question
Individual demand
answer
How many units an individual will purchase at a given price
question
Aggregate demand
answer
also called market demand
the total number of units that will be purchased by a group of consumers at a given price
the total number of units that will be purchased by a group of consumers at a given price
question
What kind of decision is pricing?
answer
Extent decision
question
When should price be reduced? Increased?
answer
Reduce price (increase quantity) if MR > MC
Increase price (reduce quantity) if MR < MC
Increase price (reduce quantity) if MR < MC
question
What is the optimal price?
answer
Where MR = MC
question
Price elasticity of demand
answer
Measure of how responsive quantity demanded is to changes in price
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
if absolute value of e is >1 then demand is elastic
if absolute value of e is <1 then demand is inelastic
Estimated price elasticity = [(Qt-Q2)/(Q1+Q2)] / i(P1-P2)/(P1+P2)]
this equation is used to estimate demand from a price and quantity change
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
if absolute value of e is >1 then demand is elastic
if absolute value of e is <1 then demand is inelastic
Estimated price elasticity = [(Qt-Q2)/(Q1+Q2)] / i(P1-P2)/(P1+P2)]
this equation is used to estimate demand from a price and quantity change
question
What happens to revenue when prices increase in a product with elastic demand?
answer
Revenue decreases
question
What happens to revenue when prices increase in a product with inelastic demand?
answer
Revenue increases
question
The more elastic a product is the _____ the optimal price
answer
lower
question
The five factors that affect elasticity:
(answer "more" or "less")
1. Products with close substitutes have ____ elastic demand
2. Products with any complements have _____ elastic demand
3. Demand for brands is _____ elastic than industry demand
4. In the long run, demand becomes _____ elastic
5. As price increases, demand becomes _____ elastic
(answer "more" or "less")
1. Products with close substitutes have ____ elastic demand
2. Products with any complements have _____ elastic demand
3. Demand for brands is _____ elastic than industry demand
4. In the long run, demand becomes _____ elastic
5. As price increases, demand becomes _____ elastic
answer
1. more
2. less
3. more
4. more
5. more
2. less
3. more
4. more
5. more
question
What are three other measures of elasticity that affect demand?
answer
income elasticity
cross-price elasticity
advertising elasticity
cross-price elasticity
advertising elasticity
question
Stay-even analysis
answer
can be used to determine the quantity change required to offset a price change
%change quantity = %change price / (%change price + margin)
%change quantity = %change price / (%change price + margin)
question
When is a proposed price increase profitable? (regarding stay-even quantity)
answer
If the predicted quantity loss is less than the stay-even quantity
question
%change Revenue
answer
%change Revenue = %change Price + %change Quantity
question
How to use elasticity to forecast changes in demand
answer
%change Quantity = %change Price / (%change Price + margin)
question
Jim has estimated elasticity of demand for gasoline to be -0.7 in the short run and -1.8 in the long run. A decrease in taxes on gasoline would
a) lower tax revenue in both the short and long run
b) raise tax revenue in both the short and long run
c) raise tax revenue in the short run but lower tax revenue in the long run
d) lower tax revenue in the short run but raise tax revenue in the long run
a) lower tax revenue in both the short and long run
b) raise tax revenue in both the short and long run
c) raise tax revenue in the short run but lower tax revenue in the long run
d) lower tax revenue in the short run but raise tax revenue in the long run
answer
c) raise tax revenue in the short run but lower tax revenue in the long run
question
Which of the following is true?
a) Nike has a less elastic demand curve than shoes
b) the demand curve for gas is more elastic in the short run than in the long run
c) cigarettes have a more elastic demand than televisions
d) salt has a less elastic demand than ice cream
a) Nike has a less elastic demand curve than shoes
b) the demand curve for gas is more elastic in the short run than in the long run
c) cigarettes have a more elastic demand than televisions
d) salt has a less elastic demand than ice cream
answer
d) salt has a less elastic demand than ice cream
question
Jim recently graduated from college. His income increased tremendously from $5000 a year to $60000 a year. He decided instead of renting he will buy a house. What type of goods does this imply that houses are for Jim?
