35 terms

Chapter 13 Man. Econ

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Limit pricing will effectively deter entry when
the incumbent links the pre-entry price to post-entry profits
Which of the following is incorrect?

A. Predatory pricing is easy to prove in court.
B. Learning curve effects may enable an incumbent to produce at a lower cost than a potential entrant.
C. A firm can benefit from strategies that raise the marginal costs of its rivals. D. A firm can benefit from strategies that raise the fixed costs of all the firms in the industry.
Predatory pricing is easy to prove in court.
Which of the following is an example of a network?
All of the examples associated with this question are networks.
Firms 1 and 2 compete in a Cournot duopoly. If firm 2 adopts a strategy that raises firm 1's
marginal cost:
All of the statements associated with this question are correct.
A two-way network linking five users creates how many potential network connections?
20
Which of the following is FALSE?

A. It is always more profitable to engage in limit pricing than to permit entry. B. Being the first mover is always best. C. Engaging in predatory pricing is always more profitable than permitting existing firms to
remain in the market. D. All of the statements associated with this question are false.
All of the statements associated with this question are false.
Network externalities:
All of the statements associated with this question are correct.
Penetration pricing is:
a way to overcome an incumbent's first-mover advantage.
A potential entrant knows that it faces a (inverse) residual demand curve given by P = 50 - 4Q. While the entrant does not know the inverse market demand, it does know that the incumbent committed to producing 150 units. Using this information, which of the following equations best summarizes the inverse market demand curve?
None of the statements are correct.
A network linking six users is typically:
more than three times as valuable as a network linking two users.
Selling a product below cost to gain a foothold in the market in order to eliminate the inefficiencies introduced by lock-in is known as:
penetration pricing.
Vertical foreclosure is an example of a firm:
that controls an essential upstream input and raises rivals' costs by refusing to sell to other downstream firms that need the input.
In general, adding one more user to a two-way network tends to:
benefit existing users more than the new user.
A firm that engages in predatory pricing benefits from:
building a reputation for taking tough actions to drive a competitor out of the market.
Bottlenecks:
occur in both one-way and two-way networks.
Firms that can effectively price discriminate can increase profitability when they engage in:
Any of the statements associated with this question are correct.
When the average cost curve lies above the entrant's residual demand curve, an entrant:
cannot profitably enter the market.
Nodes are:
different points in geographic or economic space linked by a network.
Which of the following makes it more difficult for an incumbent to successfully engage in limit pricing?
Complete information
A single firm that charges the monopoly price in the market earns $500. If another firm successfully enters the market, the incumbent's profits fall to $325 and the entrant earns $250. If the incumbent engages in limit pricing, its profits are $400. For what interest rate, i, is limit pricing a profitable strategy for the incumbent?
i < 0.75
Effective limit pricing between one incumbent firm and one potential entrant involves:
the incumbent linking the pre-entry price to post-entry profits and the incumbent reducing price below the monopoly price to prevent entry.
Which of the following is a correct statement?
A. Predatory pricing is easy to prove in a 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. A firm receives no individual benefit from strategies that raise the marginal costs of its rivals.
D. No individual firm can benefit from strategies that raise the fixed costs of all the firms in the industry.
An incumbent firm may experience a learning curve that allows it to produce at a lower cost than a potential entrant.
Firms 1 and 2 compete in a Cournot duopoly. If firm 1 adopts a strategy that raises firm 2's marginal cost:
firm 1 will enjoy higher profits.
A two-way network linking nine users creates how many potential network connections?
72
The price-cost squeeze is:
a tactic used by a vertically integrated firm to raise rivals' costs of inputs, while maintaining final product prices.
A single firm that charges the monopoly price in the market earns $600. If another firm successfully enters the market, the incumbent's profits fall to $350 and the entrant earns $275. If the incumbent engages in limit pricing, its profits are $400. For what interest rate, i, is limit pricing a profitable strategy for the incumbent?
i < 0.25
Which of the following is NOT an example of a network?
None of the statements are correct.
Penetration pricing is a way to:
gain a critical mass of customers.
A network linking eight users is typically:
more than four times as valuable as a network linking two users.
An example of vertical foreclosure is when a firm:
that controls an essential upstream input refuses to sell to other downstream firms that need the input.
Which of the following is an INCORRECT statement about predatory pricing?
Having its prey stockpile its product produces more benefits to the firm engaging in the predatory pricing.
Firms that can effectively price discriminate can increase profitability when they engage in
Any of the statements associated with this question are correct.
Suppose the inverse market demand is given by P = 20 - Q. If the incumbent continues to produce eight units of output, which of the following equations best summarizes the potential entrant's residual demand curve?
P = 12 - Q
Limit pricing is:
a strategy whereby an incumbent maintains a price below the monopoly price in order to prevent entry.
If one more user is added to a two-way network, it will generally:
benefit existing users more than the new user.