endofchapter?BE301 CHP8-12

Two hospitals are bargaining with an MCO to get into its provider 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 $100 It depends on the ability of the merged hospital to credibly commit to a take- it-or-leave-it offer.

$0

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 out- side or next best alternative? $0 $5,000 $10,000 $20,000

$20,000

A perfectly competitive firm's profit-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

Now suppose that competition among sev- eral market makers forces the spread down to $2. How many goods are traded? Five Four Three Two

Four

When demand for a product falls, which of the following events would you NOT necessarily expect to occur? A decrease in the quantity of the product supplied A decrease in its price A decrease in the supply of the product A leftward shift of the demand curve

A decrease in the supply of the product

At the individual firm level, which of the following types of firms faces a downward- sloping demand curve?

A monopoly but not a perfectly competitive firm

Changes in prices of a good causes movement along the demand curve. movement along the supply curve. no effect to either curve. Both a and b

Both a and b

Holding other factors constant, a decrease in the tax for producing coffee causes A. the supply curve to shift to the left, causing the prices of coffee to rise. B. the supply curve to shift to the right, causing the prices of coffee to rise. C. the supply curve to shift to the left, causing the prices of coffee to fall. D. the supply curve to shift to the right, causing the prices of coffee to fall.

D. the supply curve to shift to the right, causing the prices of coffee to fall.

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

If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur? Both equilibrium price and the equilibrium quantity could rise or fall. Equilibrium price would rise, and the equilibrium quantity could rise or fall. Equilibrium price would fall, and the equilibrium quantity could rise or fall. Equilibrium price would fall, and the equilibrium quantity would fall.

Equilibrium price would fall, and the equilibrium quantity could rise or fall.

In the long run, which of the following out- comes is most likely for a firm?

Zero economic profits but positive accounting profits

An industry is defined as

a group of firms producing products that are close substitutes

The prisoners' dilemma is an example of a sequential game. a noncooperative game. a shirking game. a dating game

a noncooperative game.

When a resource or capability is valuable, rare, hard to imitate, and nonsubstitutable firms may gain

a sustainable competitive advantage

Metering is a. a type of indirect price discrimination. b. a type of direct price discrimination. c. an evaluation of a product. d. an example of bundling.

a. a type of indirect price discrimination.

For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints. Therefore, a. if SRMR > SRMC at capacity, then the firms should price to fill capacity. b. if SRMR < SRMC at capacity, then the firms should price to fill capacity. c. if LRMR > LRMC at capacity, then the firms should price to fill capacity. d. if LRMR > LRMC at capacity, then the firms should price to fill capacity.

a. if SRMR > SRMC at capacity, then the firms should price to fill capacity.

Prisoners' dilemmas show that a. rational choices can lead to bad outcomes. b. rational choices can lead to good outcomes. c. there are no ways to learn where the pitfalls lie. d. None of the above

a. rational choices can lead to bad outcomes.

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 a. substitutes. b. complements. c. not related. d. None of the above

a. substitutes.

After running a promotional campaign, the owners of a local shoe store decided to de- crease the prices for the shoes sold in their store. One can infer that a. the promotional expenditures made the demand for their shoes more elastic. b. the promotional expenditures made the demand for their shoes less elastic. c. the promotional expenditures has no effect on the shoe demand elasticity. d. the owners got it wrong. To cover the promotional expenses, they should have raised the prices.

a. the promotional expenditures made the demand for their shoes more elastic.

Suppose there is a single market maker in this market. What is the optimal bid-ask spread? a. $2 bid; $10 ask b. $4 bid; $8 ask c. $5 bid; $7 ask d. $6 bid; $6 ask

b. $4 bid; $8 ask

Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming no transactions costs and a competitive market, what is the equilibrium price in this market? a. $5 b. $6 c. $7 d. $8

b. $6

Which of the products below is closest to operating in a perfectly competitive industry? a. Nike shoes b. Eggs c. Perdue Chicken d. Restaurants

b. Eggs

Which of the following types of firms are guaranteed to make positive economic profit? a. Both a perfectly competitive firm and a monopoly b. Neither a perfectly competitive firm nor a monopoly c. A perfectly competitive firm but not a monopoly d. A monopoly but not a perfectly competitive firm

b. Neither a perfectly competitive firm nor a monopoly

A software firm can offer a 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 strategy? a. Offer only the high-feature version aimed only at a high-value market segment. b. Offer only the low-value version aimed at all market segments. c. Offer both versions targeted to different value segments. d. Offer only the high-feature version aimed at all market segments.

b. Offer only the low-value version aimed at all market segments.

