Chapter 6 Quiz

Which of the following is an exit barrier for firms in an industry?

all of the above

What term best describes the paradox which says despite the conclusion that predatory pricing to deter entry appears irrational, many firms are commonly perceived as slashing prices to deter entry?

chain-store paradox

Which of the following is a potential risk of a brand umbrella?

if a new product under the umbrella fails, consumers may become disenchanted with the entire brand

Which term describes the situation where a smaller firm and potential entrant can use the incumbent's size to its own advantage?

judo economics

Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs?

limit pricing

What term describes a market where a monopolist cannot raise price above long run average cost?

perfectly contestable

Which of the following generally accompanies firms that survive as market entrants?

precipitous growth

What term describes when a firm sells a combination of goods and services at a price below what the individual items would cost?

predatory pricing

What are the two types of barriers to entry?

structural and strategic

What term describes a situation where two or more parties expend resources battling each other?

war of attrition

Which of the following conditions may make predatory pricing by incumbents rational?

when entrants are uncertain about market conditions