Question 1

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

Question 2

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { a}  & \text { b}  \
\hline & & \
\text { A } Q & \$ 50, \$ 5 & \$ 15, \$ 30 \
\hline & & \
\text { B } Q & \$ 40, \$ 2 & \$ 2, \$ 1\
\hline
\end{array}
\end{array}$ Suppose the simultaneous-move game depicted in the payoff matrix could be turned into a sequential-move game with player 1 moving first.In this case,the equilibrium payoffs will be:

Accepted Answer

A)  ($20, $1) 
B)  ($50, $5) 
C)  ($40, $2) 
D)  ($15, $30) 
A)  ($20, $1) 
B)  ($50, $5) 
C)  ($40, $2) 
D)  ($15, $30)

Question 3

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

Accepted Answer

A)  5 
B)  10 
C)  20 
D)  30 
A)  5 
B)  10 
C)  20 
D)  30

Question 4

Firms that can effectively price discriminate can 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.

Question 5

Predatory pricing is a strategy:

Accepted Answer

A)  whereby an incumbent maintains a price below the monopoly level to prevent entry by potential competitors. 
B)  whereby a firm enjoys lower costs due to knowledge gained from its past production decisions. 
C)  whereby a firm temporarily prices below its marginal cost to drive competitors out of the market. 
D)  used by a vertically integrated firm to squeeze the margins of its competitors. 
A)  whereby an incumbent maintains a price below the monopoly level to prevent entry by potential competitors. 
B)  whereby a firm enjoys lower costs due to knowledge gained from its past production decisions. 
C)  whereby a firm temporarily prices below its marginal cost to drive competitors out of the market. 
D)  used by a vertically integrated firm to squeeze the margins of its competitors.

Question 6

Suppose the inverse market demand is given by P = 105 − Q.If the incumbent continues to produce 40 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 − Q 
D)  P = 65 − Q 
A)  P = 65 − 2Q 
B)  P = 20 − 0.5Q 
C)  P = 150 − Q 
D)  P = 65 − Q

Question 7

A firm that engages in predatory pricing benefits from:

Accepted Answer

A)  building a reputation of accommodating future entrants. 
B)  building a reputation for taking tough actions to drive a competitor out of the market. 
C)  having its prey stockpile its product. 
D)  full protection from the courts. 
A)  building a reputation of accommodating future entrants. 
B)  building a reputation for taking tough actions to drive a competitor out of the market. 
C)  having its prey stockpile its product. 
D)  full protection from the courts.

Question 8

Consider a two-way network with 1,000 users.Adding one additional user to such a network benefits all users by adding:

Accepted Answer

A)  999 potential connections to the network. 
B)  1,000 potential connections to the network. 
C)  2,000 potential connections to the network. 
D)  999,000 potential connections to the network. 
A)  999 potential connections to the network. 
B)  1,000 potential connections to the network. 
C)  2,000 potential connections to the network. 
D)  999,000 potential connections to the network.

Question 9

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 10

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,the 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 11

Vertical foreclosure is an example of a firm:

Accepted Answer

A)  engaging in a price-cost squeeze. 
B)  that merges with a rival firm with the intention of eliminating the rival firm's product from the market. 
C)  engaging in penetration pricing. 
D)  that controls an essential upstream input and raises rivals' costs by refusing to sell to other downstream firms that need the input. 
A)  engaging in a price-cost squeeze. 
B)  that merges with a rival firm with the intention of eliminating the rival firm's product from the market. 
C)  engaging in penetration pricing. 
D)  that controls an essential upstream input and raises rivals' costs by refusing to sell to other downstream firms that need the input.

Question 12

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

Question 13

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 14

Which of the following is FALSE?

Accepted Answer

A)  It is always more profitable to engage in limit pricing than to permit entry. 
B)  Being the first mover is always best. 
C)  Engaging in predatory pricing is always more profitable than permitting existing firms to remain in the market. 
D)  All of the statements associated with this question are false. 
A)  It is always more profitable to engage in limit pricing than to permit entry. 
B)  Being the first mover is always best. 
C)  Engaging in predatory pricing is always more profitable than permitting existing firms to remain in the market. 
D)  All of the statements associated with this question are false.

Question 15

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 equilibrium strategies leading to an advantage are {(low output); (if low output, high output), (if high output, high output)}. 
B)  Player B has a first-mover advantage. The equilibrium strategies leading to an advantage are {(low output); (if low output, high output), (if high output, low output)}. 
C)  Player B has a first-mover advantage. The equilibrium strategies leading to an advantage are {(high output); (if low output, high output), (if high output, low output)}. 
D)  Player B does not have a first-mover advantage in the game. 
A)  Player B has a first-mover advantage. The equilibrium strategies leading to an advantage are {(low output); (if low output, high output), (if high output, high output)}. 
B)  Player B has a first-mover advantage. The equilibrium strategies leading to an advantage are {(low output); (if low output, high output), (if high output, low output)}. 
C)  Player B has a first-mover advantage. The equilibrium strategies leading to an advantage are {(high output); (if low output, high output), (if high output, low output)}. 
D)  Player B does not have a first-mover advantage in the game.

