chapter 14,16,17

Question 1

A seller’s demand curve summarizes its……, and its marginal revenue curve measures its….
1.Incentive to increases production; cost of production.
2.market power; incentive to increase production.
3.market share; market power
4.customer power; cost of production

Answer 1

2.marker power; incentive to increase production.

Question 2

output in market with market power is
1.efficient because marginal cost is equal to marginal revenue.
2.higher than output in a market with output market power.
3.more predictable then output in a marker without marker power due to product differentiation
4. inefficient because the marginal benefit to society of extra output exceeds the marginal cost.

Answer 2

4. inefficient because the marginal benefit to society of extra output exceeds the marginal cost.

Question 3

A city has four hospitals there are no other hospital within 200 miles two of the hospitals are specialized. The local for Hospital services can be more slowly described as.
1. perfectly competitive
2.an oligopoly
3. monopolistically competitive.
4. Monopoly

Answer 3

2.an oligopoly

Question 4

A sellers demand curve summarizes its… and a marginal revenue curve measures it’s….
1. incentive to increases production; costs of production
2. market power; incentive to increase production
3. market share; market power
4. customer power; costs of production

Answer 4

2. market power; incentive to increase production

Question 5

Imperfect competition stems from _ whether the product is…
1. the product price; produced by all firms in the market.
2. the costs of production; identical across
firms
3. the number of sellers; differentiated
4. market power; a good or a service

Answer 5

the number of sellers; differentiated

Question 6

In which of the following situations would Allie’s
Donuts have the greatest market power?
1.the closest donut shop is 10 miles away, but there is a bakery with breakfast pastries 2 miles away.
2. There are 2 rival donut shops within 3 miles of Allie’s but no other bakeries.
3. The closest donut shop or bakery is 25 miles away from Allie’s.
4.there are 5 other donut shops and 3
bakeries that sell breakfast pastries within
3 miles of Allie’s.

Answer 6

The closest donut shop or bakery is 25 miles away from Allie’s.

Question 7

Perfectly competitive markets are relatively rare in the real world because most
1. goods are not identical and most markets have many firms.
2. firms advertise and most markets have many buyers.
3. goods are not identical and most markets have some dominant firms.
4. firms advertise and most markets have many firms.

Answer 7

goods are not identical and most markets have some dominant firms.

Question 8

What are the main positive and negative impacts of mergers?
1.Increased competition and higher costs
2.Lower prices and more companies
3.Lower costs and increased market power
4.Decreased market power and higher prices

Answer 8

Lower costs and increased market power

Question 9

Negative outcomes of market power include all of the following EXCEPT

1.smaller quantity
2.higher costs
3.larger profits
4.lower prices

Answer 9

4.lower prices

Question 10

Which of the following markets is closest to an example of a perfectly competitive market?

1.Dining chairs
2.Apple computers
3.Corn
4.Fast-food hamburgers

Answer 10

3.Corn

Question 11

The market power of a firm is its

1.market share based on the percentage of total market revenue.
2.ability to raise its price without losing many of its customers to competing businesses.
3.ranking based on units sold compared to other firms selling the same product.
4.ability to cause other firms in its market to drop out of the market.

Answer 11

2.ability to raise its price without losing many of its customers to competing businesses.

Question 12

When it is difficult for customers to assess quality prior to consuming a product, they tend to rely on ______ as an indicator of quality.

1.informative advertising

2.brand reputation

3.new experiences

4.persuasive advertising

Answer 12

brand reputation

Question 13

How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the business may

1.reduce its costs by substituting one input for another input.

2.charge higher prices because the addition of the new substitutes will raise the level of customer satisfaction.

3.gain customers from the substitute market, adding to its profits.

4.lose customers to the substitute good’s market unless it lowers price.

Answer 13

lose customers to the substitute good’s market unless it lowers price.

