BE 301 Exam 2

50. This __________ declared that price discrimination is illegal especially when it decreases competition. a. Robinson-Patman Act b. Sherman Antitrust Act of 1890. c. Merger Act d. Federal Trade Commission Act.

a. Robinson-Patman Act

31. When deciding how to price tickets to a sporting event, the ticket office should price the tickets to sell out if at capacity: a. Short Run MR > Short Run MC b. Short Run MR < Short Run MC c. Long Run MR > Long Run MC d. Long Run MR < Long Run MC

a. Short Run MR > Short Run MC

30. The industrial organization economics perspective assumes that the industry _____________ is the most important determinant of long-run profitability. a. Structure b. Conduct c. Performance d. None of the above

a. Structure

34. A firm producing one good (good A) acquired another firm producing a different good (good B). After the acquisition it raised the price of both goods. Based on this, we can conclude that the goods are a. Substitutes b. complements c. unrelated d. Not enough information is provided

a. Substitutes

How does an increase in income affect the market of ipads (normal good)? a. The demand curve for ipads to shift to the right b. The demand curve for ipads to shift to the left c. The supply curve for ipads to shift to the right d. The supply curve for ipads to shift to the left

a. The demand curve for ipads to shift to the right

A recent research signified the large health benefits of eating cooked tomatoes. Holding other things constant, this will cause a. The demand curve for tomatoes to shift to the right b. The demand curve for tomatoes to shift to the left c. The supply curve for tomatoes to shift to the right d. The supply curve for tomatoes to shift to the left

a. The demand curve for tomatoes to shift to the right

When a firm engages in first-degree price discrimination: [Mark All That Apply] a. The demand curve is the marginal revenue curve b. Producer surplus is maximized c. Total surplus is maximized d. There are unconsummated wealth-creating transactions

a. The demand curve is the marginal revenue curve b. Producer surplus is maximized c. Total surplus is maximized

36. A firm that acquires a substitute product can try and reduce inter-product cannibalization by a. Doing nothing b. Repositioning its product or the substitute so that they do not directly compete with each other c. Pricing each product at the same level d. Raising prices on the low-margin products

b. Repositioning its product or the substitute so that they do not directly compete with each other

In the labor negotiation game [Mark all that apply]: a. Your payoffs are always higher if you accommodate b. Your payoffs are always higher if your opponent accommodates c. Your payoffs from accommodating are only higher if your opponent bargains hard d. Your payoffs from accommodating are only higher if your opponent accommodates

b. Your payoffs are always higher if your opponent accommodates c. Your payoffs from accommodating are only higher if your opponent bargains hard

12. In the long-run, a perfectly competitively firm will achieve a. Negative economic profits b. Zero economic profits c. Positive economic profits d. Not enough information can be provided

b. Zero economic profits

65. To improve your own bargaining position: a. have low valued outside options b. increase the value of outside options c. do not alter the value of your outside options d. increase the value of your opponent's outside options

b. increase the value of outside options

32. On average, if demand is unknown and the cost of underpricing are __________ than the cost of over pricing, then firms should __________. a. Smaller; overprice b. smaller; underprice c. larger; underprice d. none of the above

b. smaller; underprice

52. Nash equilibrium is: a. where one player maximizes his payoff and the other doesn't b. where each player maximizes the expected payoff c. the same thing as a dominant strategy d. difficult to determine

b. where each player maximizes the expected payoff

Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market, what is the equilibrium price in this market? a. 7 b. 8 c. 9 d. 10

c. 9

54. First-mover advantage is a characteristic of a. A simultaneous-move game b. A dominant strategy c. A sequential-move game d. A Nash equilibrium

c. A sequential-move game

22. The five-forces model is a framework: a. For increasing buyer force in the market b. For improving competition in the industry c. For analyzing the attractive of an industry d. Of matching resources and capabilities of the firm

c. For analyzing the attractive of an industry

70. The reason we study the sequential labor negotiation game: a. Is to show that these games usually go on for rounds and rounds b. Is to show the importance of the first mover being able to commit to an offer c. Is to show the importance of the second mover being able to commit to an offer d. Is to show the problems of prisoners dilemmas

c. Is to show the importance of the second mover being able to commit to an offer

