Econ 3 - Market Influences on Business Strategies

Question 1

Price discrimination

Answer 1

practice of selling a product or service at different prices to different consumers when those price differences are not justified by cost differences

Question 2

Examples of price discrimination

Answer 2

• Senior discount before 5pm
• Grocery store provides coupons to everyone
• Airline charges 175$ 14 days out and 400$ 2 days out for the same route

Question 3

Domestic or global mergers/acquisitions allow an organization to:

Answer 3

• lower risk by diversifying into additional industries
• enter new markets
• provide possible opportunities for quick profitability in new areas
• provide opportunities to take advantage of economies of scope
• potentially lower costs along the value chain of activities
• broaden the strength of resources and capabilities

Question 4

Diminishing Marginal Utility is

Answer 4

the marginal (additional) utility gained from successive units decreases as the number or units purchased (or consumed) increases ex. The more candy bars that a person eats, the less satisfaction derived from eating an additional candy bar

Question 5

Supply chain metrics are created to measure the performance of the supply chain. If a firm developed metrics to measure things such as fill rates and on-time delivery, we would assume that they are trying to measure

Answer 5

customer service

Question 6

A characteristic that indicates an item has a high price elasticity of demand:

Answer 6

the item has many similar substititues

Question 7

Price Elasticity of Demand =

Answer 7

Change in Qty / Change in Price

Question 8

Summary of Price Elasticity of Demand outcomes

Answer 8

Elastic >1.00

Inelastic

Question 9

Economies of Scale are

Answer 9

the reduction in average total cost of production when a firm expands plant production Ex. @ 110 units, cost of production = $58K per unit. When you add 120 units more, cost of production = $50K

Question 10

Diseconomies of Scale

Answer 10

Begin where the average total cost starts going up

Question 11

How should output and price change to increase profits when marginal costs (MC) are $3 and marginal revenue (MR) is $5?

Answer 11

Increase output and Decrease price as long as MR > MC

Question 12

If a company strives to be the low-cost provider within an industry, this means that:

Answer 12

the company may underprice the competition and attract the buyers in a large enough volume in order to obtain satisfactory profits

Question 13

A company has a policy of frequently cutting prices to increase sales. Product demand is significantly elastic. What impact would this have on qty and price?

Answer 13

Qty increases proportionally more than price declines

Question 14

If average household income increases, then the housing market will experience:

Answer 14

a rightward shift in the demand curve

Question 15

Factors that create a shift in the demand curve

Answer 15

include income, prices of related goods, number of buyers, preferences, and expectation of future prices

Question 16

Monopolistic Competition

Answer 16

[PLACEHOLDER]

Question 17

Oligolopy

Answer 17

[PLACEHOLDER]

Question 18

When there is equilibrium in a monopolistically competitive industry, a firm

Answer 18

will operate inefficiently with price greater than marignal revenue

Question 19

Collusive Pricing is

Answer 19

when a price to external customers is established higher than the competitive price for a given industry; competitors agree to restrict production so as to increase the price they receive for their product Ex. Cartel

Question 20

Dual Pricing is

Answer 20

the practice of setting different prices for a product dependent on the currency used to buy it

Question 21

Predatory Pricing is

Answer 21

meant to lower prices to such an extent as to drive competitors out of business

Question 22

Transfer Pricing is

Answer 22

the price charged by one unit within a larger business to another unit in that business

Question 23

The Average-Marginal Rule states

Answer 23

• if marginal > average then the average rises

- if marginal

Question 24

Companies use strategic alliances and collaborative partnerships to

Answer 24

• open up or improve access to new markets
• learn from other companies by sharing technology and various expertise
• improve supply chain efficiency
• get into critical countries in an effective and efficient manner
• gain access to necessary resources

Question 25

Differentiation strategies can be successful when:

Answer 25

the product is of value to the consumer and cannot be easily duplicated

Question 26

Perfect competition is

Answer 26

characterized by a large number of sellers producing a standardized product with easy entry and exit into and out of the industry. An individual seller has no ability to influence the product price.

