BE 310 Unit 2
(ch 13) Consumer A. Consumer B. Good 1: $2,300 $2,800 Good 2: $1,700. $ 1,200 what is the total profit to the monopolist from selling the goods separately? $4,500 $6,300 $7,000 $6,200
$7,000 *if the goods are sold separately, the TR from Good 1 is $4,600 and $2,400 from Good 2. The total is $7,000.
(ch 16) Labor: Bargain Hard Be Nice Mgmt: Bargain. 0,0 20,10 Be Nice 12,18 15,15 The two NE are (be nice, bargain hard) and (be nice, bargain hard) in the following game, how many pure strategy equilibria are there? 0 1 2 3
0
In the previous innovation game, how many Nash equilibria are there? 0 1 2 0, but there are secure strategies
1
Porter's Five Forces
1. high barriers to entry 2. low buyer power 3. low supplier power 4. low threat from substitutes 5. low levels of rivalry among existing firms
(ch 16) Labor: Bargain Hard Be Nice Mgmt: Bargain. 0,0 20,10 Be Nice 12,18 15,15 The two NE are (be nice, bargain hard) and (be nice, bargain hard) in the game above, how much does labor earn if they can move first? 10 15 18 20
18
(ch 16) how many pure strategy equilibria does the following game have? 0 1 2 3
2
Firm B Low P High P Low P (2, 2) (10, -8) Firm A High P (-8, 10) (6, 6) The NE payoffs are: 2,2 6,6 2,2 and 6,6 no NE
2,2
(Ch 9&10) Which of the products below is the closest to operating in a perfectly competitive industry? Nike Shoes Eggs Purdue Chicken Restaurants
Eggs
(ch 13) assume that the price elasticity of demand for movie theaters is -.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theatre to maximize total revenue, it should charge the same price for both shows, holding other things constant charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant. charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant need more information
charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant *charge lower price/markup to the consumers with the more elastic demand and vice versa.
(ch 16) For threats or commitments to be effective, they must be irrational rational credible none
credible
In the strategic view of bargaining: bargaining is a game of "chicken" you want to decrease your outside options you want to improve your opponents outside options bargaining is a prisoner's dilemma game
bargaining is a game of "chicken"
(ch 9&10) if a firm successfully adopts a product differentiation strategy, what should happen to the elasticity of demand for its product? increase decrease become unit elastic is unaffected
decrease
(ch 16) two hosipitals are bargaining with an MCO to get into its providers network. The MCO can earn $100 if it puts one of the hospitals in its network; and $200 if it puts both hospitals in its network. If both hospitals merge, and bargain jointly, HOW MUCH MORE WILL THEY EARN? $0 $50 $. It depends on the ability of the merged hospital to vendibly commit to a take-it-or-leave-it offer
$0
Firm B Low P High P Low P (0, 0) (50, -10) Firm A High P (-10, 50) (20, 20) Suppose that Firm A deviates from the agreement and cheats (charges a low price). What is the PV of A's payoff from cheating? $20 $30 $50 $70
$50 *Cheating gets A a $50 one-time payoff and $0 forever after due to B's trigger strategy.