48. Which of the following would be described as indirect price discrimination? [Mark All That Apply] a. A car salesperson negotiating individual prices for individual customers b. Offering senior citizen discounts at restaurants c. Offering discounts to customers who buy greater volumes of the product d. Offering promotional discounts to students

c. Offering discounts to customers who buy greater volumes of the product

14. Suppose a market has many buyers, a few sellers, product differentiation, barriers to entry, and perfect information. How would we classify this market? a. Perfect Competition b. Monopolistic Competition c. Oligopoly d. Monopoly

c. Oligopoly

45. Which of the following would be described as a "damaged goods" strategy? a. Offering discounts for perishable items that were about to expire b. Offering discounts for products that had been accidentally damaged in some way c. Purposefully degrading the quality of a product in order to engage in price discrimination d. Offering similar products with differing capabilities to avoid cannibalizing sales

c. Purposefully degrading the quality of a product in order to engage in price discrimination

21. The resource-based view of sources of economic profit suggests that firms exhibit difference performances within the same industry because: a. There is less buyer power b. There are economies of scale c. Some firms have superior resources d. There is less competition

c. Some firms have superior resources

39. Firms tend to lower the price of their goods after acquiring a firm that sells a complementary good because a. They gain market power b. There is an increase in the overall demand for their products c. The bundle has a more elastic demand than individual goods d. The bundle has a more inelastic demand than individual goods

c. The bundle has a more elastic demand than individual goods

20. Suppose that in a particular industry that firms are making positive economic profits. Assuming that there are no barriers to entry or exit, what would we expect to happen to the number of firms in this industry in the long run? a. The number of firms will decrease b. The number of firms will remain unchanged c. The number of firms will increase d. Not enough information has been provided

c. The number of firms will increase

37. After running a promotional campaign, the owner of the local shoe store decided to decrease the prices for the shoes sold in their store. One can infer that: a. The promotional campaign reduced the elasticity of demand for the shoes b. The promotional campaign had no effect on the elasticity of demand for the shoes c. The promotional campaign increased the elasticity of demand for the shoes d. Not enough information has been provided

c. The promotional campaign increased the elasticity of demand for the shoes

42. Which of the following conditions must be satisfied by a successful price discrimination scheme? a. The seller must have a different product for each group of customers b. The seller must be able to identify each customer as having a high or low value c. The seller must be able to prevent arbitrage between low-value and high-value customers d. None of the above

c. The seller must be able to prevent arbitrage between low-value and high-value customers

53. A dominant strategy is: a. the same thing as a Nash equilibrium b. a strategy that makes the other player receive a lower payoff c. a strategy that always have a higher payoff, regardless of what the other player plays d. difficult to determine

c. a strategy that always have a higher payoff, regardless of what the other player plays

28. The resource-based view indicates that firms exhibit different performances within the same industry because a. there is less buyer power b. there are economies of scale present c. some firms have superior resources d. there is less competition

c. some firms have superior resources

In the labor negotiation game, how many pure strategy Nash-equilibrium are there? a. zero b. one c. two d. three

c. two

Suppose the demand for pens increases and the supply for pens decreases. What effect will it have on the quantity? a. It will rise b. It will fall c. uncertain d. None

c. uncertain

35. Which of the following are true? a. Some consumers may infer high prices of a good to signal high quality b. Promotional campaigns may affect consumer's perception on quality c. It makes more sense to raise price when advertising makes demand less elastic d. All of the above

d. All of the above

23. Firms maintain their competitive edge by a. Providing a good at lower costs than their rivals b. Providing a superior product at the same cost as your rival c. Being innovative d. All the above

d. All the above

51. Game theory assumes that to compute the likely outcome of games, one needs to assume that players act a. Rationally b. Optimally c. In their own self-interest d. All the above

d. All the above

In the strategic view of bargaining: a. You want to improve your opponent's outside options b. You want to decrease your outside options c. Bargaining is of a prisoner's dilemma game d. Bargaining is of a game of 'chicken'

d. Bargaining is of a game of 'chicken'