Question 27

Economic Rate of Return on Common Stock =

Answer 27

[Dividends Received + (End price - Begin price)] / Beginning Price

Question 28

All other things being equal, movement along a supply curve occurs if:

Answer 28

the price for the product increases or decreases

Question 29

Explicit Cost (accounting cost) is

Answer 29

• easy to identify and account for
• cash outflows
• Ex. wages, utilities, rent, raw materials, other direct exp

Question 30

Implicit Cost (economic cost) is

Answer 30

• any cost associated with not taking a certain action
• difficult to quantify
• similar to intangible cost
• Ex. time and effort an owner puts into maintenance rather than working on expansion

Question 31

When implicit costs are greater than zero and economic profits in an industry equal zero:

Answer 31

accounting profits will be > 0.

Economic profit is generally lower (never higher) than accounting profit due to the fact that implicit costs are included in the calculation of in economic profits.

Question 32

A best-cost producer can gain a competitive advantage:

Answer 32

by delivering a superior product at a lower price than the competition. i.e. give the buyer more value for their money

Question 33

Income and employment tend toward an equilibrium level where:

Answer 33

aggregate supply = aggregate demand AND intended savings = intended investment

Question 34

Law of Diminishing Returns states

Answer 34

as increasing larger amount of variable inputs are combined with fixed inputs, at some point the marginal, physical product will begin to increase at a decreasing rate and eventually the marginal physical product will decline

Question 35

The best concept to understand oligopoly behavior is

Answer 35

the game theory model

Question 36

The phrase, “The use of a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products,” is one possible definition for:

Answer 36

Supply Chain Management

Question 37

The Law of Demand states

Answer 37

there is an inverse relationship between the price of a product and the quantity demanded of that product Ex. higher price, lower qty demanded

Question 38

A niche (focus) strategy based on differentiation can be attractive if

Answer 38

the market has distinctive buyer groups who have specific needs in product attributes or have different uses for the product.

Question 39

Mutual interdependence is

Answer 39

each firm in an oligopolistic industry must consider the reactions of its rivals when it makes decision concerning how to price its product

Question 40

Demand Curve reflects

Answer 40

the impact that price has on the amount a product purchased

Question 41

Similarity between Perfectly competitive industry and Monopolistically competitive industry:

Answer 41

no significant barriers to entry in either market structure

Question 42

A city ordinance that freezes rent prices may cause

Answer 42

demand for rental space to exceed supply

Question 43

If the price for a product increases and the demand curve for a second product shifts to the left, then:

Answer 43

the products are complementary goods

Question 44

In supply chain mgmt, key difference between traditional manufacturing and demand mgmt is

Answer 44

that products are pulled through the production process in response to specific customer needs

Question 45

If consumer income increases and as a result the demand for housing increases, we can conclude that housing is

Answer 45

a normal good

Question 46

A profit-maximizing firm operating in a competitive market in the short run will increase output:

Answer 46

as long as marginal revenue is greater than marginal costs

Question 47

Economic Profit =

Answer 47

Total Revenue - Total Explicit Costs - Total Implicit Costs

Question 48

Key Objectives of Supply Chain Mgmt

Answer 48

• Reduce supplier base while developing supplier relationships
• Standardize parts to reduce inventory levels
• Improve communications at levels of the organization to create an uninterrupted flow of materials and products

Question 49

Suppliers have more power when”

Answer 49

• the product they are supplying is differentiated
• substitutes are not available
• few companies product the same product
• the purchasing industry is not an important customer to the supplying industry

Question 50

In monopolistic competition, the goal of product differentiation and advertising is to:

Answer 50

make the firm’s demand curve less elastic so that consumers are less responsive to changes in price

Question 51

Technology is constantly changing. An improvement in production techniques that allows for a larger output for a given amount of inputs would result in:

Answer 51

a shift of the supply curve to the right resulting in more of the product being offered at each price