Question 16

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

Accepted Answer

A)  P = 12 − Q 
B)  P = 8 − Q 
C)  P = 20 − 12Q 
D)  P = 12 − 8Q 
A)  P = 12 − Q 
B)  P = 8 − Q 
C)  P = 20 − 12Q 
D)  P = 12 − 8Q

Question 17

Suppose the inverse market demand is given by P = 150 − 2Q.If the incumbent continues to produce 10 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?

Accepted Answer

A)  P = 130 − 2Q 
B)  P = 150 − 4Q 
C)  P = 75 − 0.5Q 
D)  P = 130 − Q 
A)  P = 130 − 2Q 
B)  P = 150 − 4Q 
C)  P = 75 − 0.5Q 
D)  P = 130 − Q

Question 18

A monopolist's demand curve is given by DM and its average cost curve is AC as shown here.Suppose a potential entrant can produce at the same cost as the monopolist.   a.What level of output does the monopolist have to produce in order for the entrant to face the residual demand curve,DR?
b.How much profit will the monopolist earn if it commits to the output that generates the residual demand curve,DR?
c.Is the level of output that generates the residual demand curve,DR,enough for the monopolist to deter entry?

Accepted Answer

a.25 units
b.Note that P = $175,AC = $75

Question 19

Effective limit pricing between one incumbent firm and one potential entrant involves:

Accepted Answer

A)  the incumbent linking the pre-entry price to post-entry profits only. 
B)  the incumbent reducing price below the monopoly price to prevent entry only. 
C)  the incumbent linking the pre-entry price to post-entry profits and the incumbent reducing price below the monopoly price to prevent entry. 
D)  None of the statements are correct. 
A)  the incumbent linking the pre-entry price to post-entry profits only. 
B)  the incumbent reducing price below the monopoly price to prevent entry only. 
C)  the incumbent linking the pre-entry price to post-entry profits and the incumbent reducing price below the monopoly price to prevent entry. 
D)  None of the statements are correct.

Question 20

You are the owner of a new network that is superior to an existing two-way network.The network you aim to replace currently has 50 users,each of whom is willing to pay an average of $75,000 for each connection service within the current network.You are confident that each user values connection services within your new two-way network at an average of $100,000 per connection service.
a.What is the maximum price the existing network can charge each user for its services?
b.Devise a pricing strategy that will permit your firm to overcome the first-mover advantage enjoyed by the existing network.

Accepted Answer

a.The existing network provides 50(49)=

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

Refer to the following payoff matrix: Player 2 Player 1 a b A Q \ 50,\ 5 \ 15,\ 30 B Q \ 40,\ 2 \ 2,\ 1 Suppose the simultaneous-move game depicted in the payoff matrix could be turned into a sequential-move game with player 1 moving first.In this case,the equilibrium payoffs will be:

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

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

Predatory pricing is a strategy:

Suppose the inverse market demand is given by P = 105 − Q.If the incumbent continues to produce 40 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?

A firm that engages in predatory pricing benefits from:

Consider a two-way network with 1,000 users.Adding one additional user to such a network benefits all users by adding:

Which of the following is an example of a network?

Vertical foreclosure is an example of a firm:

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

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 FALSE?

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:

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

Suppose the inverse market demand is given by P = 150 − 2Q.If the incumbent continues to produce 10 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?

Effective limit pricing between one incumbent firm and one potential entrant involves:

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 1 adopts a strategy that raises firm 2's marginal cost:

Refer to the following payoff matrix: Player 2 Player 1 a b A Q \ 50,\ 5 \ 15,\ 30 B Q \ 40,\ 2 \ 2,\ 1 Suppose the simultaneous-move game depicted in the payoff matrix could be turned into a sequential-move game with player 1 moving first.In this case,the equilibrium payoffs will be:

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

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

Predatory pricing is a strategy:

Suppose the inverse market demand is given by P = 105 − Q.If the incumbent continues to produce 40 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?

A firm that engages in predatory pricing benefits from:

Consider a two-way network with 1,000 users.Adding one additional user to such a network benefits all users by adding:

Which of the following is an example of a network?

Vertical foreclosure is an example of a firm:

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

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 FALSE?

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:

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

Suppose the inverse market demand is given by P = 150 − 2Q.If the incumbent continues to produce 10 units of output,which of the following equations best summarizes the potential entrant's residual demand curve?

Effective limit pricing between one incumbent firm and one potential entrant involves:

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