27. Which of the following is not an example of the three basic strategies to creating economic profits that are outlined in a text? a. Finding ways to reduce to costs b. Differentiating your product c. Reducing competition in the market d. Concealing information from customers

d. Concealing information from customers

11. These are characteristics of a perfectly competitive industry, except: a. Many sellers b. No barriers to entry c. Homogenous products d. Limited information

d. Limited information

63. In the labor negotiation game: a. Neither party prefers bargaining hard b. Neither party prefers accommodating the other c. Both parties bargain hard in the Nash equilibrium d. Neither party knows what the equilibrium will be

d. Neither party knows what the equilibrium will be

16. Monopolists will maximize profits by producing and selling the quantity where: a. Price is equal to marginal cost b. Price is equal to marginal revenue c. Price is equal to short-run average cost d. None of the above are correct

d. None of the above are correct

33. Suppose a firm started an advertising campaign to promote their product. This changed the product's elasticity of demand from -1.08 to -0.99. Based on this change the firm should: a. Lower prices as the demand is more elastic b. Lower prices as the demand is less elastic c. Raise prices as the demand is more elastic d. Raise prices as the demand is less elastic

d. Raise prices as the demand is less elastic

38. Cannibalization is: a. Reducing the sales of the firm's own products b. Improving quality over a rival's product c. Reducing costs d. Increasing one's output to reduce sales of another firm

a. Reducing the sales of the firm's own products

Changes in the price of a good cause [Mark all that apply]: a. Movement along the demand curve b. Movement along the supply curve c. A shift of the demand curve d. A shift of the supply curve

a. Movement along the demand curve b. Movement along the supply curve

15. Monopolies are characterized by which of the following? [Mark All That Apply] a. One Firm b. Many Firms c. No Close Substitutes d. Product Homogeneity

a. One Firm c. No Close Substitutes

41. A firm charging different customers different prices for the same product is engaged in: a. Price discrimination b. Price matching c. Markup pricing d. Predatory pricing.

a. Price discrimination

29. Which of the following increase product differentiation? [Mark all that apply] a. Product branding b. Improving quality c. Advertising d. Limiting availability

a. Product branding b. Improving quality c. Advertising d. Limiting availability

55. Prisoners Dilemma show a. Rational choices lead to bad outcomes b. Rational choices lead to good outcomes c. That there are no ways to learn where the pitfalls lie d. None of the above

a. Rational choices lead to bad outcomes

In the strategic view of bargaining: a. Bargaining is described by a strategic game b. Insights are drawn from how many similar games are played without specifying the strategies c. We use the fact that bargaining often results in a fifty-fifty split d. It is important to limit your opponent's disagreement value

a. Bargaining is described by a strategic game

25. When an industry has weak barriers to entry [Mark all that apply]: a. Economic profits will be lower b. Increases the likelihood of firms entering the industry c. Help firms maintain positive economic profits d. There will be higher levels of competition

a. Economic profits will be lower b. Increases the likelihood of firms entering the industry d. There will be higher levels of competition

18. Based on the idea of risk premiums, what should we expect people with higher (i.e., better) FICO scores to pay in terms of interest rates relative to people with average FICO scores? a. Higher FICO scores lead to lower interest rates b. Higher FICO scores lead to higher interest rates c. FICO scores are unrelated to interest rates d. Not enough information has been provided

a. Higher FICO scores lead to lower interest rates

43. Arbitrage: [Mark All That Apply] a. Is the act of buying low in one market and selling high in another market b.Cannot force a seller to change its pricing scheme c. Can defeat direct price discrimination d. Is illegal

a. Is the act of buying low in one market and selling high in another market c. Can defeat direct price discrimination

46. Which of the following is true about price discrimination? [Mark All That Apply] a. It means that some customers will pay a higher price b. It means that some customers will pay a lower price c. It means that fewer wealth-creating transactions will take place d. It means that firms will make higher profits

a. It means that some customers will pay a higher price b. It means that some customers will pay a lower price d. It means that firms will make higher profits