answer
normal goods
question
Which of the following goods has a negative income elasticity of demand?
a) cars
b) items from dollar stores
c) shoes
d) bread
a) cars
b) items from dollar stores
c) shoes
d) bread
answer
b) items from dollar stores
question
An economist estimated the cross-price elasticity for peanut butter and jelly to be 1.5. Based on this information, we know peanut butter and jelly are what type of goods?
answer
Complements
question
Christine has purchased five bananas and is considering purchasing a sixth. What must be true of the marginal benefit for her to purchase the extra banana?
answer
She will purchase if marginal benefit of the sixth banana exceeds the marginal price
question
Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased prices, what do you expect will occur in the Budweiser market?
answer
Demand will fall and Budweiser would reduce prices
question
Which of the following is the reason for the existence of consumer surplus?
a) Consumers can purchase goods that they "want" in addition to goods they "need"
b) Consumers can occasionally purchase products for less than their production cost
c) Some consumers receive temporary discounts that result in below-market prices
d) Some consumers are willing to pay more than the price
a) Consumers can purchase goods that they "want" in addition to goods they "need"
b) Consumers can occasionally purchase products for less than their production cost
c) Some consumers receive temporary discounts that result in below-market prices
d) Some consumers are willing to pay more than the price
answer
d) Some consumers are willing to pay more than the price
question
A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The MC per dozen is $8. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price increase is profitable?
answer
33.3%
Use stay-even analysis:
%change quantity = %change price / (%change price + margin)
%change price = (20 - 16) / 16 = 1/4 = 25%
margin = (P-MC) / P = (16 - 8) / 16 = 1/2 = 50%
%change quantity = .25 / (.25 + .5) = .25 / .75 = .3333
Use stay-even analysis:
%change quantity = %change price / (%change price + margin)
%change price = (20 - 16) / 16 = 1/4 = 25%
margin = (P-MC) / P = (16 - 8) / 16 = 1/2 = 50%
%change quantity = .25 / (.25 + .5) = .25 / .75 = .3333
question
Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is -3, how should you adjust the price if you want to sell all of your output?
a) 5% lower
b) 0.5% lower
c) 15% higher
d) 15% lower
a) 5% lower
b) 0.5% lower
c) 15% higher
d) 15% lower
answer
a) 5% lower
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
-3 = 15% / % change price
15 / -3 = -5%
Price elasticity of demand (e) = (% change in quantity demanded) / (% change in price)
-3 = 15% / % change price
15 / -3 = -5%
question
Complement
answer
a good whose demand increases when the price of another good decreases
examples: parking lot and shopping mall, hamburger patty and hamburger bun
examples: parking lot and shopping mall, hamburger patty and hamburger bun
question
cross-price elasticity of demand
answer
the cross-price elasticity of demand for good A with respect to the price of Good B measures the percentage change in demand of good A caused by a percentage change in the price of good B
question
Elastic
answer
sensitive to price
question
First law of demand
answer
consumers demand (purchase) more as price falls, assuming all other factors are held constant
question
Income elasticity of demand
answer
measures the percentage change in demand arising from a percentage change in income
question
Inferior goods
answer
demand decreases as income increases
question
Marginal profit
answer
the extra profit from producing and selling one more unit (MR-MC)
question
Normal goods
answer
demand increases as income increases
question
Substitute
answer
a good whose demand increases when price of another good increases.
example: Pepsi and Coke
example: Pepsi and Coke
question
Constant returns to scale
answer
when average costs are constant with respect to output level
question
Decreasing returns to scale
answer
when average costs rise with output
also called diseconomies of scale
also called diseconomies of scale
question
Diseconomies of scope
answer
when the cost of producing two products jointly is more than the cost of producing those two products separately
question
Increasing returns to scale
answer
when average cost fall as output increases
also called economies of scale
economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.
also called economies of scale
economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.
