Economics Of Strategy 7th Edition By David Dranove – Test Bank

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Complete Test Bank With Answers

 

 

 

Sample Questions Posted Below

 

 

 

 

 

File: ch05, Chapter 5: Competitors and Competition

 

 

 

Multiple Choice

 

 

 

  1. Which U.S. agency is responsible for preventing anticompetitive conduct?
  2. a) Securities and Exchange Commission
  3. b) Department of Justice
  4. c) Office of Fair Trading
  5. d) Competition Commission
  6. e) Competition Authority

 

Ans: b

Heading: Competitor Identification and Market Definition

Level: Easy

 

 

  1. Which of the following is the definition of “competitors?”
  2. a) Firms that manufacture similar products
  3. b) Firms located in geographic proximity to each other
  4. c) Firms that sell products to the same group of buyers
  5. d) Firms whose strategic choices directly affect one another
  6. e) Firms that purchase factors from the same suppliers

 

Ans: d

Heading:  Competitor Identification and Market Definition

Level:  Medium

 

 

  1. What criterion developed by the DOJ is used to identify all potential competitors within the market?
  2. a) Market competition criterion
  3. b) DOJ competition criterion
  4. c) SSNIP criterion
  5. d) SIC criterion
  6. e) DOJ market criterion

 

Ans: c

Heading: Competitor Identification and Market Definition

Level: Easy

 

 

 

  1. Which of the following is not a characteristic of substitute products X and Y?
  2. a) They have the same or similar product performance characteristics
  3. b) They have the same or similar occasions for use
  4. c) They are sold in the same geographic market
  5. d) Customers are indifferent between X and Y
  6. e) A price increase of X while keeping the Y’s price constant leads to a drop in purchases of X and an increase in purchases of Y

 

Ans: d

Heading: Competition Identification and Market Definition – Putting Competitor Identification into Practice

Level: Hard

 

 

 

  1. What empirical method generally is used to measure the degree to which products substitute for each other?
  2. a) Cross-price elasticity
  3. b) Price comparison
  4. c) Relatedness factor
  5. d) Standard Industrial Classification
  6. e) SSNIP

 

Ans: a

Heading: Competitor Identification and Market Definition Identification

Level: Medium

 

 

 

  1. What is a catchment area?
  2. a) The area of a firm’s customers as defined by traditional county lines
  3. b) The area a firm’s customers shops due to idiosyncratic reasons
  4. c) The area a firm operates in which it has no competition
  5. d) The area where a firms customer will go to shop in the event the firm were to raise prices
  6. e) The contiguous area from which a firm draws most of its customers

 

Ans: e

Heading: Competition Identification and Market Definition – Geographic Competitor Identification

Level: Medium

 

 

 

  1. What is defined by the number and size distribution of the firms in a market?
  2. a) Herfindahl index
  3. b) Market share
  4. c) Market structure
  5. d) SSNIP
  6. e) Numbers-equivalent of firms

 

Ans: c

Heading: Measuring Market Structure

Level: Easy

 

 

 

  1. What is the term for examining consumers travel patterns?
  2. a) Flow analysis
  3. b) Travel analysis
  4. c) Purchase location analysis
  5. d) Consumer distance analysis
  6. e) None of the above

 

Ans:  a

Heading:  Competition Identification and Market Definition – Geographic Competitor Identification

Level: Easy

 

 

 

  1. Which of the following market structures generally has a Herfindahl index at .6 and above (usually having light competition, unless threatened by entry)?
  2. a) Perfect competition
  3. b) Monopolistic competition
  4. c) Oligopoly
  5. d) Monopoly
  6. e) N-firm

 

Ans: d

Heading: Market Structure and Competition

Level: Medium

 

 

 

  1. In what type of market structure to sellers set identical prices and are prices generally driven down to marginal costs?
  2. a) Perfect competition
  3. b) Monopolistic competition
  4. c) Oligopoly
  5. d) Monopoly
  6. e) Diversified

