Question 1

What term does Sutton use to describe the costs of establishing a credible brand?

Accepted Answer

Sutton uses the term "endogenous sunk cost" to describe the costs of establishing a credible brand. This term refers to the initial investment that a company makes to create a product or service that meets customers' needs, builds a brand and develops brand recognition. These costs cannot be recovered if the product or service is not successful, and they are a necessary part of establishing a credible brand in a competitive market.

Question 2

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?

Accepted Answer

The answer of In a two firm market,let the marginal...

Question 3

Which of the following is a reason other than concentration that price-cost margins may vary across industries?

Accepted Answer

Accounting practices, regulation, product differentiation, and the nature of sales transactions can all affect price-cost margins across industries. For example, regulation may increase costs for firms in some industries and reduce competition, leading to higher price-cost margins. Accounting practices may also vary across industries, affecting the measurement of costs and profits. Finally, product differentiation and the nature of sales transactions may affect firms' pricing power and ability to extract rents, leading to differences in price-cost margins.

Question 4

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?

Accepted Answer

The answer of Suppose two hot dog stands,Al's & Bob's,position...

Question 5

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?

Accepted Answer

The answer of The average PCM (percentage contribution margin)in a...

Question 6

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?

Accepted Answer

The answer of In a two firm market,let the marginal...

Question 7

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?

Accepted Answer

Bresnahan and Reiss found that a market with three or more firms tends to have intense price competition, while a market with only one or two firms will likely result in higher prices due to a lack of competition. Therefore, three firms is the minimum number needed for significant price competition.

Question 8

The Revenue Destruction Effect in oligopolies occurs when:

Accepted Answer

Firms independently maximizing their own profits can lead to a reduction in total revenue for the industry, known as the Revenue Destruction Effect.

Question 9

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?

Accepted Answer

The answer of Suppose the demand for a product faces...

Question 10

Recent studies have shown that increases in market concentration lead to which of the following?

Accepted Answer

Increases in market concentration typically lead to increases in prices because fewer firms control a larger portion of the market, reducing competition and allowing those firms to set higher prices.

Question 11

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

Accepted Answer

The answer of In a three firm market where the...

Quiz 5: Competitors and Competition