Worksheets 4, 5 + Unit 3

Question 1

Which U.S. agency is responsible for preventing anticompetitive conduct?

Answer 1

DOJ

Question 2

What criterion developed by the DOJ is used to identify all potential competitors within the market?

Answer 2

SSNIP criterion

Question 3

What empirical method generally is used to measure the degree to which products substitute for each
other?

Answer 3

Cross-price elasticity

Question 4

What is defined by the number and size distribution of the firms in a market?

Answer 4

Market Structure

Question 5

The Herfindahl index solves which problem with the N-Firm ratio?

Answer 5

Invariance with changes in the size of the largest firms

Question 6

The causal connection between firms is known as the:

Answer 6

Structure, Conduct, Performance paradigm

Question 7

What term describes the differentiation of a product when it is unambiguously better or worse than
competing products?

Answer 7

Vertical differentiation

Question 8

What group/type of preferences describes when tastes differ markedly from one person to the next and
result in horizontal differentiation?

Answer 8

Idiosyncratic preferences

Question 9

What term describes existing firms in a monopolistically competitive market?

Answer 9

incumbents

Question 10

Based on Bresnahan and Reiss’ study of the relationship between concentration and prices, how many
firms did they determine generally need to be in a market for price competition to be as intense as it
would likely get?

Answer 10

3

Question 11

In a three firm market where the market share split is 50%, 30% & 20%, what is the Herfindahl
index?

Answer 11

.38

Question 12

Suppose the demand for a product faces by a monopolist firm is given by Q=60-P/2. If the marginal
cost of producing the product is $20, what is the profit maximizing price the firm should charge for the
product? What are the firm’s profits?

Answer 12

$70; $1250

Question 13

What type of firm is one that is already operating in a particular market?

Answer 13

Incumbent

Question 14

Which of the following generally accompanies firms that survive as market entrants?

Answer 14

Precipitous growth

Question 15

What are the two types of barriers to entry?

Answer 15

Structural and strategic

Question 16

What type of entry exists if structural entry barriers are low, and either (1) entry-deterring strategies
will be ineffective or (2) the cost to the incumbent of trying to deter entry exceeds the benefits it could
gain from keeping the entrant out?

Answer 16

Accomodated entry

Question 17

How can incumbents legally erect entry barriers around novel and non-obvious products or production
processes?

Answer 17

Patents

Question 18

Which of the following is a potential risk of a brand umbrella?

Answer 18

If a new product under the umbrella fails, consumers may become disenchanted with the entire brand

Question 19

What term describes a market where a monopolist cannot raise price above long run average cost?

Answer 19

Perfectly contestable

Question 20

Which of the following terms refers to the practice whereby an incumbent firm discourages entry by
charging a low price before entry occurs?

Answer 20

Limit pricing

Question 21

Which of the following methods is believed to be used by Brazilian cement makers to prevent entry
into the market?

Answer 21

Limit pricing

Question 22

What term best describes the paradox which says despite the conclusion that predatory pricing to deter
entry appears irrational, many firms are commonly perceived as slashing prices to deter entry?

Answer 22

Chain-store paradox

Question 23

Which of the following conditions may make predatory pricing by incumbents rational?

Answer 23

When entrants are uncertain about market conditions

Question 24

Which of the following is not a condition under which an incumbent firm can successfully deter entry
by holding excess capacity?

Answer 24

The excess capacity investment must be recoverable prior to entry

Question 25

Which term describes the situation where a smaller firm and potential entrant can use the incumbent’s
size to its own advantage?

Answer 25

Judo economics

Question 26

What term describes a situation where two or more parties expend resources battling each other?

Answer 26

War of attrition

Question 27

When is reputation a most effective entry barrier?

Answer 27

When a firm has a reputation for toughness or competes in multiple markets

Question 28

Which of the following best describes an incumbent firm?

Answer 28

One that is already operating in a particular market

Question 29

What term describes when a firm sells a combination of goods and services together, but not
individually?

Answer 29

Bundling

Question 30

How can incumbents legally erect entry barriers around novel and non-obvious products or production
processes?

Answer 30

Copyrights
Exclusive franchise agreements
Patents

Question 31

Which of the following is an exit barrier for firms in an industry?

Answer 31

Sunk costs
Labor agreements or commitments to purchase raw materials
Obligations to input suppliers
Government restrictions