Suppose there are 11 buyers and 11 sellers in a market, each willing to buy or sell a single unit of a good with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4}. If a single market maker serves this market, what is the optimal bid-ask spread? $9 bid;$9 ask $7 bid; $11 ask $8 bid; $10 ask $6 bid; $12 ask
$6 bid; $12 ask *highest gross profit
It is believed monopoly power can stem from: industry technological attributes such as economies of scale, economies of scope, or cost complementarity firms acting collusively to form cartels patents, operating licenses and other legal barriers all of these statements are correct
All of the statements are correct
A coordination problem (voltage, what side of the road to drive on, etc.) arises whenever there: Are no dominant strategies for either player Is no Nash equilibrium in a game Are multiple, equally good Nash equilibria Is a unique Nash equilibrium but it is not very desirable
Are multiple, equally good Nash equilibria
(*Q2 or 4) In the advertising game described above, your firm has Advertise as a its dominant strategy, whereas your rival does not have a dominant strategy. True False
False
The existence of dominant strategies for all players is a necessary condition for the existence of a Nash equilibrium. True False
False
(*Q 1 or 4) If you advertise and your rival advertises, you each will earn $5M in profits. If neither of your advertise, you will each earn $10M in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15M and the non advertising firm will earn $1M. If you and your rival plan to be in business for only one year, the Nash equilibrium is (Hint: it helps to write out the game in normal (matrix) form): For each firm to advertise For your firm to advertise and the other to not advertise For neither firm to advertise None are correct
For each firm to advertise *build the normal form payoff matrix to see the NE for both firms to ADVERTISE
(*Q3 or 4) If for the the game described above, you and your rival plan to be in business for 10 years, the Nash equilibrium is: For each firm to advertise in early years, but not advertise in later years. For each firm to not advertise at all For neither firm to advertise in early years, but to not advertise in later years For each firm to advertise every year
For each firm to advertise every year. *this is a finite game with known end period. By backward induction, this is no different from a one-shot game.
(*Q4 of 4)If you and your rival plan to hand your businesses down to your children (and this "bequest" goes on forever), then a Nash equilibrium when the interest rate is zero and both players use trigger strategies is: For your firm to never advertise For each firm to advertise until the rival does not advertise, and then not advertise forever after For each firm to not advertise until the rival does and then advertise forever after For your firm to always advertise since the rival cannot/should not be trusted
For each firm to not advertise until the rival does, and then to advertise forever after *with interest rate = 0 and a trigger strategy, collusion (not advertise) is more profitable than cheating and can be sustained (NE)
Which of the following is always true under monopoly? profits are always positive p < minimum ATC p = mr none of the statements are correct
NONE
When an employee announces that he plans to quit, say next month, the "threat" of being fired has no bite. The worker may find it in his interest to shirk. What can the manager do to overcome this problem? Monitor the employee more frequently than usual and fire him when and if he gets caught shirking Pay the worker some rewards when he announces his plan to quit Provide the employee with some rewards for good work that extend beyond the termination of employment with the firm "Fire" the worker as soon as he announces he plans to quit
Provide the employee with some rewards for good work that extend beyond the termination of employment with the firm
What will likely happen to the demand for a patent-holder's product when the patent expires? nothing at all demand will likely decline none of these statements are correct demand will increase
demand will likely decline
(Ch. 9&10) The forces that create high rivalry within an industry include all of the following EXCEPT: numerous competitors high fixed costs fast industry growth low switching costs for buyers
fast industry growth
(ch 15) Firm B: Low Price High Price Firm A: Low Price 0,0 50, -10 High Price -10, 50 25,25 suppose the game is infinitely repeated. What strategies will each firm utilize, if the discount rate is low and they both use trigger strategies? firm A will charge a lower price and firm B will charge a lower price firm A will charge a higher price and firm B will charge a lower price. firm A will charge a lower price and firm B will charge a higher price. firm A will charge a higher price and firm B will charge a higher price.
firm A will charge a higher price and firm B will charge a higher price.
