Question 1

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 C

Question 2

A single firm that charges the monopoly price in the market earns $800. If another firm successfully enters the market, the incumbent's profits fall to $500 and the entrant earns $450. If the incumbent engages in limit pricing, its profits are $600. For what interest rate, i, is limit pricing a profitable strategy for the incumbent?

Accepted Answer

A)  i  1.5 
A)  i  1.5 A

Question 3

Which of the following is NOT an example of raising rivals' fixed costs?

Accepted Answer

A)  Existing doctors in a particular medical field lobby to require new doctors to acquire new licenses. 
B)  Yellow Cab Company lobbying New York City government officials for an ordinance that would require all taxi cab drivers to pay for a medallion, giving them the right to drive a cab in New York City. 
C)  Federal Express lobbying the U.S. Department of Transportation to increase annual terminal fees. 
D)  The New York Port Authority lobbying to increase the tolls on New York City's George Washington Bridge. 
A)  Existing doctors in a particular medical field lobby to require new doctors to acquire new licenses. 
B)  Yellow Cab Company lobbying New York City government officials for an ordinance that would require all taxi cab drivers to pay for a medallion, giving them the right to drive a cab in New York City. 
C)  Federal Express lobbying the U.S. Department of Transportation to increase annual terminal fees. 
D)  The New York Port Authority lobbying to increase the tolls on New York City's George Washington Bridge. D

Question 4

Refer to the following payoff matrix:

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.

Question 5

Which of the following is an INCORRECT statement about predatory pricing?

Accepted Answer

A)  It benefits the firm engaging in predatory pricing to have deeper pockets than its prey. 
B)  Reputation for taking tough actions to drive a competitor out of the market can enhance the benefits received from the firm engaging in the predatory pricing. 
C)  Having its prey stockpile its product produces more benefits to the firm engaging in the predatory pricing. 
D)  None of the statements are correct. 
A)  It benefits the firm engaging in predatory pricing to have deeper pockets than its prey. 
B)  Reputation for taking tough actions to drive a competitor out of the market can enhance the benefits received from the firm engaging in the predatory pricing. 
C)  Having its prey stockpile its product produces more benefits to the firm engaging in the predatory pricing. 
D)  None of the statements are correct.

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 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 7

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 8

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 9

Refer to the following payoff matrix:

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 10

Suppose that a one-way network leads to the development of a number of new complementary products and services. This phenomenon is known as:

Accepted Answer

A)  a direct network externality. 
B)  an indirect network externality. 
C)  a reputation effect. 
D)  lock-in. 
A)  a direct network externality. 
B)  an indirect network externality. 
C)  a reputation effect. 
D)  lock-in.

Question 11

Consider a monopolist attempting to engage in limit pricing with total costs C(Q) = 200 + 10Q. The market (inverse) demand for its product is P = 150 - 2Q. Currently, the monopolist produces 40 units of output. Assuming the potential entrant has the same cost structure as the incumbent monopolist, is it profitable for the entrant to produce 20 units of output?

Accepted Answer

A)  Yes, since the market price of $30 is greater than the average total cost of producing 20 units. 
B)  No, since the market price of $30 is less than the average total cost of producing 20 units. 
C)  Yes, since the market price of $70 is greater than the average total cost of producing 20 units. 
D)  No, since the market price of $70 is less than the average total cost of producing 20 units. 
A)  Yes, since the market price of $30 is greater than the average total cost of producing 20 units. 
B)  No, since the market price of $30 is less than the average total cost of producing 20 units. 
C)  Yes, since the market price of $70 is greater than the average total cost of producing 20 units. 
D)  No, since the market price of $70 is less than the average total cost of producing 20 units.

Question 12

If one more user is added to a two-way network, it will generally:

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)  unable to tell, because this analysis depends on the type of industry. 
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)  unable to tell, because this analysis depends on the type of industry.

Question 13

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 14

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 15

A monopolist earns $80 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 $80 million the first period but fall to $35 million annually thereafter. The opportunity cost of funds is 20 percent, and profits in each period are realized at the beginning of each period. What is the present value of the firm's current and future earnings if entry occurs?

Accepted Answer

A)  $350 million 
B)  $255 million 
C)  $400 million 
D)  $280 million 
A)  $350 million 
B)  $255 million 
C)  $400 million 
D)  $280 million

Question 16

SunCenter is the only firm in its industry. Currently, SunCenter charges $75 per unit, a price well in excess of its marginal cost of $5 per unit, and earns $70 million per year in profit. According to a trusted source, the manager of SunCenter learned that a new firm is contemplating entering the market. This would reduce its profit to $40 million per year. If SunCenter expanded its output and lowered its price to $50, the entrant would find it unprofitable to enter the market, and SunCenter would earn profits of $50 million per year for the indefinite future.
a. What pricing strategy is the manager of SunCenter considering?
b. If SunCenter was able to credibly commit to maintain a price of $50, would it be a profitable strategy? Explain.

Accepted Answer

a. Limit pricing. It is not predatory pr

Question 17

Refer to the following payoff matrix:   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.

Question 18

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 19

Nodes are:

Accepted Answer

A)  examples of positive network externalities. 
B)  examples of negative network externalities. 
C)  different points in geographic or economic space linked by a network. 
D)  None of the statements are correct. 
A)  examples of positive network externalities. 
B)  examples of negative network externalities. 
C)  different points in geographic or economic space linked by a network. 
D)  None of the statements are correct.

Question 20

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

Accepted Answer

A)  predatory pricing. 
B)  limit pricing. 
C)  strategies that raises rivals' costs. 
D)  Any of the statements associated with this question are correct. 
A)  predatory pricing. 
B)  limit pricing. 
C)  strategies that raises rivals' costs. 
D)  Any of the statements associated with this question are correct.

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

Which of the following is NOT an example of raising rivals' fixed costs?

Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:

Which of the following is an INCORRECT statement about predatory pricing?

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

Which of the following is an example of a network?

Bottlenecks:

Refer to the following payoff matrix: 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.

Suppose that a one-way network leads to the development of a number of new complementary products and services. This phenomenon is known as:

If one more user is added to a two-way network, it will generally:

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?

Under limit pricing, the incumbent will produce:

Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:

Nodes are:

Firms that can effectively price discriminate can 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

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

Which of the following is NOT an example of raising rivals' fixed costs?

Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:

Which of the following is an INCORRECT statement about predatory pricing?

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

Which of the following is an example of a network?

Bottlenecks:

Refer to the following payoff matrix: 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.

Suppose that a one-way network leads to the development of a number of new complementary products and services. This phenomenon is known as:

If one more user is added to a two-way network, it will generally:

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?

Under limit pricing, the incumbent will produce:

Refer to the following payoff matrix: If the payoff matrix is a simultaneous-move production game, the Nash equilibrium is for:

Nodes are:

Firms that can effectively price discriminate can 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