26. Based on the internal view of economic profits, what must be true about a resource for it to provide a sustainable competitive advantage? [Mark all that apply] a. It must be hard to imitate b. It must reduce costs c. It must increase value to customers d. It must come from the firm's history

a. It must be hard to imitate

40. For firms that face capacity constraints, firms should price to NOT sell out when which of the following is true? a. MR < MC at capacity b. MR = MC at capacity c. MR > MC at capacity d. None of the above.

a. MR < MC at capacity

The price of peanuts (an input in the production of peanut butter) increases. At the same time, we see the price for Jelly (a complement in the consumption of peanut butter) rise. How does this affect the market for peanut butter? a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right

a. The demand curve will shift to the left; the supply curve will shift to the left

10. A market is said to be in equilibrium if [Mark all that apply]: a. The market clears b. Quantity supplied = quantity demanded c. There are no unconsummated wealth-creating transactions d. Total surplus is maximized

a. The market clears b. Quantity supplied = quantity demanded c. There are no unconsummated wealth-creating transactions d. Total surplus is maximized

19. Which of the following most closely resembles a monopolistically competitive market? [Mark all that apply] a. The market for brand-name basketball shoes b. The market for patented pharmaceuticals c. The market for wheat d. The market for smart phones

a. The market for brand-name basketball shoes d. The market for smart phones

9. Which of the following will cause shifts in the demand curve [Mark all that apply]: a. The price of related goods b. The price of the good itself c. The number of buyers of the good d. The number of sellers of the goods

a. The price of related goods c. The number of buyers of the good

24. Which of the following are a part of the five-forces model? [Mark all that apply]: a. The threat of entry b. The power of buyers c. The power of sellers d. The threat of substitutes

a. The threat of entry b. The power of buyers c. The power of sellers d. The threat of substitutes

In the sequential version of the bargaining game: a. There is first-mover advantage b. There is second-mover advantage c. There is no sequential-mover advantage d. The labor union always has an advantage

a. There is first-mover advantage

49. Firms choose to price discriminate because [Mark all that apply]: a. To earn higher profits b. To sell goods to consumers who otherwise would not have purchased the good c. To reduce costs d. To defeat arbitrage

a. To earn higher profits b. To sell goods to consumers who otherwise would not have purchased the good

Based on the answer to question 4, the price for peanut butter_____________ and the quantity demanded for peanut butter ____________. a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain

a. Uncertain; decreases

In the sequential negotiation games [Mark all that apply]: a. You can induce a change in the strategy in your opponent only if your threat is believed b. Any threat can induce a change in strategy in your opponent c. A threat that is believed is one that you will not have to carry out d. Threats are only credible when they don't hurt you

a. You can induce a change in the strategy in your opponent only if your threat is believed c. A threat that is believed is one that you will not have to carry out

In the sequential labor negotiation game: a. Your ability to commit to a strategy gives you an advantage b. Your ability to commit to a strategy gives your opponent an advantage c. Your ability to commit to a strategy is irrelevant d. Players should simply state their desire to commit to a strategy to obtain an advantage

a. Your ability to commit to a strategy gives you an advantage

13. A sudden rise in the market demand in a competitive industry leads to which of the following? [Mark all that apply]: a. A market equilibrium price lower than the original equilibrium in the short-run b. A market equilibrium price higher than the original equilibrium in the short-run c. A market equilibrium price lower than the original equilibrium in the long-run d. A market equilibrium price higher than the original equilibrium in the long-run

b. A market equilibrium price higher than the original equilibrium in the short-run

If the government imposes a price floor at $10 (i.e. the price must be $10 or higher) in the market in question 6, how many goods will be traded? a. Four b. Five c. Six d. Seven

b. Five

47. Which of the following would be described as direct price discrimination? [Mark All That Apply] a. Offering price discounts via coupons b. Offering student discounts at movie theaters c. Offering discounts to customers who buy greater volumes of the product d. Offering promotional discounts to customers who are early adopters

b. Offering student discounts at movie theaters

17. Lipitor, a medication with few substitutes, should have an own-price elasticity of demand that is: a. Perfectly Inelastic b. Relatively Inelastic c. Relatively Elastic d. Perfectly Elastic

b. Relatively Inelastic