(ch 15) Super: Advertise Dont Advertise Mega: Advertise $95,$80. $305,$55 Dont $65,$285. $165,$115 if collusion was not illegal, than it is more optimal: for megastore to advertise and for superstore to advertise for megastore to advertise and for superstore not to advertise for megastore not to advertise and for superstore to advertise for megastore not to advertise and for superstore not to advertise
for megastore not to advertise and for superstore not to advertise
(ch 15) Super: Advertise Dont Advertise Mega: Advertise $95,$80. $305,$55 Dont $65,$285. $165,$115 The Nash equilibrium for both stores is: for megastore to advertise and for superstore to advertise for megastore to advertise and for superstore not to advertise for megastore not to advertise and for superstore to advertise for megastore not to advertise and for superstore not to advertise
for megastore to advertise and for superstore to advertise
(Ch. 9&10) Attractive industries have all the following except: high supplier power low buyer power high entry barriers low rivalry
high supplier power
(ch 13) airlines charge a _______ price to business travelers compared to leisure travelers because business travelers have a ________ demand than leisure travelers. higher; more elastic higher; less elastic lower; more elastic lower; less elastic
higher; less elastic
The price elasticity of demand for senior citizens purchasing coffee from McDonald's is estimated to be -5 while non-seniors have a price elasticity of demand of -1.25. If it costs McDonald's 40 cents to produce a cup of coffee, the optimal price for a cup of coffee for senior citizens and resultant marginal cost under third-degree price discrimination are, respectively: $0.32 and $0.40 $0.50 and $0.40 $0.45 and $0.80 $1.20 and $0.40
$0.50 and $0.40
(ch 13) Consumer A. Consumer B. Good 1: $2,300 $2,800 Good 2: $1,700. $ 1,200 Suppose the monopolist only sold the goods separately. What price will the monopolist charge for Good 1 to maximize revenues for Good 1? $2,300 $2,800 $1,200 $1,700
$2,300 * at P=2,300, two units are sold. TR = $4,600, which is more than what could be generated for any other price.
Fred is a salesman who can sell enough to generate $200,000/year worth of profit for his company. He earns only $110,000 in compensation. What is the value of his outside or next best alternative? $0 $5,000 $10,000 $20,000
$20,000 *in this case, you choose the next highest value
Firm B Low P High P Low P (0, 0) (50, -10) Firm A High P (-10, 50) (20, 20) Suppose the game is infinitely repeated, and the interest (discount) rate is 10%. Both firms agree to charge a high price provided no player has charged a low price is the past. If both firms stick to the collusive agreement, then the PV of Firm A's payoff is: $330 $550 $110 $220
$220 *Calculate the pv of the future profits firm A can expect to each if the collusive agreement stands. This is $20 every period forever. Assuming a payment now and one at the end of the year going forward the PV=$20+($20/.10)=$220
During spring break students have a price elasticity of demand for a trip to FL of -3. How much should an airline charge for a ticket if the price it charges the general public is $360? Assume the general public has an elasticity of -2 (Hint: What is MC?). $240 $250 $260 $270
$270
(Ch. 9&10) A perfectly competitive firm's profits maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm's profits are: $300 in the short run and long run $300 in the short-run $500 in the short-run and long-run $500 in the short-run
$300 in the short-run *$15-$12 = $3x100 = $300 Max price - ATC = Difxunits =short run profits
You, a real-estate owns a piece of land in Nassau, Bahamas, next to an equal size piece of land owned by a competitor. Both of you have the choice of building a casino or a hotel. Your payoffs are as follows: You: Casino Hotel Competitor: Casino 3,3 20,5 Hotel 5,20 2,2 how much is it worth to you to get your casino building permit first? 2 million 3 million 15 million 17 million
15 million *if you get the permit first, then you can turn this game into a soft of sequential game in which you could choose the most profitable course of action and your rival will have to follow your lead. You would choose to build a casino (your rival would have to build a hotel). If your rival gets his permit first, he will be the first to move and choose to build the casino and you would have no choice but to build a hotel. The payoff difference is (20-5)=15
Which of the following is true of Nash equilibrium of a two-player game? given another player's strategy, a player can improve his payoff by unilaterally changing his/her strategy Nash equilibrium is always unique in real world problems Given the other player's strategy stipulated in that Nash equilibrium, a player cannot improve his payoff by changing his/her strategy The joint payoffs of the two players are higher compared to other strategies
Given the other player's strategy stipulated in that Nash equilibrium, a player cannot improve his payoff by changing his/her strategy
(ch 9&10) when a resource or capability is valuable, rare, hard to imitate, and non-substitutable firms may gain: a temporary competitive advantage a complex competitive advantage competitive parity a sustainable competitive advantage
