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Question;ECO 561 Week 3 Knowledge Check;1. A purely- or;perfectly-competitive firm would be characterized by which of the following?;Hint: The;different types of firms include pure competition, pure monopoly, monopolistic;competition, and oligopoly.;A. Large number of;firms, price taker, free entry and exit, and standardized product;B. Large number of;firms, price maker, free entry and exit, and a differentiated product;C. Small number of;firms, price maker, limited entry and exit, and a standardized product;D. One firm, price;maker, limited entry and exit, and a unique product;2. For a;purely-competitive firm, price must be;Hint: In a purely;competitive firm the revenue received for the first unit is the same as that of;the last unit sold, which is the same as that which will be received for the;next unit sold.;A. equal to marginal;revenue and average revenue;B. greater than marginal;revenue and average revenue;C. greater than marginal;revenue, and equal to average revenue;D. less than both;marginal revenue and average revenue;3. What will excessive;or economic profits induce for a firm in any industry structure?;Hint: Instead of;thinking of all industry structures at the same time, consider a monopoly;industry structure and check if the solution also applies to the other industry;structures.;A. entry into the market;B. exit from the market;C. equilibrium in the;market;D. greater demand in the;market;4. A pure-monopoly;firm's demand curve is also the market demand curve. This kind of firm may;successfully engage in price discrimination to increase its total profit if it;Hint: Monopolists have;the power to segregate in the market place because of specific characteristics;that group. The monopolist is willing to charge a lower price than the profit;maximization point.;A. engages in;rent-seeking behaviors to prevent possible price challenges from firms in other;industries;B. segregates its market;into clearly definable groups of consumers with different elasticity of demand;and prevents buyers in one market segment from reselling to buyers in another;market segment.;C. determines that;consumers are relatively sensitive to price changes along its envisioned range;of price differentials (price elastic);D. determines that;demand for its goods or services is relatively insensitive along its envisioned;range of differential prices (price inelastic);5. Oligopolies are;characterized by a small number of firms where the top three firms hold the;majority of the market. If in an oligopoly market, firm A is almost twice as;big as firm B and firm C then;C. firms A, B, and C;will tend to use non-price strategies to maintain their profits or market share.;6. In a monopolistic;competition industry, if one firm appreciably increased its price from the;existing equilibrium price, which of the following outcomes would most likely;ensue?;Hint: Typically, in a;monopolistic competition industry, if one company increases price, the other;company also increases their price to make more revenue in the long term.;A. It would likely suffer;a significant decrease in its market share, because its competitors would be;unlikely to deviate from the established equilibrium price.;B. The firm would stand;to gain much additional revenue if its competitors did not follow suit by;raising their prices.;C. Any gain or loss in;the firm's revenue from increasing its price would depend on the price;elasticity of demand: The more elastic the demand, the higher the revenue;potential from a price increase.;D. It would probably see;no change in its revenue position as its competitors would raise their prices;accordingly.;7. Which factor;characterizes the competitive relationship between firms in an oligopoly market;structure?;Hint X Oligopoly is the;only market structure in which firms actively watch the behavior of other;firms.;A. Total independence of;action-reaction;B. Interdependence: what;one firm does?in setting prices, determining production levels, investing in R;D, and so forth?can significantly affect other firms' competitive;positions.;C. Despite the;relatively small number of oligopoly firms, the action(s) of any one firm have;little direct effect on the decisions of its competitors.;D. The common practice;of collusive price-setting.;8. Unregulated (natural);monopolies maintain their status through a variety of measures. Whether any;particular measure can effectively constrain new firms from entering the market;depends on;Hint: In an unregulated;(natural) monopoly, no legal barriers to entry exist.;A. proprietary;technology, exclusive ownership of resources, or government licenses.;B. the number and size;of the firm(s) attempting to enter the market;C. the willingness of;suppliers and distributors doing business with the monopoly firm to boycott;potential entrants;D. the amount of revenue;loss the monopoly is willing to accept to undersell potential competitors;9. Regulated monopolies;are empowered by public authority for which specific reason?;Hint: Regulated;monopolies are empowered by the government as a means to ensure sufficient;resources are devoted to the production of the good.;A. The provision of a;good or service that, if left to the free market system, would require;additional government regulation to prevent negative externalities to consumers;as well as the public.;B. The need to avoid the;unnecessary use of duplicate resources that could be more efficiently employed;by a single supplier to meet the needs of the