Question 1

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. C

Question 2

Penetration pricing is:

Accepted Answer

A)  a way to raise a rival's marginal cost. 
B)  a way to raise a rival's fixed cost. 
C)  a way to overcome an incumbent's first-mover advantage. 
D)  ineffective in markets with strong networks. 
A)  a way to raise a rival's marginal cost. 
B)  a way to raise a rival's fixed cost. 
C)  a way to overcome an incumbent's first-mover advantage. 
D)  ineffective in markets with strong networks. C

Question 3

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

Accepted Answer

A)  firm 2 will increase its output. 
B)  firm 1 will lose market share. 
C)  firm 1 will enjoy higher profits. 
D)  All of the statements associated with this question are correct. 
A)  firm 2 will increase its output. 
B)  firm 1 will lose market share. 
C)  firm 1 will enjoy higher profits. 
D)  All of the statements associated with this question are correct. C

Question 4

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 lose market share. 
C)  firm 2 will enjoy lower profits. 
D)  None of the preceding statements is correct. 
A)  firm 1 will reduce its output. 
B)  firm 2 will lose market share. 
C)  firm 2 will enjoy lower profits. 
D)  None of the preceding statements is correct.

Question 5

The price-cost squeeze is:

Accepted Answer

A)  a tactic used by a vertically integrated firm to raise rivals' costs of inputs, while maintaining final product prices. 
B)  a strategy whereby a firm temporarily prices below its marginal costs to drive competitors out of the market. 
C)  a strategy whereby an incumbent maintains a price below the monopoly price in order to prevent entry. 
D)  the act of charging a low price initially upon entering a market to gain market share. 
A)  a tactic used by a vertically integrated firm to raise rivals' costs of inputs, while maintaining final product prices. 
B)  a strategy whereby a firm temporarily prices below its marginal costs to drive competitors out of the market. 
C)  a strategy whereby an incumbent maintains a price below the monopoly price in order to prevent entry. 
D)  the act of charging a low price initially upon entering a market to gain market share.

Question 6

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 1 will enjoy higher profits. 
D)  None of the preceding statements is correct. 
A)  firm 1 will increase its output. 
B)  firm 2 will lose market share. 
C)  firm 1 will enjoy higher profits. 
D)  None of the preceding statements is correct.

Question 7

A two-way network linking 15 users creates how many potential network connections?

Accepted Answer

A)  225 
B)  100 
C)  210 
D)  300 
A)  225 
B)  100 
C)  210 
D)  300

Question 8

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { a}  & \text { b}  \
\hline & & \
\text { A } Q & \$ 50, \$ 5 & \$ 25, \$ 30 \
\hline & & \
\text { B } Q & \$ 40, \$ 2 & \$ 20, \$ 1\
\hline
\end{array}
\end{array}$ The Nash equilibrium for the simultaneous-move game depicted in the payoff matrix is:

Accepted Answer

A)  {(A,a) and (A,b)}. 
B)  {(A,a)}. 
C)  {B,b)}. 
D)  There is no pure strategy Nash equilibrium to this game. 
A)  {(A,a) and (A,b)}. 
B)  {(A,a)}. 
C)  {B,b)}. 
D)  There is no pure strategy Nash equilibrium to this game.

Question 9

Network externalities:

Accepted Answer

A)  may be positive. 
B)  may be direct. 
C)  may be indirect. 
D)  All of the statements associated with this question are correct. 
A)  may be positive. 
B)  may be direct. 
C)  may be indirect. 
D)  All of the statements associated with this question are correct.

Question 10

A potential entrant knows that it faces a (inverse)residual demand curve given by P = 50 − 4Q.While the entrant does not know the inverse market demand,it does know that the incumbent committed to producing 150 units.Using this information,which of the following equations best summarizes the inverse market demand curve?

Accepted Answer

A)  P = 200 − 4Q 
B)  P = 200 − Q 
C)  P = 150 − 4Q 
D)  None of the statements are correct. 
A)  P = 200 − 4Q 
B)  P = 200 − Q 
C)  P = 150 − 4Q 
D)  None of the statements are correct.

Question 11

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 12

A network linking six users is typically:

Accepted Answer

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

Question 13

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { Low } Q & \text { High } Q \
\hline & & \
\text { Low } Q & \$ 50, \$ 5 & \$ 15, \$ 30 \
\hline & & \
\text { High } Q & \$ 40, \$ 2 & \$ 2, \$ 1\
\hline
\end{array}
\end{array}$ Suppose the production game depicted in the payoff matrix is a sequential-move game.Identify the strategy leading to a first-mover advantage for player 2.

Accepted Answer

A)  Player 2 moves first and plays Low Q. Observing player 2's move, player 1's best response is to play Low Q. 
B)  Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play Low Q. 
C)  Player 1 moves first and plays Low Q. Observing player 1's move, player 2's best response is to play High Q. 
D)  Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play High Q. 
A)  Player 2 moves first and plays Low Q. Observing player 2's move, player 1's best response is to play Low Q. 
B)  Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play Low Q. 
C)  Player 1 moves first and plays Low Q. Observing player 1's move, player 2's best response is to play High Q. 
D)  Player 2 moves first and plays High Q. Observing player 2's move, player 1's best response is to play High Q.