a sustainable competitive advantage
In the short-run, firms operating in highly competitive markets will continue to operate as long as production is more profitable, or leads to lower losses, than ceasing operations altogether (shutting down). True False
TRUE
Ch. 8 Holding other factors constant, a decrease in the tax for producing coffee causes: The supply curve to shift left, prices of coffee rise The supply curve to shift to the right, prices of coffee rise The supply curve to shift left, prices of coffee to fall The supply curve to shift right, prices of coffee to fall
The supply curve to shift right, prices of coffee to fall
(ch 16) Pete and Lisa are entering into a bargaining situation in which Pete stands to gain up to $5,000 and Lisa stands to gain up to $1000, provided they reach agreement. Who is likely to be the better bargainer? Pete Lisa They will equally be effective These potential gains will have no impact on bargaining
These potential gains will have no impact on bargaining
Based on your knowledge of one-shot and repeated games, you can expect tipping behavior to differ depending on whether a person is eating at a hometown diner or in a restaurant located in central Missouri. As such patrons can be expected to have a greater tendency to tip at the hometown diner. True False
True
(Ch. 9&10) An industry is defined as: a group of firms producing the exact same products and services. firms producing items that sell through the same distribution channels firms that have the same resources and capabilities a group of firms producing products that are close substitutes
a group of firms producing products that are close substitutes
At the individual firm level, which of the following types of firms faces a downward-sloping demand curve? a perfectly competitive firm but not a monopolist neither a perfectly competitive firm, not a monopolist both a perfectly competitive firm and a monopolist a monopolist, but not a perfectly competitive firm
a monopolistic, but NOT perfect competitive firm
(Ch. 9&10) At an individual firm level, which of the following types of firms faces a downward-sloping demand curve? both a perfectly competitive firm and a monopoly neither a perfectly competitive firm nor a monopoly a perfectly competitive firm but not a monopoly a monopoly but not a perfectly competitive firm
a monopoly but not a perfect competitive market
(ch 15) the prisoner's dilemma is an example of: a sequential game a non-cooperative game a shirking game a dating game
a non-cooperative game
In general, the imposition of a per-unit (excise) tax on a good does NOT result in: Tax revenue raised from buyers and/or sellers an increase in the price paid by buyer deadweight loss due to the reduction in transaction volume an increase in prices sellers get to keep/take home
an increase in prices sellers get to keep/take home
(Ch. 9&10) Which of the following types of firms are guaranteed to make a positive economic profit? both a perfectly competitive firm and a monopoly neither a perfectly competitive firm nor a monopoly a perfectly competitive firm but not a monopoly a monopoly but not a perfect competitive firm
neither a perfectly competitive firm nor a monopoly
(ch 13) arbitrage: is the act of buying low in one market and selling high in another market can force a seller to go back to uniform pricing can defeat direct price discrimination all of the above
all of the above
(ch 13) which of the following conditions must be satisfied by a successful price discrimination scheme? the seller must have market power the seller must be able to identify different customer groups with different demand elasticities the seller must be able to precent arbitrage between the two groups ALL
all of the above
(ch 16) Labor: Bargain Hard Be Nice Mgmt: Bargain. 0,0 20,10 Be Nice 12,18 15,15 The two NE are (be nice, bargain hard) and (be nice, bargain hard) consider a vendor-buyer relationship. which of the following conditions would lead to buying having more bargaining power? lots of substitutes for the vendor's product are available there are relatively few buyers and many venodors it costs little for buyers to switch vendors all of the above
all of the above
(ch 13) Consumer A. Consumer B. Good 1: $2,300 $2,800 Good 2: $1,700. $ 1,200 what is better pricing strategy for the monopolist? at this price, what are the total profits to the monopolist? bundle the goods at $2,800; profits = $5,600 bundle the goods at $4,000; profits = $8000 charge $2,800 for good 1 and charge $1,700 for good 2; profits=$4,500 charging the lowest price for each good individually is the best pricing strategy; profits=$7,000
bundle the goods at $4,000; profits = $8000 *at this price, both consumers buy the TR (profit) is maximized
(ch 15) Firm B: Low Price High Price Firm A: Low Price 0,0 50, -10 High Price -10, 50 25,25 if this game is played once, then: firm A will charge a lower price and firm B will charge a lower price. firm A will charge a higher price and firm B will charge a lower price. firm A will charge a lower price and firm B will charge a higher price. firm A will charge a higher price and firm B will charge a higher price.
