Question 1

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.

Question 2

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 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 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 4

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 5

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'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 6

A potential entrant knows that it faces a (inverse) residual demand curve given by P = 90 - 3Q. While the entrant does not know the inverse market demand, it does know that the incumbent committed to producing 10 units. Using this information, which of the following equations best summarizes the inverse market demand curve?

Accepted Answer

A)  P = 60 - 3Q 
B)  P = 80 - 3Q 
C)  P = 50 - 3Q 
D)  None of the statements is correct. 
A)  P = 60 - 3Q 
B)  P = 80 - 3Q 
C)  P = 50 - 3Q 
D)  None of the statements is correct.

Question 7

An example of vertical foreclosure is when a firm:

Accepted Answer

A)  temporarily prices below its marginal cost to close competitors out of the market. 
B)  merges with a rival firm with the intention of eliminating the rival firm's product from the market. 
C)  that controls an essential upstream input refuses to sell to other downstream firms that need the input. 
D)  merges with a rival firm with the intention of eliminating the rival firm's product from the market and that controls an essential upstream input refuses to sell to other downstream firms that need the input. 
A)  temporarily prices below its marginal cost to close competitors out of the market. 
B)  merges with a rival firm with the intention of eliminating the rival firm's product from the market. 
C)  that controls an essential upstream input refuses to sell to other downstream firms that need the input. 
D)  merges with a rival firm with the intention of eliminating the rival firm's product from the market and that controls an essential upstream input refuses to sell to other downstream firms that need the input.

Question 8

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.

Question 9

Refer to the following payoff matrix:

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 10

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 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 statements is correct.

Question 11

A bottleneck is a:

Accepted Answer

A)  positive externality resulting from network complementarities. 
B)  negative externality resulting from indirect network externalities. 
C)  positive externality resulting from congestion beyond the infrastructure capacity. 
D)  negative externality resulting from congestion beyond the infrastructure capacity. 
A)  positive externality resulting from network complementarities. 
B)  negative externality resulting from indirect network externalities. 
C)  positive externality resulting from congestion beyond the infrastructure capacity. 
D)  negative externality resulting from congestion beyond the infrastructure capacity.

Question 12

A monopolist's demand curve is given by DM and its average cost curve is AC in Figure 13-1. 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 =

Question 13

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 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 statements is correct.

Question 14

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 15

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 16

Use Figure 13-3 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. Decre

Question 17

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 18

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 19

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 20

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)  lowers 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)  lowers the incumbent's average cost curve.

Penetration pricing is:

Predatory pricing is a strategy:

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:

An example of vertical foreclosure is when a firm:

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: 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:

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

A bottleneck is a:

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?

A firm that engages in predatory pricing benefits from:

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

Vertical foreclosure is an example of a firm:

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

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

Penetration pricing is:

Predatory pricing is a strategy:

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:

An example of vertical foreclosure is when a firm:

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: 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:

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

A bottleneck is a:

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?

A firm that engages in predatory pricing benefits from:

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

Vertical foreclosure is an example of a firm:

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

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