Question 1

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 2

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.

Question 3

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 4

A network linking eight users is typically:

Accepted Answer

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

Question 5

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 6

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Accepted Answer

A)  Complete information 
B)  Commitment mechanisms 
C)  Learning curve effects 
D)  A firm's past reputation for being tough on entrants 
A)  Complete information 
B)  Commitment mechanisms 
C)  Learning curve effects 
D)  A firm's past reputation for being tough on entrants

Question 7

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { Low } Q & \text { High } Q \
\hline & & \
\text { Low } Q & \$ 10, \$ 35 & \$ 25, \$ 30 \
\hline & & \
\text { High } Q & \$ 30, \$ 7 & \$ 20, \$ 6\
\hline
\end{array}
\end{array}$ 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.

Question 8

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 9

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 10

Consider an incumbent that is a monopoly currently earning $1 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 $750,000 annually.To keep potential entrants out of the market,the incumbent lowers its price to the point where it is earning $850,000 annually for the indefinite future.If the interest rate is 5 percent,does it make sense for the incumbent to limit price to prevent entry?

Accepted Answer

A)  No, since $2 million > $250,000. 
B)  Yes, since $2 million > $250,000. 
C)  No, since $5 million > $100,000. 
D)  Yes, since $250,000 > $5 million. 
A)  No, since $2 million > $250,000. 
B)  Yes, since $2 million > $250,000. 
C)  No, since $5 million > $100,000. 
D)  Yes, since $250,000 > $5 million.

Question 11

Consider a two-way network with 1,000 users.The number of potential connections is:

Accepted Answer

A)  999. 
B)  1,000. 
C)  2,000. 
D)  999,000. 
A)  999. 
B)  1,000. 
C)  2,000. 
D)  999,000.

Question 12

Which of the following is incorrect?

Accepted Answer

A)  Predatory pricing is easy to prove in court. 
B)  Learning curve effects may enable an incumbent to produce at a lower cost than a potential entrant. 
C)  A firm can benefit from strategies that raise the marginal costs of its rivals. 
D)  A 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 court. 
B)  Learning curve effects may enable an incumbent to produce at a lower cost than a potential entrant. 
C)  A firm can benefit from strategies that raise the marginal costs of its rivals. 
D)  A firm can benefit from strategies that raise the fixed costs of all the firms in the industry.

Question 13

Refer to the following payoff matrix:
$\begin{array}{r}
\text { Player } 2\
\text { Player } 1
\begin{array}{|l|l|l|} 
\hline& \text { Low } Q & \text { High } Q \
\hline & & \
\text { Low } Q & \$ 10, \$ 35 & \$ 25, \$ 30 \
\hline & & \
\text { High } Q & \$ 30, \$ 7 & \$ 20, \$ 6\
\hline
\end{array}
\end{array}$ 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 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 14

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.

Question 15

A two-way network that links users and in which the per-unit value of the service increases as the size of the network increases is a:

Accepted Answer

A)  positive externality known as an indirect network externality. 
B)  negative externality known as an indirect network externality. 
C)  positive externality known as a direct network externality. 
D)  negative externality known as a direct network externality. 
A)  positive externality known as an indirect network externality. 
B)  negative externality known as an indirect network externality. 
C)  positive externality known as a direct network externality. 
D)  negative externality known as a direct network externality.

Question 16

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 17

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 18

Limit pricing will effectively deter entry when:

Accepted Answer

A)  the incumbent links the pre-entry price to post-entry profits. 
B)  the incumbent has incomplete information. 
C)  the entrant must commit to enter the market. 
D)  All of the statements associated with this question are correct. 
A)  the incumbent links the pre-entry price to post-entry profits. 
B)  the incumbent has incomplete information. 
C)  the entrant must commit to enter the market. 
D)  All of the statements associated with this question are correct.

Question 19

Consider an incumbent that successfully links the pre-entry price and post-entry profit to prevent entry.The incumbent's monopoly profit is $10 million.If a rival successfully enters the market,the incumbent's profits will fall to $4 million.If the incumbent lowers output to 25,000 units,its rival will stay out of the market,resulting in an infinite stream of profits of $8 million annually.Due to a recent loan default,the current interest rate is whopping 210 percent.Is limit pricing profitable for the incumbent?

Accepted Answer

A)  Yes, since $19.05 million is greater than $2 million. 
B)  No, since $1.905 million is less than $2 million. 
C)  No since $4 million is less than $4.2 million. 
D)  Linking the pre-entry price to the post-entry profit is sufficient to guarantee the profitability of limit pricing. 
A)  Yes, since $19.05 million is greater than $2 million. 
B)  No, since $1.905 million is less than $2 million. 
C)  No since $4 million is less than $4.2 million. 
D)  Linking the pre-entry price to the post-entry profit is sufficient to guarantee the profitability of limit pricing.

Question 20

Selling a product below cost to gain a foothold in the market in order to eliminate the inefficiencies introduced by lock-in is known as:

Accepted Answer

A)  predatory pricing. 
B)  limit pricing. 
C)  penetration pricing. 
D)  the price-cost squeeze. 
A)  predatory pricing. 
B)  limit pricing. 
C)  penetration pricing. 
D)  the price-cost squeeze.

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

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

Bottlenecks:

A network linking eight users is typically:

A price-cost squeeze is a tactic used:

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 10,\ 35 \ 25,\ 30 High Q \ 30,\ 7 \ 20,\ 6 If the payoff matrix is a simultaneous-move production game,the Nash equilibrium is for:

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 a correct statement?

Consider a two-way network with 1,000 users.The number of potential connections is:

Which of the following is incorrect?

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 10,\ 35 \ 25,\ 30 High Q \ 30,\ 7 \ 20,\ 6 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 that can effectively price discriminate can increase profitability when they engage in:

A two-way network that links users and in which the per-unit value of the service increases as the size of the network increases is a:

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

Limit pricing will effectively deter entry when:

Selling a product below cost to gain a foothold in the market in order to eliminate the inefficiencies introduced by lock-in is known as:

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 an INCORRECT statement about predatory pricing?

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

Bottlenecks:

A network linking eight users is typically:

A price-cost squeeze is a tactic used:

Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 10,\ 35 \ 25,\ 30 High Q \ 30,\ 7 \ 20,\ 6 If the payoff matrix is a simultaneous-move production game,the Nash equilibrium is for:

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 a correct statement?

Consider a two-way network with 1,000 users.The number of potential connections is:

Which of the following is incorrect?

Refer to the following payoff matrix: Player 2 Player 1 Low Q High Q Low Q \ 10,\ 35 \ 25,\ 30 High Q \ 30,\ 7 \ 20,\ 6 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 that can effectively price discriminate can increase profitability when they engage in:

A two-way network that links users and in which the per-unit value of the service increases as the size of the network increases is a:

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

Limit pricing will effectively deter entry when:

Selling a product below cost to gain a foothold in the market in order to eliminate the inefficiencies introduced by lock-in is known as:

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