Question 14

When a market is perfectly competitive, advertising typically is done _________ because ________.

for the entire industry; with only one company, the market demand is the company demand.

by individual companies;it helps the advertising company stand out from the others.

for the entire industry; it affects market demand more effectively than some individual company demands

by individual companies; it effectively differentiates each company’s product

Answer 14

for the entire industry; it affects market demand more effectively than some individual company demands

Question 15

A business owner spends on advertising with the intent that it will affect demand for the company’s product in what two ways? By

increasing the company’s demand and making its demand more elastic.

decreasing the company’s demand and making its demand more inelastic.

decreasing the company’s demand and making its demand more elastic.

increasing the company’s demand and making its demand more inelastic.

Answer 15

increasing the company’s demand and making its demand more inelastic.

Question 16

When price competition occurs

profits rise and the number of sellers rises.

product differentiation rises and price rises.

price rises as competitive pressures increase.

price is pushed down, reducing profits.

Answer 16

price is pushed down, reducing profits.

Question 17

The threat of entry includes

expansion of existing businesses into the market, the creation of a new product market, and new entrants.

expansion of existing businesses into the market, the addition of new distribution channels by existing businesses, and new entrants.

creation of a new product market, the addition of new inputs, and the expansion of an existing business into new distribution channels.

addition of new distribution channels by existing businesses, the expansion o

Answer 17

expansion of existing businesses into the market, the addition of new distribution channels by existing businesses, and new entrants.

Question 18

Vertical integration occurs in a merger when the companies that merge

each produce different products whose productions are unrelated but are consumed together.

had a buyer-seller relationship prior to the merger, with each covering a different stage in a production chain.

are different sizes, with one being significantly larger than the other.

produce different types of products, such as one producing a service and the other a tangible good.

Answer 18

had a buyer-seller relationship prior to the merger, with each covering a different stage in a production chain.

Question 19

Bargaining power is a buyer’s of seller’s ability to

reduce market supply to raise price.

negotiate a deal to its own benefit.

increase market demand.

get a lower price as a seller or higher price as a buyer.

Answer 19

negotiate a deal to its own benefit.

Question 20

Which of the following is NOT a way to differentiate a product?

Add features to a product

Provide different types of customer service for a product

Change the quality of a product

Charge a lower price than other companies for a given product

Answer 20

Charge a lower price than other companies for a given product

Question 21

Barriers to entry _______ existing businesses ______.
1.protect; from price wars

expose; to competitive pressures

expose; to limited pools of customers

protect; from competition by new entrants

Answer 21

4.protect; from competition by new entrants

Question 22

Which of the following is NOT an example of a relationship-specific investment that could result in a hold-up problem?

buying customized equipment to produce output to the specifications of a major customer.

locating a factory near a major supplier of inputs.

organizing the layout of a factory for the most efficient flow of the production line.

training employees in the same computer system and programming used by customers to simplify transfer of data

Answer 22

organizing the layout of a factory for the most efficient flow of the production line.

Question 23

What distinguishes persuasive advertising from informative advertising? Persuasive advertising

uses facts about the product to convey its excellence.

focuses on emotions and provides few facts about the product.

relies on statistics summarizing customer reviews.

focuses on brand reputation by frequent reminders of awards won by brand.

Answer 23

focuses on emotions and provides few facts about the product.

Question 24

A company will be subject to price competition if

customers view its product as the same as or very similar to the products of rival companies.

there is successful product differentiation in the product market.

other producers are selling in the product market.

barriers to entry reduce the number of firms participating in the product market.

Answer 24

customers view its product as the same as or very similar to the products of rival companies.

Question 25

According to the Five Forces framework, the greater the _______ in an industry, the ________ the average profits will be in the industry.

greater; lower

lower; more variable

lower; lower

more variable; greater

Answer 25

greater; lower

Question 26

The basis of product differentiation is to convince your customers that your product _______ so that customers will ______ for your firm’s product.

is as good as any other version; pay an equal price

is the best version; be more price sensitive

will more completely satisfy their wants; pay a higher price

is different from the output of other sellers; have a more elastic demand

Answer 26

will more completely satisfy their wants; pay a higher price

Question 27

When a seller considers the threat of potential substitutes, what is a substitute product?

Anything a company could produce using the same inputs as needed to produce its current product.

Anything that could be consumed in place of a given product to satisfy the need or want of the consumer for the given product.

A product or service that uses more labor and less capital or less labor and more capital to produce its product.

