Question 1

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 2

Which of the following is a correct statement?

Accepted Answer

A)  Predatory pricing is easy to prove in a court of law. 
B)  An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant. 
C)  A firm receives no individual benefit from strategies that raise the marginal costs of its rivals. 
D)  No individual firm can benefit from strategies that raise the fixed costs of all the firms in the industry. 
A)  Predatory pricing is easy to prove in a court of law. 
B)  An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant. 
C)  A firm receives no individual benefit from strategies that raise the marginal costs of its rivals. 
D)  No individual firm can benefit from strategies that raise the fixed costs of all the firms in the industry.

Question 3

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 4

A price-cost squeeze is a tactic used:

Accepted Answer

A)  to prevent potential competitors from entering a market. 
B)  by a vertically integrated firm to squeeze the margins of its competitors. 
C)  by a vertically integrated firm to charge downstream rivals a prohibitive price for an essential input, forcing rivals to use more costly substitutes or exit the industry. 
D)  to gain a critical mass of consumers by charging an initial low price. 
A)  to prevent potential competitors from entering a market. 
B)  by a vertically integrated firm to squeeze the margins of its competitors. 
C)  by a vertically integrated firm to charge downstream rivals a prohibitive price for an essential input, forcing rivals to use more costly substitutes or exit the industry. 
D)  to gain a critical mass of consumers by charging an initial low price.

Question 5

Refer to the following payoff matrix:   Suppose the simultaneous-move game depicted in this 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)  ($25, $30). 
A)  ($20, $1). 
B)  ($50, $5). 
C)  ($40, $2). 
D)  ($25, $30).

Question 6

Which of the following is the best example of a one-way network?

Accepted Answer

A)  The electricity that flows into residential areas 
B)  The network of towers that connect cellular telephone users 
C)  The network that connects instant message users 
D)  Network using optical fibers carrying signals to and from a subscriber's location 
A)  The electricity that flows into residential areas 
B)  The network of towers that connect cellular telephone users 
C)  The network that connects instant message users 
D)  Network using optical fibers carrying signals to and from a subscriber's location

Question 7

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

Question 8

A single firm that charges the monopoly price in the market earns $600. If another firm successfully enters the market, the incumbent's profits fall to $350 and the entrant earns $275. 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 > 4 B) i < 0.25 C) 0.75 < i < 4 D) 0.25 < i < 0.75 A) i > 4 B) i < 0.25 C) 0.75 < i < 4 D) 0.25 < i < 0.75

Question 9

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. What is the present value of the firm's current and future earnings if entry occurs?

Accepted Answer

A)  $300 million 
B)  $250 million 
C)  $400 million 
D)  $500 million 
A)  $300 million 
B)  $250 million 
C)  $400 million 
D)  $500 million

Question 10

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 1.

Accepted Answer

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

Question 11

Consider the following normal-form game.   a. What is player B's best strategy in a simultaneous-move play of this game?
b. What is player A's best strategy in a simultaneous-move play of this game?
c. What are player A and B's equilibrium payoff in a simultaneous-move play of this game?
d. Use an extensive-form representation to show that player B can earn higher payoffs by exercising a first-mover advantage. (Note: Player B's payoffs will appear first in this extensive-form game since it is the first mover.)
e. List two things player B must do in order to be able to achieve these higher payoffs.

Accepted Answer

a. "Left" is a dominant strategy for Pla

Question 12

A single firm that charges the monopoly price in the market earns $1,300. If another firm successfully enters the market, the incumbent's profits fall to $700 and the entrant earns $575. If the interest rate is 0.5, how high must the firm's profits from limit pricing be for limit pricing to be a profitable strategy for the incumbent?

Accepted Answer

A)  πL > $200 
B)  πL > $500 
C)  πL > $900 
D)  πL > $1,000 
A)  πL > $200 
B)  πL > $500 
C)  πL > $900 
D)  πL > $1,000

Question 13

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)

Question 14

Suppose that Microsoft and Google compete in the market for PC Internet browsers. Initially these firms compete as Cournot duopolies with symmetric reaction functions. If Microsoft enters into exclusive contracts with PC suppliers that preclude suppliers from loading Google's Internet browser on PCs loaded with the Windows operating system, then Google's marginal cost of distributing its browser will increase to $5 per unit.
The new equilibrium would entail Microsoft supplying __________ browsers and Google supplying ____________ browsers to the market. The end result is ________ profits for Google.

Accepted Answer

A)  more; fewer; lower 
B)  fewer; more; higher 
C)  more; more; lower 
D)  fewer; fewer; higher 
A)  more; fewer; lower 
B)  fewer; more; higher 
C)  more; more; lower 
D)  fewer; fewer; higher

Question 15

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 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

Consider an incumbent that is a monopoly currently earning $2 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 $1.2 million annually. To keep potential entrants out of the market, the incumbent lowers its price to the point where it is earning $1.6 million annually for the indefinite future. If the interest rate is 10 percent, does it make sense for the incumbent to limit price to prevent entry?

Accepted Answer

A)  No, since $4 million > $400,000. 
B)  Yes, since $4 million > $400,000. 
C)  No, since $2 million > $200,000. 
D)  Yes, since $2 million > $200,000. 
A)  No, since $4 million > $400,000. 
B)  Yes, since $4 million > $400,000. 
C)  No, since $2 million > $200,000. 
D)  Yes, since $2 million > $200,000.

Question 18

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

Accepted Answer

A)  72 
B)  56 
C)  90 
D)  18 
A)  72 
B)  56 
C)  90 
D)  18

Question 19

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)  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)  not provide any benefit to either new or existing users.

Question 20

Which of the following is NOT an example of a network?

Accepted Answer

A)  Airlines 
B)  Trucking 
C)  Telecommunications 
D)  None of the statements are correct. 
A)  Airlines 
B)  Trucking 
C)  Telecommunications 
D)  None of the statements are correct.

Which of the following is FALSE?

Which of the following is a correct statement?

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?

A price-cost squeeze is a tactic used:

Refer to the following payoff matrix: Suppose the simultaneous-move game depicted in this payoff matrix could be turned into a sequential-move game with player 1 moving first. In this case, the equilibrium payoffs will be:

Which of the following is the best example of a one-way network?

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.

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 1.

Network externalities:

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?

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

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

Which of the following is NOT an example of a network?

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

Which of the following is FALSE?

Which of the following is a correct statement?

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?

A price-cost squeeze is a tactic used:

Refer to the following payoff matrix: Suppose the simultaneous-move game depicted in this payoff matrix could be turned into a sequential-move game with player 1 moving first. In this case, the equilibrium payoffs will be:

Which of the following is the best example of a one-way network?

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.

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 1.

Network externalities:

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?

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

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

Which of the following is NOT an example of a network?

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