practice exam 5
Marta wants to open a shop specializing in gourmet candies and is having a difficult time finding space to rent in a location where many potential customers pass each day. There are only two possible locations that meet Marta's criteria, and several other types of businesses are vying to rent each location. This leads to high rents. What challenge to profitability is Marta facing as she starts her business?
suppliers with bargaining power
When a seller uses group pricing, members of the same group pay
the same price for the product
The basis of product differentiation is to convince your customers that your product _________ so that customers will _________ for your firm's product
will be more completely satisfy their wants; pay a higher price
When a seller offers lower prices to those buyers who are willing to overcome some obstacle to get it, the seller is using _________ to get buyers to reveal their _________.
the hurdle method; reservation price
Market structure has signifiant impact on:
the long-term profitability of sellers in a market
Samantha wants to practice price discrimination in her cupcake bakery. Which strategy should Samantha NOT use?
the same price for all consumers for all cupcakes available
Which of the following is an example of price discrimination through haggling?
Arturo sells five identical shovels to five people at different prices at his yard sale based on negotiations with them
When a player's best response is to take a different (but complementary) action to the other player, then both participants are playing _________ game
an anti-coordination
A company will be subject to price competition if:
customers view its product as the same or very similar to the products of rival companies
While _________ markets do not necessarily lead to efficient outcomes, _________ markets tend to yield efficient outcomes
strategic interactions in; competitive
Players face the same strategic interaction an unknown number of times in _________ game
an indefinitely repeated
A company is able to maintain dominance in a product market by:
successfully differentiating its produce
Which of the following is NOT one of the four steps for making good strategic decisions? (2)
Assume that others will defer to your action
In most large cities in the United States (New York, Los Angeles, Chicago, Boston, to name a few), one can stay at a Marriott International in the downtown area, in a suburban community, or near the airport. These Marriott International establishments are examples of product differentiation by:
location
Use Figure: Payoff Matrix for Antojito and Carolina Reaper. The combined profit of Carolina Reaper and Antojito is maximized when Carolina Reaper produces _________ and Antojito produces _________.
low quantity; lower quantity
Many travelers that must fly for business have a service that purchases their tickets. Regardless of the time or year, when they must travel for a meeting, they do. As such, business travelers' demand for airline flights is relatively _________, and large increases in price will result in relatively _________ decreases in additional business travelers.
insensitive to price; small
Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides whether to price high or price low for the following week. The figure shows the profit per week earned by their two firms. Suppose the firms each decide to price high initially and adopt a Grim trigger strategy for the following weeks. After a few weeks, Alex's weekly profit would be _________, and Sybil's weekly profit would be _________.
$1,000; $1,000
Use the table with data for Maria and Jose to answer the question. If Jose charges $4, then Maria's beset option would be to charge _________ in order to earn _________.
$4; $180
Use the table with data for Gizelle and Devin to answer the question. Gizelle tries to put herself in Devin's place. If she (Gizelle) charges a price of $7, then she thinks that Devin will charge _________ to earn a profit of __________.
$6; $2,500
Use the table, with data for workers and firms, to answer the question. The payoff cells are labeled A, B, C, and D. The equilibria are cells _________. The boom is cell _________, and the bust is cell __________.
A and D; A; D
Med-Ready Supplies produces and sells thermometers that are basically identical to those sold by other companies in the market. However, Med-Ready thermometers sell for twice the price of the other thermometers. Why can Med-Ready charge higher prices than other sellers yet still maintain customers?
In the minds of customers, Med-Ready must have successfully differentiated its thermometers from the others
When a player faces the same strategic interaction a fixed number of times, the player is engaged in _________ game
a finitely repeated
Once an original decision has been made, what happens on a game tree with each additional decision made by a player?
a new branch is formed
If a player has Grim Trigger strategy, that player:
cooperates if other players have cooperated in all previous rounds but defects if any player ever defects
When players will be better off if they coordinate their choices, there is a:
coordination game
When setting prices for different groups of customers, a manager should charge higher prices to groups that have __________ and lower prices to groups that have __________.
higher marginal benefit; lower reservation prices
Two ways that effective advertising affects a company's demand are by _________ the demand for the company's product and the _________ of that product
increasing; inelasticity
The demand for air travel in the tourism industry tends to be relatively __________. Thus, small __________ in air fares will result in relatively _________ in air travel
insensitive to price; reduction; large increases
Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The BEST response for Next Wireless:
is to charge a low price
Use Figure: Oligopoly Pricing Strategy in Wireless TV Market I. If the two firms in the cable TV market collude:
neither firm advertises, and each earns $150,000
Alex and Sybil are the only producers of frozen yogurt in their town. Every week, each decides whether to price high or price low for the following week. The figure shows the profit per week earned by their two firms. The BEST response for Sybil is to:
price low
Barriers to entry _________ existing businesses _________.
protect; from competition by new entrants
Multiple equilibria exist when:
there is more than equilibrium
Which statement is informative advertising?
"The Westlake Fish House in Montauk is the only restaurant on the beach for 30 miles."
The figure shows the demand and marginal revenue curves for on-demand movie rentals on Xfinity Cable. Assume that marginal cost and average cost are constant at $40. If the cable company practices perfect price discrimination, consumer surplus will be:
$0
In which of the following situations would the level of competition be most intense?
More firms are in the market
In which of the following situations would a business's profits be most threatened by the bargaining power of customers?
There is only one customer, who represents the entire market demand
The ability to negotiate a higher price as a seller or a lower price as a buyer is known as:
bargaining power
Vickie, owner of a day spa, would use the hurdle method to price discriminate because she
does not have a good way to identify the reservation prices of buyers
Which of the following is NOT one of the three steps to take in segmenting customers into groups?
Charge higher prices to groups with more elastic demand
Which of the following is NOT one of the four steps for making good strategic decisions? (1)
Consider all the possible "what ifs" simultaneously
Which of the following is an example of an anti-coordination game?
Farid must decide whether to be aggressive or passive in negotiating the price of a new car
In an oligopoly, cooperation between firms usually leads to higher profits than defecting. In spite of this, cooperation doesn't usually occur because: (I) It is illegal (II) There is an incentive for each firm to cheat on an agreement to cooperate (III) An oligopolistic firm will typically prefer lower profits for itself if the only way to make higher collective profits in the industry is to improve profit position of its rivals
I and II
Which of the following statements about product differentiation is FALSE?
It is charging a lower price than other sellers
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
An interaction between two or more persons is considered a strategic interaction when:
an individual's best choice may depend on what the others choose, an other's best choice may depend on what the individual chooses
A basic rule of thumb, when price competition is subdued, a company owner should:
minimize product differentiation
How common are strategic interactions and games in people's lives?
They are a pervasive part of life that occur daily or weekly
Use Figure: Prisoners' Dilemma for Thelma and Louise. Thelma and Louise are arrested and jailed for bank robbery. Given the payoff matrix in the figure, Thelma and Louise would minimize their joint sentence if Thelma _________ and Louise _________.
does not confess; does not confess
A company's decision regarding the degree to which it should vertically integrate or be more specialized is basically a trade-off between _________ and _________.
eliminating the bargaining power of customers and suppliers; providing incentives for efficiency and profit
Some economists think that advertising is a waste of resources because:
it adds to production costs