question
Law of diminishing marginal returns
answer
as you try to expand output, your marginal productivity (the extra output associated with extra inputs) eventually declines
question
Learning curves
answer
current production lowers future costs
question
Economies of scope
answer
when the cost of producing two outputs jointly is less than the cost of producing them separately
Cost (Q1, Q2) < Cost(Q1) + Cost(Q2)
Cost (Q1, Q2) < Cost(Q1) + Cost(Q2)
question
Increasing marginal costs eventually cause _______ (increasing/decreasing) average costs and make it ______ (more/less) difficult to compute break-even prices
answer
1. increasing
2. more
2. more
question
Microsoft found that instead of producing a DVD player and a gaming system separately, it is cheaper to incorporate DVD playing capabilities in its new version of the gaming system. Microsoft is taking advantage of
a) economies of scale
b) learning curve
c) economies of scope
d) decreasing marginal costs
a) economies of scale
b) learning curve
c) economies of scope
d) decreasing marginal costs
answer
c) economies of scope
question
As a golf club production company produces more clubs, the average total cost of each club produced decreases. This is because
a) total fixed costs are decreasing as more clubs are produced
b) average variable cost is decreasing as more clubs are produced
c) there are scale economies
d) total variable cost is decreasing as more clubs are produced
a) total fixed costs are decreasing as more clubs are produced
b) average variable cost is decreasing as more clubs are produced
c) there are scale economies
d) total variable cost is decreasing as more clubs are produced
answer
a) total fixed costs are decreasing as more clubs are produced
Average fixed cost is a per-unit-of-output measure of fixed costs. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
Average fixed cost is a per-unit-of-output measure of fixed costs. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
question
Average cost curves initially fall due to
a) declining average FC
b) rising average FC
c) declining accounting costs
d) rising marginal costs
a) declining average FC
b) rising average FC
c) declining accounting costs
d) rising marginal costs
answer
a) declining average FC
question
What might you reasonably expect of an industry in which firms tend to have economies of scale?
a) exceptional competition among firms
b) a large number of firms
c) highly diversified firms
d) a small number of firms
a) exceptional competition among firms
b) a large number of firms
c) highly diversified firms
d) a small number of firms
answer
d) a small number of firms
question
A security system company's total production costs depend on the number of systems produced according to the following equation:
Total Costs = $20,000,000 +($4000*quantity produced)
Given these data, which of the following is false?
a) there are economies of scale
b) there are fixed costs associated with this business
c) there are diseconomies of scale
d) a firm that produces a larger output has a cost advantage over a smaller firm
Total Costs = $20,000,000 +($4000*quantity produced)
Given these data, which of the following is false?
a) there are economies of scale
b) there are fixed costs associated with this business
c) there are diseconomies of scale
d) a firm that produces a larger output has a cost advantage over a smaller firm
answer
c) there are diseconomies of scale
question
Following are the costs to produce Product A, Product B, and Products A and B together. Which of the following exhibits economies of scope?
a) 100, 150, 240
b) 100, 150, 250
c) 100, 150, 260
d) All of the above
a) 100, 150, 240
b) 100, 150, 250
c) 100, 150, 260
d) All of the above
answer
A) 100, 150, 240
question
According to the law of diminishing marginal returns, marginal returns
a) diminish always prior to increasing
b) diminish constantly
c) diminish never
d) diminish eventually
a) diminish always prior to increasing
b) diminish constantly
c) diminish never
d) diminish eventually
answer
d) diminish eventually
question
It costs a firm $90 per unit to produce product A and $70 per unit to produce product B individually. If the firm can produce both products together at $175 per unit of product A and B, what does this exhibit signs of?
answer
Diseconomies of scope
question
Once marginal costs rise above the average cost, average costs will _______
answer
increase
question
Controllable factor
answer
something that affects demand that a company can change. Examples include price, advertising, warranties and product quality.
question
Market equilibrium
answer
the price at which quantity supplied equals quantity demanded.
If price is above equilibrium there are too many sellers, which forces price down.
