Question 1

The four-firm concentration ratio in the breakfast cereal industry is 80 percent. How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Accepted Answer

The answer of The four-firm concentration ratio in the breakfast...

Question 2

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions?

Accepted Answer

Amazon took these actions to compete more effectively with existing online booksellers. By offering free shipping and building more warehouses, Amazon was able to offer faster and cheaper shipping than its competitors, allowing it to gain an edge in the market.

Question 3

Article Summary
Inventories of SUVs, the most popular class of automobile in the United States, have been growing, and automakers have been increasing incentives to reduce the supply. According to J.D. Power and Associates, incentives on SUVs rose an average of 24 percent from 2016 to 2017. Specials for President's Day included no-money-down leases, cash rebates, and zero-interest loans on many SUV models from automakers including Ford, General Motors, Fiat Chrysler, Toyota, and Honda. Automakers have been able to afford larger incentives on SUVs due to the profitability of that segment of the auto market, but according to data from J.D. Power,  while incentives are rising, the average sales price of SUVs has also started to decline.

-Refer to the Article Summary. What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates, low-interest loans, or lease incentives to customers? How might a car company decide which of these strategies to use?

Accepted Answer

The answer of Article Summary
Inventories of SUVs, the most popular...

Question 4

Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.

Accepted Answer

Competition can force a company to spend more on advertising, customer service, or warranties in order to remain competitive, which can increase costs and reduce profits.

Question 5

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Accepted Answer

Paper napkins are likely seen as a commodity item with many similar suppliers available, giving the fast food companies greater bargaining power over the supplier.

Question 6

By the 21st century, few people purchased printed encyclopedias. Which of the following competitive forces best explains this?

Accepted Answer

With the rise of the internet, people could access vast amounts of information online for free or for a significantly lower cost than purchasing printed encyclopedias. The easy availability of substitutes such as online encyclopedias, search engines, and other digital platforms drastically reduced demand for printed encyclopedias.

Question 7

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Accepted Answer

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Question 8

In the 1930s and 1940s, the Technicolor company was able to leverage its bargaining power over the movie industry because Technicolor was the sole producer of cameras and films needed to produce color films.

Accepted Answer

Technicolor held a monopoly on the technology needed for color films.

Question 9

Competition from substitute goods is more of a threat when switching costs are high.

Accepted Answer

The answer of Competition from substitute goods is more of...

Question 10

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

Accepted Answer

The answer of Does the strength of each of the...

Question 11

An example of a supplier that used its bargaining power to charge high prices to its customers is

Accepted Answer

Technicolor Company had significant bargaining power as the sole producer of essential technology for color movies, allowing it to charge high prices to movie studios.

Question 12

According to Porter's Five Competitive Forces Model, similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.

Accepted Answer

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Question 13

In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is

Accepted Answer

The answer of In 2017, the Educational Testing Service (ETS)...

Question 14

For years, economists believed that market structure explained the ability of some firms to earn economic profits. For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers. Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

Accepted Answer

The market structure explanation fails to account for the differences in profitability among firms in the same industry, which suggests that other factors may be at play.

Question 15

List the competitive forces in the five competitive forces model.

Accepted Answer

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Question 16

Prices of PlayStation 4 game systems are similar at almost every large retailer and little price competition occurs among these retailers. An explanation for this is

Accepted Answer

The answer of Prices of PlayStation 4 game systems are...

Quiz 14: Oligopoly: Firms in Less Competitive Markets