CH 16 ECN Final

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

brand reputation

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

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

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

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

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

focuses on emotions and provides few facts about the product.

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

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

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

greater; lower

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

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

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

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

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

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 indicate that the market supply is shrinking, leading to higher company profits. may exit the market, signaling that the market demand is weak and profits are low. 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. indicate that the market demand is weak, leading to lower company profits.

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.

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 production line. buying customized equipment to produce output to the specifications of a major customer. training employees in the same computer system and programming used by customers to simplify transfer of data locating a factory near a major supplier of inputs.

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

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

protect; from competition by new entrants

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

will more completely satisfy their wants; pay a higher price