 

Ans: a

Heading: Market Structure and Competition – Perfect Competition

Level: Medium

 

 

 

  1. The causal connection between firms is known as the:
  2. a) Market structure formula
  3. b) Structure, Conduct, Performance paradigm
  4. c) Competition index
  5. d) Herfindahl Iindex
  6. e) Concentration, Profit connection

 

Ans: b

Heading: Market Structure and Competition

Level: Easy

 

 

 

  1. What term describes a firm that faces little or no competition in one of its input markets?
  2. a) Monopolist
  3. b) Monopsonist
  4. c) Oligopolist
  5. d) Oligopsonist
  6. e) Cartelist

 

Ans: b

Heading: Market Structure and Competition – Monopoly

Level: Medium

 

 

 

  1. What term describes the differentiation of a product when it is unambiguously better or worse than competing products?
  2. a) Horizontal differentiation
  3. b) Vertical differentiation
  4. c) Idiosyncratic differentiation
  5. d) Spatial differentiation
  6. e) Non-price differentiation

 

Ans: b

Heading: Market Structure and Competition – Monopolistic Competition

Level: Medium

 

 

 

  1. What term describes the differentiation of a product when only some consumers prefer it to competing products (holding price equal)?
  2. a) Horizontal differentiation
  3. b) Vertical differentiation
  4. c) Idiosyncratic differentiation
  5. d) Spatial differentiation
  6. e) Non-price differentiation

 

Ans: a

Heading: Market Structure and Competition – Monopolistic Competition

Level: Medium

 

 

 

  1. What group/type of preferences describes when tastes differ markedly from one person to the next and result in horizontal differentiation?
  2. a) Search preferences
  3. b) Horizontal preferences
  4. c) Consumer preferences
  5. d) Spatial preferences
  6. e) Idiosyncratic preferences

 

Ans: e

Heading: Market Structure and Competition – Monopolistic Competition

Level: Medium

 

 

 

  1. Of the following industries listed, which one is generally thought of as having the highest search costs?
  2. a) Consumer packaged goods
  3. b) Electronics
  4. c) Physician service
  5. d) Automotive
  6. e) Apparel

 

Ans: c

Heading: Market Structure and Competition – Monopolistic Competition

Level: Medium

 

 

 

  1. What term describes existing firms in a monopolistically competitive market?
  2. a) Anchors
  3. b) Primaries
  4. c) Base
  5. d) Incumbents
  6. e) Pioneers

 

Ans: d

Heading: Market Structure and Competition – Monopolistic Competition

Level:  Easy

 

 

 

  1. In what type of market do the actions of individual firms materially affect the overall market?
  2. a) Perfectly competitive
  3. b) Monopolistically competitive
  4. c) Oligopoly
  5. d) Monopoly
  6. e) Diversified

 

Ans: c

Heading: Market Structure and Competition – Oligopoly

Level: Hard

 

 

 

  1. What kind of competition is generally described as quantity competition?
  2. a) Bertrand competition
  3. b) Cournot competition
  4. c) Perfect competition
  5. d) Chamberlin competition
  6. e) Monopolistic competition

 

Ans: b

Heading: Market Structure and Competition – Oligopoly

Level: Easy

 

 

 

  1. What kind of competition is generally described as price competition?
  2. a) Bertrand competition
  3. b) Cournot competition
  4. c) Perfect competition
  5. d) Chamberlin competition
  6. e) Monopolistic competition

 

Ans: a

Heading: Market Structure and Competition – Oligopoly

Level: Easy

 

 

 

  1. The average PCM (percentage contribution margin) in a Cournot equilibrium is given by the formula PCM=H/η, where H is the Herfindahl index and η is the price elasticity of market demand. Given this equation, which of the following statements is true?
  2. a) The more concentrated the industry, the smaller the PCMs in equilibrium
  3. b) The industry concentration only raises the PCMs in equilibrium
  4. c) The industry concentration has no bearing on PCM size in equilibrium
  5. d) The less concentrated the industry, the larger the PCMs in equilibrium
  6. e) The less concentrated the industry, the smaller the PCMs in equilibrium

