ECON FINAL Ch. 14, 16, 17

According to the Five Forces framework, the greater the _______ in an industry, the ________ the average profits will be in the industry. a. greater; lower b. more variable; greater c. lower; lower d. lower; more variable

a. greater; lower

What are the main positive and negative impacts of mergers? a. Decreased market power and higher prices b.Lower costs and increased market power c. Lower prices and more companies d. Increased competition and higher costs

b. Lower costs and increased market power

When a seller considers the threat of potential substitutes, what is a substitute product? a. Anything that could be consumed in place of a given product to satisfy the need or want of the consumer for the given product. b. A product or service that uses more labor and less capital or less labor and more capital to produce its product. c. A new company that enters the market by producing a product identical to other companies. d. Anything a company could produce using the same inputs as needed to produce its current product.

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

When it is difficult for customers to assess quality prior to consuming a product, they tend to rely on ______ as an indicator of quality. a. informative advertising b. persuasive advertising c. new experiences d. brand reputation

d. brand reputation

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

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

What 3 conditions must be present before a company can price discriminate? a. The company can identify how much each customer is willing to pay; the product cannot be resold; the company has market power. b. The company has market power; the product is homogeneous; the demand is elastic c. Product demand is highly elastic; the company can identify how much each customer is willing to pay; the company is seeking market power. d. The product cannot be resold; consumers have differing willingness to pay; there are many sellers

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

How does the threat of potential substitutes lessen the market power of a business? If the substitute becomes available, then the business may a. lose customers to the substitute good's market unless it lowers price. b. reduce its costs by substituting one input for another input. c. gain customers from the substitute market, adding to its profits. d. charge higher prices because the addition of the new substitutes will raise the level of customer satisfaction.

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

According to the Five Forces framework, how can producers of potential substitute goods impact a company's profits? The producers of potential substitute goods a. 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. b. may exit the market, signaling that the market demand is weak and profits are low. c. indicate that the market supply is shrinking, leading to higher company profits. d. indicate that the market demand is weak, leading to lower company profits.

a. 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.

Bargaining power is a buyer's of seller's ability to a. negotiate a deal to its own benefit. b. reduce market supply to raise price. c. get a lower price as a seller or higher price as a buyer. d. increase market demand.

a. negotiate a deal to its own benefit.

Which of the following is NOT an example of a relationship-specific investment that could result in a hold-up problem? a. organizing the layout of a factory for the most efficient flow of the production line. b. locating a factory near a major supplier of inputs. c. buying customized equipment to produce output to the specifications of a major customer. d. training employees in the same computer system and programming used by customers to simplify transfer of data

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

Imperfect competition stems from _____ and whether the product is ______. a. the number of sellers; differentiated b. market power; a good or a service c. the product price; produced by all firms in the market d. the costs of production; identical across firms

a. the number of sellers; differentiated

Vertical integration occurs in a merger when the companies that merge a. are different sizes, with one being significantly larger than the other. b. had a buyer-seller relationship prior to the merger, with each covering a different stage in a production chain. c. produce different types of products, such as one producing a service and the other a tangible good. d. each produce different products whose productions are unrelated but are consumed together.

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

Negative outcomes of market power include all of the following EXCEPT a. higher costs b. lower prices c. smaller quantity d. larger profits

b. lower prices

When price competition occurs a. product differentiation rises and price rises. b. price is pushed down, reducing profits. c. price rises as competitive pressures increase. d. profits rise and the number of sellers rises.

b. price is pushed down, reducing profits.

Barriers to entry _______ existing businesses ______. a. expose; to limited pools of customers b. protect; from competition by new entrants c. protect; from price wars d. expose; to competitive pressures

b. protect; from competition by new entrants

Which of the following is NOT a way to differentiate a product? a. Change the quality of a product b. Provide different types of customer service for a product c. Charge a lower price than other companies for a given product d. Add features to a product

c. Charge a lower price than other companies for a given product

Which of the following markets is closest to an example of a perfectly competitive market? a. Apple computers b. Dining chairs c. Corn d. Fast-food hamburgers

c. Corn

A product market has one seller and that seller has a high level of market power. There are no close substitutes for the product. What type of market is this? a. Perfect competition b. Oligopoly c. Monopoly d. Monopolistic competition

c. Monopoly

Which of the following is an example of a company practicing price discrimination? a. A restaurant charges different prices for soft drinks based on their size. b. Johann's bakery charges $2 for a cookie and Bella's bakery charges $3 for an identical cookie. c. Most passengers traveling on an airplane pay different prices for their tickets. d. The average price of a haircut is $20 in Warwick and $30 in Providence.

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

How does price discrimination move a market that is not perfectly competitive to a more efficient output level? a. Price discrimination causes businesses to charge the price where marginal cost equals marginal benefit to all customers. b. Price discrimination gives businesses the incentive to move revenue to its highest possible level. c. Price discrimination gives businesses the incentive to increase output to the level where their marginal cost equals the marginal benefit of their last customer. d. Price discrimination causes businesses to raise its output to the level where the average cost is at its minimum.