Question 14

Smyth Industries operated as a monopolist for the past several years,earning annual profits amounting to $50 million,which it could have maintained if Jones Incorporated did not enter the market.The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually.The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit).One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year.The estimated impact of such a move is a loss of $1 billion.Ignoring antitrust concerns,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

Smyth Industries operated as a monopolist for the past several years,earning annual profits amounting to $50 million,which it could have maintained if Jones Incorporated did not enter the market.The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually.The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit).One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year.The estimated impact of such a move is a loss of $1 billion.Ignoring antitrust concerns,compute the present value of Smyth Industries' profits,if it could have remained a monopoly when the interest rate was 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 16

A monopolist earns $50 million annually and will maintain that level of profit indefinitely,provided no other firm enters the market.If another firm successfully enters the market,the incumbent's profits remain at $50 million the first period,but fall to $25 million annually thereafter.The opportunity cost of funds is 10 percent,and profits in each period are realized at the beginning of each period.If the monopolist can earn $27 million indefinitely by limit pricing,should it do so?

Accepted Answer

A)  Yes, it will earn $297 million in present value if it does this. 
B)  Yes, it will earn $270 million in present value if it does this. 
C)  No, it will earn $297 million in present value if it does this. 
D)  No, it will earn $270 million in present value if it does this. 
A)  Yes, it will earn $297 million in present value if it does this. 
B)  Yes, it will earn $270 million in present value if it does this. 
C)  No, it will earn $297 million in present value if it does this. 
D)  No, it will earn $270 million in present value if it does this.

Question 17

Use figure below to answer the following questions.   a.Would firm 1's profit increase or decrease if the equilibrium moved from point A to point B?
b.Would firm 2's profit increase or decrease if the equilibrium moved from point A to point B?
c.As the manager of firm 1,propose a strategy that would increase both the market share and the profits of firm 1-that is,a strategy that moves the market equilibrium from point A to point B.

Accepted Answer

a.Increase
b.Decreas

Question 18

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 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 gain market share. 
C)  firm 2 will enjoy lower profits. 
D)  All of the statements associated with this question are correct. 
A)  firm 1 will increase its output. 
B)  firm 2 will gain market share. 
C)  firm 2 will enjoy lower profits. 
D)  All of the statements associated with this question are correct.

Question 20

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { Low } Q & \text { High } Q \
\hline & & \
\text { Low } Q & \$ 50, \$ 5 & \$ 15, \$ 30 \
\hline & & \
\text { High } Q & \$ 40, \$ 2 & \$ 2, \$ 1\
\hline
\end{array}
\end{array}$ If the payoff matrix is a simultaneous-move production game,the Nash equilibrium is for:

Accepted Answer

A)  both players to produce low output. 
B)  both players to produce high output. 
C)  player 1 to produce low output and player 2 to produce high output. 
D)  player 1 to produce high output and player 2 to produce low output. 
A)  both players to produce low output. 
B)  both players to produce high output. 
C)  player 1 to produce low output and player 2 to produce high output. 
D)  player 1 to produce high output and player 2 to produce low output.

Under limit pricing,the incumbent will produce:

Penetration pricing is:

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

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

The price-cost squeeze is:

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

A two-way network linking 15 users creates how many potential network connections?

Refer to the following payoff matrix: Player 2 Player 1 a b A Q \ 50,\ 5 \ 25,\ 30 B Q \ 40,\ 2 \ 20,\ 1 The Nash equilibrium for the simultaneous-move game depicted in the payoff matrix is:

Network externalities:

A network linking six users is typically:

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 50,\ 5 \ 15,\ 30 High Q \ 40,\ 2 \ 2,\ 1 Suppose the production game depicted in the payoff matrix is a sequential-move game.Identify the strategy leading to a first-mover advantage for player 2.

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

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

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 50,\ 5 \ 15,\ 30 High Q \ 40,\ 2 \ 2,\ 1 If the payoff matrix is a simultaneous-move production game,the Nash equilibrium is for:

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

Under limit pricing,the incumbent will produce:

Penetration pricing is:

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

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

The price-cost squeeze is:

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

A two-way network linking 15 users creates how many potential network connections?

Refer to the following payoff matrix: Player 2 Player 1 a b A Q \ 50,\ 5 \ 25,\ 30 B Q \ 40,\ 2 \ 20,\ 1 The Nash equilibrium for the simultaneous-move game depicted in the payoff matrix is:

Network externalities:

A network linking six users is typically:

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 50,\ 5 \ 15,\ 30 High Q \ 40,\ 2 \ 2,\ 1 Suppose the production game depicted in the payoff matrix is a sequential-move game.Identify the strategy leading to a first-mover advantage for player 2.

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

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

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 50,\ 5 \ 15,\ 30 High Q \ 40,\ 2 \ 2,\ 1 If the payoff matrix is a simultaneous-move production game,the Nash equilibrium is for:

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