firm A will charge a lower price and firm B will charge a lower price.
(ch 16) the game of chicken has: second-mover advantage first-mover advantage no sequential-move advantage potential sequential-move advantages, depending on the players
first-mover advantage
(ch 12) For products like parking lots and hotels, costs of building capacity are mostly fixed/sunk and firms in this industry typically face capacity constraints. Therefore, if SRMR>SRMC @ capacity, the firms should price to fill capacity if SRMR<SRMC @ capacity, the firms should price to fill capacity if LRMR>LRMC @ capacity, the firms should price to fill capacity if LRMR<LRMC @ capacity , the firms should price to fill capacity
if SRMR>SRMC @ capacity, the firms should price to fill capacity *after capacity if built, only the SRMC are considered. Given the capacity constrain, the firm faces, when MR>MC in the short run, the best pricing policy to max profits is to price so as to fill the existing capacity
(ch 12) After massive promotion of Justin Bieber's latest music album, the producers reacted by raising prices for his albums. This implies that promotion expenditures made the album demand more elastic unitary elastic the change is due to psychological pricing less elastic
less elastic *in this case, consumers are made less price sensitive. As such, the desired markup should go up.
(ch 9&10) A sudden decrease in the market demand in a competitive industry leads to: losses in the short-run and a reversion to average profits in the long-run above average profits in the short-run and average profits in the long-run new firms being attracted to the industry demand creating supply
losses in the short-run and a reversion to average profits in the long-run
(Ch. 9&10) All of the following are examples of entry barriers, except: government protection through patents or licensing requirements strong brands low capital requirements for entry lower costs driven by economies of scale
low capital requirements for entry
Firm B Low P High P Low P (2, 2) (10, -8) Firm A High P (-8, 10) (6, 6) What are the secure strategies for firms A and B respectively? Remember the first entry in each cell is Firm A's payoff. low price, low price low price, high price high price, low price high price, high price
low price, low price
Price discrimination exists when: markups are constant among customers costs vary among customers prices vary among customers markups vary among customers
markups vary among customers
(ch 15) Super: Advertise Dont Advertise Mega: Advertise $95,$80. $305,$55 Dont $65,$285. $165,$115 when the game does reach the NE, the payoffs for both stores will be: megastore $95, superstore $80 megastore $305, superstore $55 megastore $65, superstore $285 megastore $165, superstore $115
megastore $95, superstore $80
(Ch. 9&10) What is the main difference between a competitive firm and a monopoly firm? the # of customers served by the firm monopoly firms are more efficient and therefore have lower costs monopoly firms can generally earn positive profits over a longer period of time none of the above
monopoly firms can generally earn positive profits over a longer period of time
Consider the following innovation game. Firm A must decide whether or not to introduce a new product. Firm B must decide whether or not to clone firm A's product. If firm A introduces and B clones, then firm A earns $1M and B earns $10 M. If A introduces and B does not clone, then A earns $10M and B earns $2M. If firm A does not introduce, both firms earn profits of $0. Which of the following is true? none of these statements associated with the question are correct the subgame perfect equilibrium profits are ($10m, $2m) it is not in firm A's interest to introduce the product Firm A does not care if B clones
none of these statements associated with the question are correct or it is not in firm A's best interest to introduce the product
(ch 13) a software firm can offer high-feature version of its software or a stripped down low-value version, each with similar production costs. Which of the following cannot be an optimal segmentation strategy? offer only the high-feature version aimed only at a high-value market segment offer only the low-value version aimed at all market segments offer both version targeted to different value segments offer only the high-feature version aimed at all market segments
offer only the low-value version aimed at all market segments *remember that if different market "segments" can be identified, selling a single version would not allow the company to profit maximize
The disagreement value (outside option) in axiomatic (non-strategic) bargaining is closely related to: total relative gain from reaching agreement fixed costs total payoffs from reaching agreement opportunity costs
opportunity costs
(Ch. 9&10) A firm in a perfectly competitive market (price taker) faces what type of demand curve? unit elastic perfectly inelastic perfectly elastic none of the above
perfectly elastic
(ch 12) all the below choices are examples of promoting a firm's product, except advertising pricing discount coupons end-of-aisle displays