If price is above equilibrium there are too many sellers, which forces price down.
question
Movement along the demand curve
answer
change in quantity demanded (increase or decrease) in response to change in price
question
Shift of the demand curve
answer
a change in demand caused by any variable except price. If demand increases (shifts up and to the right), consumers demand larger quantities of the good at the same price. If demand increases (shifts down and to the left), consumers demand lower quantities of the good at the same price. Shifts are caused by factors like advertising, changes in consumer tastes, and product quality changes.
question
Market demand
Market supply
Market supply
answer
describes buyer behavior
describes seller behavior in a competitive market
describes seller behavior in a competitive market
question
Changes in prices of a good causes
a) movement along the demand curve
b) movement along the supply curve
c) no movement along either curve
d) both a and b
a) movement along the demand curve
b) movement along the supply curve
c) no movement along either curve
d) both a and b
answer
d) both a and b
question
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?
a) both equilibrium price and equilibrium quantity could rise or fall
b) the equilibrium price would rise and the equilibrium quantity could rise or fall
c) the equilibrium price would fall and the equilibrium quantity could rise or fall
d) the equilibrium price would fall and the equilibrium quantity would fall
a) both equilibrium price and equilibrium quantity could rise or fall
b) the equilibrium price would rise and the equilibrium quantity could rise or fall
c) the equilibrium price would fall and the equilibrium quantity could rise or fall
d) the equilibrium price would fall and the equilibrium quantity would fall
answer
d) the equilibrium price would fall and the equilibrium quantity would fall
question
When demand for a product falls which of the following events would you NOT expect to occur?
a) decrease in quantity of the product supplied
b) decrease in its price
c) decrease in supply of the product
d) leftward shift of the demand curve
a) decrease in quantity of the product supplied
b) decrease in its price
c) decrease in supply of the product
d) leftward shift of the demand curve
answer
c) decrease in supply of the product
question
Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will _________ and the quantity will _________.
answer
fall, rise
question
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 there are no transaction costs, what is the equilibrium price in this market?
answer
$6
question
If the government imposes a price floor at $9 in the above market, how many goods will be traded?
answer
Two
question
1. Say the average price of a new home in Lampard City is $160,000. The local government has just passed a new licensing requirement for housing contractors. Based on possibly shifts in demand or supply and assuming the licensing changes don't affect the quality of new houses, which of the following is a reasonable prediction for the average price of a new home in the future?
a) $140,000
b) 150,000
c) 160,000
d) 170,000
2. Suppose a new employer is also relocating to Lampard City and will be attracting many new people who will want to buy new houses. What will happen to the equilibrium quantity of new homes bought and sold?
a) $140,000
b) 150,000
c) 160,000
d) 170,000
2. Suppose a new employer is also relocating to Lampard City and will be attracting many new people who will want to buy new houses. What will happen to the equilibrium quantity of new homes bought and sold?
answer
1. $170,000
2. not enough information
2. not enough information
question
The price of peanuts increases. At the same time, we see the price of jelly rise. How does this affect the market for peanut butter? (regarding demand and supply curves)
answer
The demand curve will shift to the left and the supply curve will shift to the left
question
Holding other factors constant, a decrease in the tax for producing coffee causes what to happen to the supply curve and price?
answer
The supply curve shifts to the right and the price of coffee falls
question
Demand is P=13-Q
Supply is P=4+Q
If you are the supplier, what quantity should you sell?
What is your gross profit at that quantity?
Supply is P=4+Q
If you are the supplier, what quantity should you sell?
What is your gross profit at that quantity?
answer
sell two
gross profit is $6
gross profit is $6
question
Compensating wage differentials
answer
differences in wages that reflect differences in the inherent attractiveness of various professions or jobs (once equilibrium has been reached)
Wage differential is a term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job. A compensating differential, which is also called a compensating wage differential or an equalizing difference, is defined as the additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform.