A new company that enters the market by producing a product identical to other

Answer 27

Anything that could be consumed in place of a given product to satisfy the need or want of the consumer for the given product.

Question 28

According to the Five Forces framework, how can producers of potential substitute goods impact a company’s profits? The producers of potential substitute goods

may exit the market, signaling that the market demand is weak and profits are low.

indicate that the market supply is shrinking, leading to higher company profits.

may become actual competitors, causing market demand to be spread across a larger number of companies and thereby reducing the profits of the original companies.

indicate that the market demand is weak, leading to lower company profits.

Answer 28

may become actual competitors, causing market demand to be spread across a larger number of companies and thereby reducing the profits of the original companies.

Question 29

When setting prices for different groups of customers, a manager should charge higher prices for groups that

value the product more.

have a more elastic demand.

have a lower demand.

have a lower marginal benefit.

Answer 29

value the product more.

Question 30

For effective segmentation of market demand, the basis for putting each customer into a given price segment requires criteria that are _______ and ______.

a demand-based price; a cost-based price

verifiable; at each consumer’s discretion

consistent across consumers; hard-to-change

easy to check; hard to change

Answer 30

easy to check; hard to change

Question 31

If a company engages in perfect price discrimination, it is attempting to

charge each customer their reservation price.

attract more customers by charging lower prices to groups of new customers.

try different prices until it finds the exact market equilibrium price.

charge each customer the lowest price they would be willing to pay.

Answer 31

charge each customer their reservation price.

Question 32

Early bird specials at many restaurants are an example of using ______ to create ______.

alternate versions; marginal benefit

alternate versions; lower marginal costs

difficult-to-change characteristics; a hurdle

timing; a hurdle

Answer 32

timing; a hurdle

Question 33

Why would a seller choose the hurdle method instead of group pricing to price discriminate? The seller

wishes to make it more difficult for customers to deal with the seller’s company.

knows that hurdles increase customer interest in the product.

realizes that those who are willing to go over a hurdle to get a product are willing to pay more for it.

cannot find a verifiable, hard-to-change characteristic on which to base the group segmentation.

Answer 33

cannot find a verifiable, hard-to-change characteristic on which to base the group segmentation.

Question 34

Price discrimination is when a company

buys a given input from several sellers and pays a different price to each seller.

refuses to sell its product to certain customers based on some distinguishing factor such as race, gender, or religion.

produces different versions of its product.

charges different prices to different customers who are are buying the same product.

Answer 34

charges different prices to different customers who are are buying the same product.

Question 35

How does price discrimination move a market that is not perfectly competitive to a more efficient output level?

Price discrimination gives businesses the incentive to move revenue to its highest possible level.

Price discrimination causes businesses to raise its output to the level where the average cost is at its minimum.

Price discrimination gives businesses the incentive to increase output to the level where their marginal cost equals the marginal benefit of their last customer.

Price discrimination causes businesses to charge the price where marginal cost equals marginal benefit to all customers.

Answer 35

Price discrimination gives businesses the incentive to increase output to the level where their marginal cost equals the marginal benefit of their last customer.

Question 36

Which of the following is an example of a company practicing price discrimination?

A restaurant charges different prices for soft drinks based on their size.

Most passengers traveling on an airplane pay different prices for their tickets.

The average price of a haircut is $20 in Warwick and $30 in Providence.

Johann’s bakery charges $2 for a cookie and Bella’s bakery charges $3 for an identical cookie.

Answer 36

Most passengers traveling on an airplane pay different prices for their tickets.

Question 37

What 3 conditions must be present before a company can price discriminate?

The company can identify how much each customer is willing to pay; the product cannot be resold; the company has market power.

The product cannot be resold; consumers have differing willingness to pay; there are many sellers

The company has market power; the product is homogeneous; the demand is elastic

Product demand is highly elastic; the company can identify how much each customer is willing to pay; the company is seeking market power.

Answer 37

The company can identify how much each customer is willing to pay; the product cannot be resold; the company has market power.

Question 38

In deciding how many segments to divide the market into, a company should look for ways to identify clear segments that have ______ demand.

overlapping

mirror image

distinctly different

equal reservation

Answer 38

distinctly different