Airlines charge a _________ price to business travelers compared to leisure travelers because business travelers have ________a demand than leisure travelers. a. higher; more elastic b. higher; less elastic c. lower; more elastic d. lower; less elastic

b. higher; less elastic

All the below choices are examples of promoting a firm's product, except a. advertising. b. pricing. c. discount coupons. d. end-of-aisle displays.

b. pricing.

A firm that acquires a substitute product can 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.

When a firm practices perfect price discrimination a. the demand curve is very inelastic. b. the marginal revenue is the demand curve. c. the demand curve is very elastic. d. the marginal cost curve is the average cost curve.

b. the marginal revenue is the demand curve.

A firm in a perfectly competitive market (a price taker) faces what type of demand curve? a. Unit elastic b. Perfectly inelastic c. Perfectly elastic d. None of the above

c. Perfectly elastic

Assume that the price elasticity of demand for movie theatres is -0.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theater to maximize total revenue, it should a. charge the same price for both shows, holding other things constant. b. charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant. c. charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant. d. Need more information

c. charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant.

All of the following are example of entry barriers, except a. government protection through patents or licensing requirements. b. strong brands. c. low capital requirements for entry. d. lower costs driven by economies of scale.

c. low capital requirements for entry.

In repeated games, all of the below make it easier to get out of bad situations except a. be nice, no first strikes b. respond immediately to rivals c. punish competitors as much as you can d. make sure your competitors can easily interpret your actions.

c. punish competitors as much as you can

For threats or commitments to be effective, they must be irrational. rational. credible. None of the above

credible.

Arbitrage a. is the act of buying low in one market and selling high in another market. b. can force a seller to go back to uniform pricing. c. can defeat direct price discrimination. d. All of the above

d. All of the above

Consider a vendor-buyer relationship. Which of the following conditions would lead to the buyer having more bargaining power? a. Lots of substitutes for the vendor's product are available. b. There are relatively few buyers and many vendors. c. It costs little for buyers to switch vendors. d. All of the above

d. All of the above

Which of the following conditions must be satisfied by a successful price discrimination scheme? a. The seller must have market power. b. The seller must be able to identify different customer groups with different demand elasticities. c. The seller must be able to prevent arbitrage between the two groups. d. All of the above

d. All of the above

Which of the following is critical for a firm adopting a cost-reduction strategy? a. The firm must be the first to adopt the cost-reduction strategy. b. The strategy reduces costs by at least 10%. c. The strategy is focused on reducing internal production costs. d. The methods of achieving cost reductions are difficult to imitate.

d. The methods of achieving cost reductions are difficult to imitate.

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 $1,000, provided they reach agreement. Who is likely to be the better bargainer? a. Pete b. Lisa c. They will be equally effective. d. These potential gains will have no impact on bargaining.

d. These potential gains will have no impact on bargaining.

If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded? a. Five b. Four c. Three d. Two

d. Two

Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because a. they lose 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 less elastic demand than individual goods.

d. the bundle has a less elastic demand than individual goods

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.

the game of chicken has

first-mover advantage

Attractive industries have all the following, except high supplier power. low buyer power. high entry barriers. low rivalry.

high supplier power.

Nash equilibrium

is where each player maximizes the expected payoff

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.

A sudden decrease in the market demand in a competitive industry leads to

losses in the short run and and average profits in the long run

What is the main difference between a competitive firm and a monopoly firm?

monopoly firms can generally earn positive profits over a longer period of time

A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the firm's aggregate demand (shoes + laces) will be: less elastic than the individual demands. more elastic than the individual demands. same elasticity as the individual demands. None of the above

more elastic than the individual demands.

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 concept that explains firms possessing different bundles of resources is resource heterogeneity. resource immobility. barriers to entry. imitability.

resource heterogeneity.

On average, if demand is unknown and costs of underpricing are______ than the costs of overpricing, then _______. smaller; overprice smaller; underprice larger; underprice None of the above

smaller; underprice

If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long run

some firms will enter the industry and price will fall

Buyers have higher power when

switching costs are low.

When a resource or capability is valuable and rare, a firm may gain a

temporary competitive advantage