pricing *pricing is the decision that has to be made regardless, not necessarily to promote the product
(ch 15) in repeated games, all of the below make it easier to get out of bad situations except: be nice, no strikes first respond immediately to rivals punish competitors as much as you can make sure your competitors can easily interpret your actions
punish competitors as much as you can *the point is to punish, but be forgiving
(ch 12) a firm started advertising its product and this changed the product's elasticity from -2 to -1.5. The firm should: raise price from $10 to $15 reduce price from $15 to $10 raise price from $7.5 to $10 reduce price from $10 to $7.5
raise price from $10 to $15 *the prices themselves (values) are not that important, but the price change in each pair. Remember the desired markup defines as 1/abs value of elasticity. If you calculate the value under each elasticity, you get .5 or 50% when elasticity is -2, and .67 r 67% when elasticity is -1.5. *assuming MC is the same, you can solve for MC. TAKE CHOICE A. If (P-MC)/P = 5. If the price increases to $15, the margin will be (15-5)/15 = 67%, what the desired margins suggests it should be
(ch 15) prisoners dilemma shows: rational choices can lead to bad outcomes rational choices lead to good outcomes that there are no ways to learn where the pitfalls lie none
rational choices can lead to bad outcomes
If a monopolist experiences an increase in marginal cost, then in order to maximize profits the monopolist should: reduce q and increase p reduce both q and p increase both q and p increase q and decrease p
reduce Q and increase P
An artificial restriction in the supply of a good in a competitive market results in (select all that apply): - decrease in prices paid by consumers - radical change in subjective consumer preferences - reduction in consumer and/or producer surplus - transfer of surplus from producers to consumers - reduction in mutually beneficial transaction volume
reduction in mutually beneficial transaction volume reduction in consumer and/or producer surplus
(ch 12) A firm that acquires a substitute product can try and reduce inter-product cannibalization by doing nothing repositioning its product or the substitute so that they do not directly compete with each other pricing each product at the same level raising prices on the low-margin products
repositioning its product or the substitute so that they do not directly compete with each other *refer back to Bud vs. Labatt example. Repositioning can be effected by selling products in different markets, or by rebranding them (domestic vs. import)
(ch 9&10) the concept that explains firms possessing different bundles of resources is: resource heterogeneity resource immobility barriers to entry imitability
resource heterogeneity
(ch 12) on average, if demand is unknown and costs of underpricing are ___________ than the costs of overpricing, then _____________. smaller; overprice smaller; underprice larger; underprice none
smaller; underprice
(Ch. 9&10) If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run some firms will leave the industry and price will rise some firms will enter the industry and price will rise some firms will leave the industry and price will fall some firms will enter the industry and price will fall
some firms will enter the industry and price will fall
(ch 12) after firm A producing one good acquired another firm B producing another good, it raised the prices for the bundle of goods. One can conclude that the goods were: substitutes complements not related none
substitutes *in this case, aggregate demand for substitutes is made LESS ELASTIC (which causes a decrease in marginal revenue) The recommendation is to RAISE prices on both products (by more for the lower margin product)
(Ch 9&10) Buyers have higher power when: firms sell a highly differentiated product they are not a significant purchaser of the suppliers output switching costs are low the buyer industry is highly fragmented (buyers are not concentrated)
switching costs are low
(ch 9&10) when a resource or capability is valuable and rare, a firm may gain a: sustainable competitive advantage competitive parity cost advantage temporary competitive advantage
temporary competitive advantage
(ch 12) firms tend to raise the price of their goods after acquiring a firm that sells a substitute food because they lose market power there is an increase in the overall demand for their products the bundle has a more elastic demand than individual goods the bundle has more inelastic demand than individual goods
the bundle has more inelastic demand than individual goods
(ch 13) when a firm practices perfect price discrimination, the demand curve is very inelastic the demand curve is the marginal revenue curve the demand curve is very elastic the marginal cost curve is the average cost curve
the demand curve is the marginal revenue curve *perfect price discrimination implies pricing each individual unit at the price indicated along the demand curve. As such, the demand curve becomes the marginal revenue curve.
