Micro Final Exam
If Bella and Martin cooperate, Bella would earn _____ more and Martin _____ more than they would without cooperation.
$1,000; $1,500
What challenge does a government face when regulating price in a natural monopoly?
Setting a price ceiling a the marginal cost of the last unit sold may cause the seller to have losses
If Assad charges $1, then Vlad should charge _____. If Assad charges $3, then Vlad should charge _____.
$1; $1
Use the check mark method to determine which cell contains a Nash equilibrium. Under a Nash equilibrium, Hui Er earns profits of _____, and Tasha earns profits of _____.
$3,000; $3,000
With no cooperation, the Nash equilibrium yields Bella a profit of _____ and Martin a profit of _____.
$4,000; $3,500
Tasha tries to put herself in Hui Er's shoes. Tasha concludes that if she (Tasha) charges $5, then Hui Er will charge _____ to earn a profit of _____.
$5; $3,000
Amal invests in equipment that allows him to win a contract to supply inputs to an interior designer. When the contract is up for renewal, the interior designer insists on no increases in the price she pays. This disappoints Amal, who wanted a price increase because some of his costs have risen, but he needs the sales to keep up with payments for the equipment. Amal is experiencing:
A hold-up problem
Which of the following sellers faces the least competitive pressure?
A monopolist with no direct rivals
Walmart has a large aisle that displays many different kinds of toothpastes. This observation indicates that the toothpaste market is
A monopolistically competitive market
A market has 10 sellers. The fifth and seventh size merge, becoming the largest seller in the market. how can this merger support competition in the market?
If the newly merged seller becomes more efficient and offer lower prices.
Which of the following is an example of a company practicing price discrimination?
Most passengers traveling on an airplane pay different prices for their tickets
When sellers in a market earn economic profits:
New sellers will be attracted into the market
Lena owns a cookie bakery in a small city. There are six other bakeries that offer cookies in the city. Which of the following is NOT an example of the threat of entry that Lena faces in her local baked goods market?
One of the six bakeries that offer cookies in the city may decide to cease cookie production in order to focus on cakes
Which of the following is NOT an example of a relationship-specific investment that could result in a hold-up problem?
Organizing the layout of a factory for the most efficient flow of the product line
Monopolizing is when a company gains market share by
Pushing suppliers not to sell inputs to rival companies
Which of the following is NOT an example of illegal collusion in a market?
Sellers include complete and accurate lists of ingredients on all products
What current development is making it possible for businesses to use more sophisticated price discrimination strategies than they were able to use before this century?
Sellers now have access to massive amounts of digital data on individual customers
What is price competition?
Sellers try to win customers through charging as low a price as possible
In the long run, the number of sellers and the level of profit in a market are both affected heavily by the _____ in the market.
Strength of the barriers to entry
Jorge is considering what to give his wife for their wedding anniversary. He is choosing between flowers, dinner at a restaurant, a weekend at a resort hotel, skydiving together, or a visit to her favorite museum. Based on Jorge's consideration of these options for a gift, Jorge considers them to be:
Substitute products
Use the check mark method to determine which cell, if any, has a Nash equilibrium, and then choose the correct description.
The Nash equilibrium is Gizelle earning profit of $3,000 and Devin earning profit of $2,500
How does a business owner know if it is financially worthwhile to open a business?
The business earns economic profits
When would an improved next best alternative NOT yield results for a company owner that is negotiating?
The company does not make the other party aware of its improved next best alternative
How would the discount effect on marginal revenue differ for a seller increasing sales from 100 units to 101 units compared to an increase in sales from 1,000 units to 1,001 units?
The discount effect would be smaller for a change from 100 to 101 units than 1,000 to 1,001
Patents on drugs to treat AIDS were removed in South Africa. How would the market for these drugs have been different if there had never been patents on drugs?
The drugs would not have been developed
Kroger offers a discounted price on bottles of soda if customers buy four or more bottles. What kind of price discrimination strategy is this?
The hurdle method
When sellers exit a market in which the average seller has losses, what results?
The losses shrink or disappear as the market demand is spread over a smaller number of sellers.
In a natural monopoly, what deters new sellers from entering the market?
The new seller would have much higher costs than the existing large seller in the market.
To prevent people from pretending to qualify for the market segment with the lowest price, a company manager that engages in group pricing needs to make sure that
There is a simple way to verify the segment in which a consumer qualifies
What effect do patents have on competition?
They reduce competition by creating a barrier to new companies entering a market
Sergio sells identical shirts under two brand names — Rags and Bees. The shirts with the Rags label sell for $70, and the shirts with the Bees label sell for $40. The Rags shirts hang wrinkle-free on a hanger, and the Bees shirts are folded and have some wrinkles. This is an example of price discrimination through
Using an imperfect product to create a hurdle
When setting prices for different groups of customers, a manager should charge higher prices for groups that
Value the product more
The cost advantages of established, large-scale producers in a market might be overcome by a new entrant who can:
develop a new, low-cost, small-scale production technology
Price discrimination through group pricing works when the basis for segmenting the consumers is _____, is _____, and separates consumers based on their _____.
verifiable; hard to change; reservation price for the product
The Clean Company sells a bottle of bathroom cleaner for $4 and a grout brush for $3. It offers a special deal for a package containing both the bathroom cleaner and the grout brush for $5. This type of quantity discount is known as
Bundling
A business owner spends on advertising with the intent that it will affect the demand for the company's product in what two ways?
