of output, which of the following equations best summarizes the potential entrant's residual demand curve?

Which of the following is an example of a network?

Firms 1 and 2 compete in a Cournot duopoly.If firm 2 adopts a strategy that raises firm 1's marginal cost:

Firms that can effectively price discriminate will increase profitability when they engage in

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

A Managers Guide to Government in the Marketplace

Filters

Suppose the simultaneous-move game depicted above could be turned into a sequential-move game with player 1 moving first.In this case, a _ advantage exists and the equilibrium payoffs will be _.