(ch 12) a shoe-producing firm decides to acquire a firm that produces shoelaces. This implies that the firms aggregate demand will be LESS elastic than the individual demand the firms aggregate demand will be MORE elastic than the individual demand the firms aggregate demand will be of the SAME elasticity as the individual demand none
the firms aggregate demand will be MORE elastic than the individual demand *demand for a bundle containing complementary goods is MORE ELASTIC (price sensitive) than the demand for any of the individual products. Acquiring the complement product, the firm should lower prices on both
(ch 9&10) which of the following is critical for a firm adopting a cost-reduction strategy? the firm must be the first to adopt the cost-reduction strategy the strategy reduces costs by at least 10% the strategy is focused on reducing internal production costs the methods of achieving cost reductions are difficult to imitate
the methods of achieving cost reductions are difficult to imitate
Which of the following statements is true? the higher the average cost, the lower the profit-maximizing price the more elastic the demand, the lower the desired markup the higher the marginal cost, the lower the profit-maximizing price the more elastic the demand, the higher the desired markup
the more elastic the demand, the lower the desired markup
With price discrimination, higher prices are charged when: the price elasticity of demand is high the price elasticity of demand is low the cross-price elasticity of demand is low NONE of these are correct unitary income elasticity the cross-price elasticity of demand is high
the price of elasticity demand is low
(ch 12) After running a promotional campaign, the owners of a local shoe store decided to decrease the prices for the shoes sold in their store. One can imply that: the promotional expenditures made the demand for their shoes more ELASTIC the promotional expenditures made the demand for their shoes more INELASTIC the promotional expenditures has no effect on the shoe demand elasticity the owners got it wrong. to cover promotional expenses, they should have raised the prices
the promotional expenditures made the demand for their shoes more ELASTIC
(ch 13) Metering is: type of indirect price discrimination type of direct price discrimination an evaluation of a product an example of bundling
type of indirect price discrimination
(ch 15) Nash equilibrium is: where one player maximizes his payoff and the other doesn't where each player maximizes the expected payoff similar to a dominant strategy difficult to determine
where each player maximizes the expected payoff *the max payoff is given what the opponent is doing. The definition of the NE implies that neither player can improve their payoff by switching strategies unilaterally
(Ch. 9&10) In the long-run, which of the following outcomes is most likely for a firm? zero accounting profits but positive economic profits zero accounting profits positive accounting profits and positive economics profits zero economic profits but positive accounting profits
zero economic profits but positive accounting profits
Firm B Low P High P Low P (0, 0) (50, -10) Firm A High P (-10, 50) (20, 20) What is the maximum interest rate that can sustain collusion? ~15% ~20% ~67% ~30%
~$67 *$20+($20/interest) >= $50 $20/interest >=$30 $20/$30 >= interest 20/30=0.667