 

Ans: e

Heading: Market Structure and Competition – Oligopoly

Level: Hard

 

 

 

  1. The Revenue Destruction Effect in oligopolies occurs when:
  2. a) Firms individually reduce prices to gain more customers
  3. b) Firms intentionally reduce output quantity to raise price
  4. c) Firms independently maximize their own profits
  5. d) Firms agree to all sell at the same price
  6. e) Firms all agree to specific output quantities

 

Ans: c

Heading: Market Structure and Competition – Oligopoly

Level:  Medium

 

 

 

  1. What term does Sutton use to describe the costs of establishing a credible brand?
  2. a) Brand investment
  3. b) Cost of brand establishment
  4. c) Cost of advertising
  5. d) Endogenous sunk cost
  6. e) Market establishment cost

 

Ans: d

Heading: Where Does Market Structure Come From – Sutton Endogenous Sunk Costs

Level: Medium

 

 

 

  1. Which of the following is a reason other than concentration that price-cost margins may vary across industries?
  2. a) Accounting practices
  3. b) Regulation
  4. c) Product differentiation
  5. d) Nature of sales transactions
  6. e) All of the above

 

Ans: e

Heading: Evidence on Market Structure and Performance – Price and Concentration

Level: Medium

 

 

 

  1. Based on Bresnahan and Reiss’ study of the relationship between concentration and prices, how many firms did they determine generally need to be in a market for price competition to be as intense as it would likely get?
  2. a) 1
  3. b) 2
  4. c) 3
  5. d) 4
  6. e) 5

 

Ans: c

Heading: Evidence on Market Structure and Performance – Price and Concentration

Level: Medium

 

 

 

Short Answer

 

 

 

  1. In a three firm market where the market share split is 50%, 30% & 20%, what is the Herfindahl index?

 

Ans: .38

Heading:  Measuring Market Structure

Level: Easy

 

 

 

  1. Suppose the demand for a product faces by a monopolist firm is given by Q=60-P/2. If the marginal cost of producing the product is $20, what is the profit maximizing price the firm should charge for the product? What are the firm’s profits?

 

Ans: $70; $1250

Heading: Market Structure and Competition – Monopoly

Level: Medium

 

 

 

  1. Suppose two hot dog stands, Al’s & Bob’s, position themselves at different ends of a 1000 yard stretch of beach. Assume there are 100 beach goers evenly distributed along the stretch of beach and travel costs are $.01 per yard. If Al charges $1 for his hot dogs and Bob charges $2 for his hot dogs, what is the cost of purchasing a hot dog from each stand for a hungry beachgoer situated at a position D yards from Al’s end of the beach?  How many consumers will go to Al’s and how many will go to Bob’s?

 

Ans: Cost of Al’s=1+.01D; Cost of Bob’s=2+.01(1000-D); Costs are equal at D=550 yards which means Al gets 55 customers and Bob gets 45 customers.

Heading: Market Structure and Competition – Monopolistic Competition

Level: Hard

 

 

 

  1. In a two firm market, let the marginal cost of producing a product be $20, the market demand be given by the function Q=60-P/2 and the market quantity be equal to Q1+Q2. What is the Cournot equilibrium quantity each firm would produce in this market?

 

Ans: 50/3 units or 16 2/3 units

Heading: Market Structure and Competition – Oligopoly

Level: Hard

 

 

 

  1. In a two firm market, let the marginal cost of producing a product be $20 and the market demand for their products be given by Q1=12-P1+P2 and Q2=12-P2+P1. What is the Bertrand equilibrium price each firm would produce in this market?

 

Ans: $32

Heading: Market Structure and Competition – Oligopoly

Level: Hard

 

 

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