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| 1 | |
Vertical foreclosure |
| | A) | only raises the fixed costs of production of firms in the downstream market. |
| | B) | is only profitable when the higher profits in the downstream market (from enhanced market power) more than offset the profits lost in the upstream market. |
| | C) | can not be enhanced by the use of price discrimination tactics. |
| | D) | is more effective when more substitute inputs are available to firms in the downstream market. |
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| 2 | |
Which of the following is an incorrect statement about predatory pricing? |
| | A) | It benefits the predatory firm to have deeper pockets than its prey. |
| | B) | The predatory firm having a reputation for taking tough actions has little impact on the effectiveness of predatory pricing. |
| | C) | Having its prey stockpile its product decreases the effectiveness of predatory pricing. |
| | D) | Predatory pricing is typically more costly for the predator firm than for its prey. |
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| 3 | |
A two-way network linking 7 users creates how many potential network connections? |
| | A) | 49. |
| | B) | 56. |
| | C) | 42. |
| | D) | 21. |
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| 4 | |
Suppose the inverse market demand is given by P = 32 – 2Q. If the incumbent continues to produce 12 units of output, which of the following equations best summarizes the potential entrant's residual demand curve? |
| | A) | P = 20 – 2Q. |
| | B) | P = 12 – 2Q. |
| | C) | P = 20 – 12Q. |
| | D) | P = 12 – 8Q. |
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| 5 | |
Firms 1 and 2 compete in a Cournot duopoly. If firm 1 adopts a strategy that raises firm 2's marginal cost, |
| | A) | firm 2 will increase its output. |
| | B) | firm 1 will gain market share. |
| | C) | firm 2 will enjoy higher profits. |
| | D) | firm 1 will decrease its output. |
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| 6 | |
Limit pricing is best described as a situation when |
| | A) | a firm charges a low price initially upon entering a market to gain a critical mass of customers. |
| | B) | an incumbent maintains a price below the monopoly price in order to prevent entry. |
| | C) | a vertically integrated firm raises its rival's costs of inputs, while maintaining final product prices. |
| | D) | a firm temporarily prices below its marginal costs to drive competitors out of the market. |
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| 7 | |
A single firm that charges the monopoly price in the market earns $750. If another firm successfully enters the market, the incumbent's profits fall to $500 and the entrant earns $375. If the incumbent engages in limit pricing, its profits are $550. For what interest rate, i, is limit pricing a profitable strategy for the incumbent? |
| | A) | i > 4. |
| | B) | i < 0.25. |
| | C) | 0.75 < i < 4. |
| | D) | 0.25 < i < 0.75. |
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| 8 | |
In regards to limit pricing, which of the following is not one of the forces that can enhance the link between the pre-entry price and post-entry profits of potential entrants? |
| | A) | Commitment mechanisms by the potential entrants. |
| | B) | Learning curve effects of the incumbents. |
| | C) | Asymmetric information that disadvantages potential entrants. |
| | D) | Reputation effects of past incumbent behavior. |
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| 9 | |
Which of the following is an incorrect statement? |
| | A) | Predatory pricing is difficult to prove in the court of law. |
| | B) | An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant. |
| | C) | An individual firm can benefit from strategies that raise the fixed costs of all the firms in the industry. |
| | D) | Firms will not receive individual benefits from strategies that raise the marginal costs of their rivals. |
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| 10 | |
Predatory pricing is when |
| | A) | a vertically integrated firm raises its rival's costs of inputs, while maintaining final product prices. |
| | B) | an incumbent maintains a price below the monopoly price in order to prevent entry. |
| | C) | a firm temporarily prices below its marginal costs to drive competitors out of the market. |
| | D) | a firm charges a low price initially upon entering a market to gain a critical mass of customers. |
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| 11 | |
Which of the following is an example of a network? |
| | A) | Railroads. |
| | B) | Internet commerce. |
| | C) | Airlines. |
| | D) | All of the above. |
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| 12 | |
The pricing strategy referred to as "penetration pricing" is an effective method to |
| | A) | gain critical market share. |
| | B) | raise a rival's fixed cost. |
| | C) | lower a rival's input costs. |
| | D) | increase a rival's marginal costs. |
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| 13 | |
A network linking ten (10) users is typically |
| | A) | less likely to exhibit bottlenecks than a network linking 2 users. |
| | B) | more than five times as valuable as a network linking 2 users. |
| | C) | five times as valuable as a network linking 2 users. |
| | D) | less than five times as valuable as a network linking 2 users. |
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| 14 | |
The practice of price discrimination will not enhance the firm's ability to engage in |
| | A) | limit pricing. |
| | B) | predatory pricing. |
| | C) | price-cost squeezes. |
| | D) | All of the above are enhanced by price discrimination. |
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| 15 | |
In the presence of bottlenecks, when an additional user is added to an existing two-way network: |
| | A) | The addition of the new user negatively impacts existing users. |
| | B) | The addition of the new user positively impacts existing users. |
| | C) | The addition of the new user has no impact on existing users. |
| | D) | The addition of the new user adds one additional potential network connection. |
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