Wage differential is a term used in labor economics to analyze the relation between the wage rate and the unpleasantness, risk, or other undesirable attributes of a particular job. A compensating differential, which is also called a compensating wage differential or an equalizing difference, is defined as the additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform.
question
What 3 factors characterize a competitive industry?
answer
1. firms produce a product or service with very close substitutes (meaning demand is very elastic)
2. firms have many rivals and no cost advantage over those rivals
3. the industry has no barriers to entry or exit
2. firms have many rivals and no cost advantage over those rivals
3. the industry has no barriers to entry or exit
question
What do we know about competitive firms in the short and long run?
answer
short run: can earn positive or negative profit (until entry or exit occurs)
long run: earn only an average rate of return
long run: earn only an average rate of return
question
Indifference principle
answer
if an asset is mobile, then in long-run equilibrium, the asset will be indifferent about where it is used
(it will make the same profit no matter where it goes)
(it will make the same profit no matter where it goes)
question
For firms in long-run equilibrium, what is true about economic profit? Accounting profit? Price in relation to cost?
answer
-earn zero economic profit (including opportunity cost of capital)
-firms break even
-price equals average cost
(no one wants to leave or enter industry)
-firms break even
-price equals average cost
(no one wants to leave or enter industry)
question
Mean reversion
answer
performance eventually moves back toward the mean (regression toward the mean)
question
Monopoly
answer
a firm that is the single seller in its market. Monopolies have market power because they produce a product or service without close substitutes, they have no rivals, and barriers to entry prevent other firms from entering the industry
Monopoly firms can earn positive profit for a longer period of time than competitive firms
Monopoly firms can earn positive profit for a longer period of time than competitive firms
question
Risk premium
answer
Higher expected rates of return that compensate investors in risky assets. In equilibrium, differences in rate of return reflect differences in the riskiness of an investment.
question
In the long run, which of the following is most likely for a firm?
a) zero accounting profits but positive economic profits
b) zero accounting profits
c) positive accounting profits and positive economic profits
d) zero economic profits but positive accounting profits
a) zero accounting profits but positive economic profits
b) zero accounting profits
c) positive accounting profits and positive economic profits
d) zero economic profits but positive accounting profits
answer
d) zero accounting profits but positive accounting profits
question
At the individual firm level, which of the following types of firms faces a downward sloping demand curve?
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive firm but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive firm but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm
answer
a) both a perfectly competitive firm and a monopoly firm
question
Which of the following types of firms are guaranteed to make positive economic profit?
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive firm but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive firm but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm
answer
d) a monopoly firm but not a perfectly competitive firm
question
What is the difference between a competitive firm and a monopoly firm?
a) number of customers served by the firm
b) monopoly firms are more efficient and therefore have lower costs
c) monopoly firms can generally earn positive profits over a longer period of time
d) monopoly firms enjoy government protection from competition
a) number of customers served by the firm
b) monopoly firms are more efficient and therefore have lower costs
c) monopoly firms can generally earn positive profits over a longer period of time
d) monopoly firms enjoy government protection from competition
answer
c) monopoly firms can generally earn positive profits over a longer period of time
question
Which of the products below is closest to operating in a perfectly competitive industry?
a) Nike shoes
b) cotton
c) Perdue chicken
d) restaurants
a) Nike shoes
b) cotton
c) Perdue chicken
d) restaurants
answer
b) cotton
question
A firm in a perfectly competitive market faces what type of demand curve?
a) unit elastic
b) perfectly inelastic
c) perfectly elastic
d) none of the above
a) unit elastic
b) perfectly inelastic
c) perfectly elastic
d) none of the above
answer
c) perfectly elastic
question
A 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
a) $300 in the short and long run
b) 300 in the short and zero in the long run
c) 500 in the short and long run
d) 500 in the short and zero in the long run
a) $300 in the short and long run
b) 300 in the short and zero in the long run
c) 500 in the short and long run
d) 500 in the short and zero in the long run
answer
b) 300 in the short and zero in the long run
question
What would happen to revenues if a firm in a perfectly competitive industry raised price?