By increasing the companies demand and making its demand more inelastic
Under the Five Forces framework, how can the market power of customers impact a seller's profitability?
Customers with market power can use their leverage to lower the selling price that sellers charge
When a company owner practices price discrimination, the marginal revenue of an extra unit sold
Equals its price
A characteristic of perfect competition that is not present in any other market structure is that there
are many sellers that produce identical products
Patents have a positive impact of _____ and the negative impact of _____.
encouraging research; creating a monopoly
A large department store advertises time-of-day discounts for particular items on a special sale day. The store is using _____ to create a _____ for the most price-sensitive customers to gain low prices.
fluctuating prices; hurdle
Merger harm society when they lead to...
increased market power
What effect does increasing competition have on price for firms with market power?
it drives the price down to the level of costs
With price discrimination, a company ends up selling
more but at an efficient output level
When advertising increases brand loyalty for your company's brand, then the company's demand curve becomes:
more inelastic
When firms in a market with free entry and exit have economic profits, then:
new companies will enter the market, reducing average company profits
The better a company's _____, the greater its _____.
next best alternative; bargaining power
To reduce price competition as much as possible, a seller should:
position its product to be as different from those of rivals as possible
When a seller uses a demand-side strategy to create barriers to entry, the seller is trying to:
prevent new entrants from attracting any of seller's customers
In the absence of product differentiation, _____ to prevail, leading to _____ profits.
price competition tends; low
_____ allow a profitable company to maintain profits over time.
barriers to entry
A seller strives to achieve consistently high quality in all its output so that customers can trust that they will be pleased with the product. Building a reputation for high quality is consistent with a seller trying to _____ through _____ strategy.
create customer lock-in; a demand-side
When price discrimination is practiced, a company sells _____ and charges _____ compared to what it would do without practicing price discrimination.
a larger output; a greater range of prices
In an oligopolistic market, the impact on a seller of the _____ is greater than in other types of market structures.
actions of other market sellers
Charging more for fast shipping than for slower shipping is an example of a retailer using _____ to create _____.
alternate versions; hurdles
If Elise's company is achieving cost advantages over rivals, it can maintain these advantages only if:
they are unique and cannot be copied by other companies
According to the rationalities rule of sellers, this company should produce _______ of output and charge a price of ________
three units; $200
The early bird specials at many restaurants are an example of using _____ to create _____.
timing; a hurdle
According to the Rational Rule for Sellers, the manager of this company should choose to produce _____ of output and charge a price of _____.
two units; $450
Which of the following mergers between two companies would be considered to be a vertical merger?
A fabric mill merges with a pants factory
Why is an expert hairstylist more likely to price discriminate than an expert jam maker?
A haircut cannot be resold, but a jar of jam can be resold
Price competition with identical products across producers leads to _____ because _____.
A low price; consumers choose a seller based on price
Artem's Day Spa sells facials at different prices to different groups of customers. The demand that the owner faces from each of two groups is depicted below. What price should he charge, and how many facials should he plan to provide for each group?
Group A: P=$130, Q=40; Group B: P=$100, Q=25
When new sellers enter a market, existing sellers will:
Have less market power
Which of the following statements about product differentiation is FALSE?
It is charging a lower price than other sellers
How long does it take for a company to be in the long run?
It takes as longs is needed for the number of sellers in the company's market to increase or decrease
The competitive forces in a market largely determine the _____ of the companies in the market.
Long term profitability
When there is only one buyer in a product market, a seller in the market:
May be pressured to sell at a lower price than if there were many buyers
The threat of potential substitutes is high when the substitutes:
Offer greater value for their price than the original product
In which of the following cases would a company's profits be threatened?
One of its key input providers gains market power in the input market
Which of the following is NOT an example of the hurdle method of price discrimination?
Providing group discounts to price-sensitive consumers based on an identifiable characteristic
When the emergence of new substitutes reduces the demand for a given product, the product's producer may benefit from:
Pursuing new complement opportunities
In which of the following situations would the supplier have the greatest power to hurt a business that is its customer?
The supplier rents building space to a bakery in a real estate market with a vacancy rate of less than .5%
Peter and Olga live near a lake with open fishing, and both have fishing boats there. They are the only two providers of fish to their local fish market. What is likely to happen if the local fish market maintains a Nash equilibrium?
The supply of fish will dwindle due to overfishing
Which of the following is FALSE?
When sellers exit an industry, market power will fall for the remaining sellers.
As a company manager, what do you need to know about your customers before you can successfully price discriminate?
You need to know each customer's reservation price.
When the typical seller in a market suffers economic losses, then:
some sellers will exit the market