broadest range of consumers.;C. The public policy of;protecting consumers from the excesses of unrestricted, demand-driven pricing.;D. The government's goal;of maintaining artificially low prices for particular goods or services.;10. Using a;significantly greater economy of scale?with attendant lower, long-run average;total costs?to restrict the market entry of new competitors;Hint X Industries with;dynamic changes in technology would prohibit new firms from entering the market;because the technology would be cost prohibitive.;A. can be a successful;tactic for established firms regardless of industry type, technology, market dynamics;or nature of the consumer base;B. may not be effective;in industries in which dynamic technology-driven changes frequently alter the;demand for product design features, performance qualities, and or production;methods;C. is more effective in;industry structures having low, minimum efficiencies of scale;D. is a tactic seldom;employed due to legislation governing unfair trade practices;11. In;technology-intensive oligopolies?characterized by dynamically evolving product;design?restricting the entry of additional firms is;Hint: One way;oligopolies can ensure other firms do not enter the market is by using;non-price barriers to entry.;A. not possible through;customary legal protections, such as patents, because of the wide latitude of;possible product alternatives afforded by highly advanced technologies;B. achieved by;patenting, the effective use of licensing restrictions, as well as by;maintaining sustained advantages in design and production;C. invariably a matter;of establishing and maintaining economy of scale to minimize long-run average;total cost;D. accomplished by;requiring key suppliers of production factors to do business exclusively with;firms currently in the industry;12. Whether the market;structure is monopolistic or oligopolistic, a firm may increase consumer demand;for its product as an overall portion of market share if;Hint: If a firm can;influence additional consumers to prefer its product over that of competitors;it is at an advantage.;A. the firm;acquires or possesses a resource that is difficult or impossible for;competitors to imitate?such as a geographic location, technologies, or design;and production applications that cannot be replicated;B. it can field an;advertising campaign large and convincing enough to persuade large numbers of;consumers to purchase its product;C. it repackages its;product to appeal to fashion trends;D. the firm restricts;distribution of its product to core market areas or demographic groups;13. One difference;between firms already established in a monopolistic competition industry and;those attempting to enter it is that;Hint X Firms that are;monopolies have a major competitive advantage that would prevent other firms;from entering the market. Firms that are in monopolistic competition may;compete on price or non-price factors.;A. existing firms often;have established, core-consumer marketing bases, while entrants may have to;advertise and otherwise promote themselves to develop market share in the new;industry;B. product development;is more important than establishing market visibility for firms entering a;monopolistic industry;C. cost control is more;difficult for incumbent than for entrant firms due to costs of counter;marketing;D. established firms may;be able to use product differentiation to help distinguish themselves from new;competitors;Incumbents usually have;more lines of products and more pricing options to offer than entrants;14. An average firm in;an industry characterized by a homogeneous product, relatively low barriers to;entry, and a low concentration ratio;Hint X Consumers often;perceive the value of the product or service, not the price of the product or;service.;A. is unable to make any;changes in characteristic product design or services to enlarge its market;share;B. has no pricing options;but the market equilibrium price;C.;can attempt to increase market share through consumer-oriented changes in the;design and perceived value of its product(s);D. has numerous pricing;options ?frequent discounts, extended sales, and so forth?if it properly uses;the strength of its brand-image relative to those of its competitors;15. A monopolistic firm;may operate in a relatively mature market with little likelihood for;significant change in technology or process efficiencies. To maximize its;profits, such a firm might;Hint: Mature;monopolists must keep their products up to date to increase revenue.;A. observe the existing;market equilibrium price and concentrate on lowering its break-even point;through cost reduction measures;B. consider diversifying;its product line by offering modestly-enhanced variants of the same good or;service and selling these at prices marginally higher than for its existing;product;C. attempt to leverage;its existing resources to fund its acquisition of smaller competitors, in hopes;of increasing market share and revenue;D. abandon the market;altogether, as it really has no effective way of changing the status quo;16. Production;differentiation can effectively be achieved by;Hint: Mental Cue;Product differentiation is more than just price. Consumers need to see the;value the product generates.;A. emphasizing the;weaknesses and disadvantages of competing products through comparative;advertising, especially in oligopoly markets;B. implementing a;broader range of combinations of price and quality than those offered by;competitors;C. concentrating;exclusively