answer
Revenues would fall
question
If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long run
a) some firms will leave the industry and price will rise
b) some firms will enter the industry and price will rise
c) some firms will leave the industry and price will fall
d) some firms will enter the industry and price will fall
a) some firms will leave the industry and price will rise
b) some firms will enter the industry and price will rise
c) some firms will leave the industry and price will fall
d) some firms will enter the industry and price will fall
answer
d) some firms will enter the industry and price will fall
question
A sudden decrease in the market demand in a competitive industry leads to
a) losses in the short run and average profits in the long run
b) above-average profits in the short run and average profits in the long run
c) new firms being attracted to the industry
d) demand creating supply
a) losses in the short run and average profits in the long run
b) above-average profits in the short run and average profits in the long run
c) new firms being attracted to the industry
d) demand creating supply
answer
a) losses in the short run and average profits in the long run
question
Five forces
answer
a framework for analyzing the attractiveness of an industry. Attractive industries have LOW:
1. supplier power
2. buyer power
3. threat of entry
4. threat of substitutes
5. rivalry
1. supplier power
2. buyer power
3. threat of entry
4. threat of substitutes
5. rivalry
question
To increase performance, figure out a way to _____ price or _____cost
answer
increase/reduce
question
industrial organization (IO) economics
answer
this perspective assumes that the industry structure is the most important determinant of long-run profitability
question
resource-based view (RBV)
answer
individual firms may exhibit sustained performance advantages because of their superior resources.
To be the source of sustainable competitive advantage, those resources should be valuable, rare and difficult to imitate/substitute.
To be the source of sustainable competitive advantage, those resources should be valuable, rare and difficult to imitate/substitute.
question
Strategy
answer
the art of matching the resources and capabilities of a firm to the opportunities and risks in its external environment for the purpose of developing a sustainable competitive advantage
question
Three strategies a firm can adopt to stay one step ahead of the forces of competition
answer
1. cost reduction
2. product differentiation
3. reduction in the intensity of competition
2. product differentiation
3. reduction in the intensity of competition
question
Industry
answer
a group of firms producing products that are close substitutes to each other
question
Attractive industries have all of the following except:
a) high supplier power
b) low buyer power
c) high entry barriers
d) low rivalry
a) high supplier power
b) low buyer power
c) high entry barriers
d) low rivalry
answer
a) high supplier power
question
Which of the following is not an example of an entry barrier?
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
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
answer
c) low capital requirements for entry
question
Buyers have higher power when
a) their suppliers sell a highly differentiated product
b) they are not a significant purchaser of their supplier's output
c) switching costs are low
d) the buyer industry is highly fragmented (buyers are not concentrated)
a) their suppliers sell a highly differentiated product
b) they are not a significant purchaser of their supplier's output
c) switching costs are low
d) the buyer industry is highly fragmented (buyers are not concentrated)
answer
c) switching costs are low
question
Which of the following is NOT a factor that contributes to higher rivalry in an industry?
a) numerous competitors
b) high fixed costs
c) fast industry growth
d) low switching costs for buyers
a) numerous competitors
b) high fixed costs
c) fast industry growth
d) low switching costs for buyers
answer
b) high fixed costs
question
What is the concept that describes firms possessing different bundles of resources?
answer
resource heterogeneity
question
If a firm successfully adopts a product differentiation strategy, the elasticity of demand for its products should ______
answer
decrease
(this is good because less elastic demand leads to an increase in price)
(this is good because less elastic demand leads to an increase in price)
question
When a resource or capability is valuable and rare, a firm may gain a ___________
answer
sustainable competitive advantage
question
Which of the following is critical for a firm adopting a long-term cost-reduction strategy?
a) the firm must also differentiate its product or service
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
a) the firm must also differentiate its product or service
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
answer
c) the strategy is focused on reducing internal production costs
question
When a resource or capability is valuable, rare, hard to imitate and nonsubstitutable firms may gain
a) a temporary competitive advantage
b) a complex competitive advantage
c) competitive parity
d) a sustainable competitive advantage
a) a temporary competitive advantage
b) a complex competitive advantage
c) competitive parity
d) a sustainable competitive advantage
answer
d) a sustainable competitive advantage
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