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

The market power of a firm is its a. ranking based on units sold compared to other firms selling the same product. b. ability to cause other firms in its market to drop out of the market. c. ability to raise its price without losing many of its customers to competing businesses. d. market share based on the percentage of total market revenue.

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

Why would a seller choose the hurdle method instead of group pricing to price discriminate? The seller a. knows that hurdles increase customer interest in the product. b. wishes to make it more difficult for customers to deal with the seller's company. c. cannot find a verifiable, hard-to-change characteristic on which to base the group segmentation. d. realizes that those who are willing to go over a hurdle to get a product are willing to pay more for it.

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

If a company engages in perfect price discrimination, it is attempting to a. charge each customer the lowest price they would be willing to pay. b. try different prices until it finds the exact market equilibrium price. c. charge each customer their reservation price. d. attract more customers by charging lower prices to groups of new customers.

c. charge each customer their reservation price.

Price discrimination is when a company a. buys a given input from several sellers and pays a different price to each seller. b. refuses to sell its product to certain customers based on some distinguishing factor such as race, gender, or religion. c. charges different prices to different customers who are are buying the same product. d. produces different versions of its product.

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

A company will be subject to price competition if a. there is successful product differentiation in the product market. b. other producers are selling in the product market. c. customers view its product as the same as or very similar to the products of rival companies. d. barriers to entry reduce the number of firms participating in the product market.

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

For effective segmentation of market demand, the basis for putting each customer into a given price segment requires criteria that are _______ and ______. a. consistent across consumers; hard-to-change b. verifiable; at each consumer's discretion c. easy to check; hard to change d. a demand-based price; a cost-based price

c. easy to check; hard to change

What distinguishes persuasive advertising from informative advertising? Persuasive advertising a. relies on statistics summarizing customer reviews. b. focuses on brand reputation by frequent reminders of awards won by brand. c. focuses on emotions and provides few facts about the product. d. uses facts about the product to convey its excellence.

c. focuses on emotions and provides few facts about the product.

Output in a market with market power is a. efficient because marginal cost is equal to marginal revenue. b. higher than output in a market with output market power. c. inefficient because the marginal benefit to society of extra output exceeds the marginal cost. d. more predictable than output in a market without market power due to product differentiation.

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

A seller's demand curve summarizes its _____, and its marginal revenue curve measures its ______. a. market share; market power b. customer power; costs of production c. market power; incentive to increase production d. incentive to increases production; costs of production

c. market power; incentive to increase production

The basis of product differentiation is to convince your customers that your product _______ so that customers will ______ for your firm's product. a. is the best version; be more price sensitive b. is as good as any other version; pay an equal price c. will more completely satisfy their wants; pay a higher price d. is different from the output of other sellers; have a more elastic demand

c. will more completely satisfy their wants; pay a higher price

A city has 4 hospitals, and there are no other hospitals within 200 miles. Two of the hospitals are specialized -- one has a large cardiac unit and the other has a cancer treatment center. The local market for hospital services can most likely be described as a. a monopoly. b. monopolistically competitive. c. perfectly competitive. d. an oligopoly.

d. an oligopoly.

In deciding how many segments to divide the market into, a company should look for ways to identify clear segments that have ______ demand. a. overlapping b. mirror image c. equal reservation d. distinctly different

d. distinctly different

The threat of entry includes a. addition of new distribution channels by existing businesses, the expansion of existing businesses into the market, and the creation of a new product market b. creation of a new product market, the addition of new inputs, and the expansion of an existing business into new distribution channels. c. expansion of existing businesses into the market, the creation of a new product market, and new entrants. d. expansion of existing businesses into the market, the addition of new distribution channels by existing businesses, and new entrants.

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

When a market is perfectly competitive, advertising typically is done _________ because ________. a. for the entire industry; with only one company, the market demand is the company demand. b. by individual companies;it helps the advertising company stand out from the others. c. by individual companies; it effectively differentiates each company's product d. for the entire industry; it affects market demand more effectively than some individual company demands

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

Perfectly competitive markets are relatively rare in the real world because most a. firms advertise and most markets have many buyers. b. firms advertise and most markets have many firms. c. goods are not identical and most markets have many firms. d. goods are not identical and most markets have some dominant firms.

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

A business owner spends on advertising with the intent that it will affect demand for the company's product in what two ways? By a. decreasing the company's demand and making its demand more inelastic. b. increasing the company's demand and making its demand more elastic. c. decreasing the company's demand and making its demand more elastic. d. increasing the company's demand and making its demand more inelastic.

d. increasing the company's demand and making its demand more inelastic.

Early bird specials at many restaurants are an example of using ______ to create ______. a. difficult-to-change characteristics; a hurdle b. alternate versions; marginal benefit c. alternate versions; lower marginal costs d. timing; a hurdle

d. timing; a hurdle

When setting prices for different groups of customers, a manager should charge higher prices for groups that a. have a lower marginal benefit. b. have a more elastic demand. c. have a lower demand. d. value the product more.

d. value the product more.