on market segments most likely to recognize differences in product;value;D. utilizing consumer;satisfaction surveys and other metrics to determine what it is the customer really;wants;17. While mass retail;industries have one or several dominant producers, smaller firms have a limited;set of nonpricing options. The most feasible of these include;Hint X In order for a;firm to distinguish themselves from other firms, they need characteristics that;reveal the value of their product versus their competitors.;A. attempting to garner;increased market share by simultaneously expanding capacity, increasing economy;of scale, and discounting prices;B. seeking to;differentiate themselves from their larger competitors by appealing to specific;niche markets;C. mimicking the;advertising, marketing, and other successful non-pricing strategies of the;dominant firm(s);D. attempting to develop;markets in related industries rather than trying to compete head-to-head with;industry leaders;18. In monopolistic;competition industries, effective product differentiation is illustrated by;Hint X Product;differentiation has the objective to provide goods and services at different;prices as a means to appeal to certain demographics.;A. widespread brand;recognition across most, if not all, consumer age and income groups, otherwise;the firm cannot generate sufficient demand to enlarge market share;B. concentrated appeal;to consumers in market demographics most likely to want or use the firm's;principal products;C. a balanced;combination of innovation, new product development, and intensive marketing;D. having a;long-established reputation for distinctly superior product quality;19. Differentiation;strategies vary in degree of effectiveness from one type of market structure to;another. For firms other than perfect competition;Hint X A firm that is;not in perfect competition may have the objective to provide products that are;distinguishable from their competitors.;A. opportunities exist;throughout the acquisition, production, sales, and service process to;distinguish their products based on perceived quality and consumer appeal;B. the competitive;margin is so tight that they cannot afford the costs associated with extensive;product or market development;C. selective product;development and enhancements which appeal to particular consumer classes can;create marketable differences between one firm's products and another's;D. the best way of;distinguishing the firm's product is through every-day low pricing;20. If a firm's industry;devolved from a monopolistic competition into an oligopolistic structure, the;firm would discover that;Hint X As the firm;transitions from the short term to the longer term, their short-term cost;curves may shift to the right and possibly downward.;A. clearly;distinguishing its products' unique attributes from those of competitors in an;oligopoly market would be more difficult for consumers than in a monopolistic;structure;B. quality of maintenance;and warranty service would become more important as differentiating attributes;in an oligopoly market;C. nothing has changed.;It all depends on the individual industry;D. as surviving firms;gain market share, they may enjoy lower average costs.;21. A firm can increase;both profit and per-unit profit margin by lowering production costs. To make;this a long-term outcome, the firm should;Hint: Firms can lower;production costs by using advanced technological method, excellent human;capital skills, and other positive generating resources.;A. acquire factors of;production at lower prices, defer planned investments in expansion capital, and;downsize its workforce;B. increase productivity;through better applications of existing technologies, curtail product;development plans, and implement energy conservation programs;C. seek to update;existing production technologies for greater future efficiencies, consider;alternative energy sources for production, and better retain and develop its;human and intellectual capital resources;D. concentrate on;improving present levels of productivity through greater process efficiencies;seeking to reinvesting the savings in future R&D programs;22. A firm's;cost-reduction strategies may span multiple stages, from acquisition of;production input factors to product service and maintenance. When seeking to;lower cost in the short term, firms should;Hint: A firm;would want to reduce inefficient or even duplicative operations as a means to;reduce costs for the firm.;A. reduce capital;indebtedness through refinancing at more favorable long-term interest rates;B. curtail output across;the board to reduce variable operating costs;C. streamline and;consider alternative methods of production;D. attempt to;restructure long-standing contracts with suppliers and distributors, to reduce;fixed costs in the short-run;23. Firms can shift;their marginal cost curves to the right, resulting in higher outputs at the;same or lower maximum-profit prices. This can be done by;Hint X In a competitive market;firms are always under pressure to discover lower cost ways to operate.;A. eliminating;fixed-cost components in the short term;B. reducing average;total cost through reorganizing, production and increasing efficiencies in;distribution;C. only if demand for;the firm's product(s) shifts to the right: Businesses are always demand driven;D. better product;innovation through enhanced research and development


Paper#55320 | Written in 18-Jul-2015

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