Question :
21) Refer to Table 11-5. Suppose Wal-Mart and Target both : 1266867
21) Refer to Table 11-5. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?
A) to signal to each other not to charge below the current low price
B) to signal to each other that they will not hesitate to initiate a price war
C) to signal to each other that they intend to charge the high price
D) to signal to each other to share the market equally
22) In most business situations where firms compete, often they can escape the prisoner’s dilemma and reach the most profitable outcome. Which of the following is a reason for this?
A) Firms engage in aggressive advertising to overcome the barriers to loyalty.
B) Most games are one-shot games so firms learn from their mistakes.
C) Most games are repeated games and firms can employ retaliation strategies against those who do not cooperate.
D) Firms are constantly improving their products and anticipating changing consumer tastes.
23) Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor?
A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact.
B) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.
C) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion.
D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.
24) In an oligopoly, firms can increase their market power by
A) selling to buyers who have market power.
B) pursuing dominant strategies.
C) colluding to set prices.
D) undertaking heavy advertising expenditure.
25) If the painting firms in a city sign a contract outlining a pricing plan, they are involved in
A) price competition.
B) a legal form of business contract in the United States.
C) collusion.
D) price regulation.
26) Collusion
A) is rampant in perfect competition as all firms charge the same price.
B) reduces market concentration in an industry.
C) among firms is difficult to maintain because it eliminates long run economic profit.
D) is more difficult when there are many firms producing differentiated products in an industry.
27) Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally
A) prevent rival airlines from competing in that market.
B) increase marginal revenue more than marginal cost.
C) maximize marginal revenue.
D) discourage rivals from matching price cuts.
28) There is much evidence to suggest that airlines are more likely to match price cuts than price increases. Which of the following best explains this evidence?
A) The law of demand which states that an increase in price leads to a decrease in quantity demanded.
B) No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases.
C) An airline fears that if it does not match a price cut, its sales may fall considerably but if it does not match a price increase, it will be able to attract customers away from its rivals.
D) Airlines have different costs of production and therefore it is more difficult to agree on a price increase than on a price decrease.
29) A cartel is
A) a temporary storage facility for automobiles.
B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits.
C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits.
D) an example of a group of firms that collectively regulate a competitive industry.
30) What is the incentive for a firm to join a cartel?
A) to be able to earn profits in the long run but not in the short run
B) to be able earn larger profits than if it was not part of the cartel
C) to completely insulate itself from competition
D) to produce a larger amount of output than if it was not part of the cartel
