Question 1

The commercial airline industry is considered what type of market?

Accepted Answer

The commercial airline industry is an example of oligopolistic competition because it is dominated by a few large firms (such as Delta, American Airlines, United, and Southwest) who have significant control over prices and output. While there are numerous smaller airlines, the market is still heavily dominated by these larger players.

Question 2

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a(n) ________ market.

Accepted Answer

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a monopolistic competition market. In monopolistic competition, there are many firms competing with differentiated products, creating a market with some level of competition and product differentiation. This is different from pure competition in which firms sell homogeneous products, oligopolistic competition in which a few large firms dominate the market, and monopoly and duopoly in which there is only one or two firms in the market.

Question 3

There is often only one provider of cable television services in each region of the country: Time Warner is in New York, Comcast is in most of New England, and so forth. When Comcast recently proposed a plan to buy Time Warner, the purchase ultimately could not be completed, mostly due to concerns that it would have caused Comcast to become an overly large ________ with too much power.

Accepted Answer

The sentence mentions that there is often only one provider of cable television services in each region, which implies a lack of competition and the presence of a monopoly. The concern that Comcast would become overly large with too much power further supports the idea that the company would become a monopolist.

Question 4

Because there are many firms with similar products in purely competitive markets,

Accepted Answer

In purely competitive markets, where there are many firms with similar products, price is determined solely by the laws of supply and demand. This means that firms cannot charge higher prices for their products as consumers have many substitutes available. Therefore, firms must produce at the lowest possible cost in order to remain competitive.

Question 5

Because there are many firms in monopolistic competition markets,

Accepted Answer

In monopolistic competition markets, firms differentiate their products to make them unique, which allows them to compete with rivals. Therefore, the many competitors in this market structure will focus on product differentiation.

Question 6

Diane owns a bakery where she sells cupcakes. Two blocks down there is another bakery, CC's Bakery, that sells cupcakes for $1 less than Diane. Diane decides to lower her price and match CC's Bakery prices. What type of pricing strategy is Diane implementing?

Accepted Answer

Diane is implementing a competitor-oriented pricing strategy by matching CC's Bakery prices.

Question 7

When the price for Blu-ray players dropped, the demand for DVD players went down, so DVD players and Blu-ray players are

Accepted Answer

DVD players and Blu-ray players are substitute products as they serve the same basic purpose of playing movies at home, but Blu-ray players have superior technology and higher picture and sound quality. When the price of Blu-ray players dropped, consumers switched from buying DVD players to Blu-ray players, indicating that they were substituting one for the other.

Question 8

Because there are only a few firms in markets with oligopolistic competition,

Accepted Answer

With only a few firms in an oligopolistic market, each firm's actions can have a significant impact on the market. This can lead to price wars, where firms lower their prices to gain a larger market share, which can ultimately harm all firms involved.

Question 9

With a ________ pricing strategy, marketers set a low initial price for the introduction of a new product or service.

Accepted Answer

Market penetration pricing strategy involves setting a low initial price for a new product or service with the goal of penetrating the market quickly and attracting a large customer base. This strategy is often used to gain market share and may be accompanied by aggressive marketing and promotion efforts to create awareness and generate interest in the product or service. As demand grows, the price may be raised gradually to increase profitability.

Question 10

If all three grocery stores in town decide to charge the same price for a gallon of milk, what type of pricing tactic is being used?

Accepted Answer

Horizontal price fixing occurs when competitors agree to charge the same price for a product or service, which is an illegal pricing tactic. Therefore, if all three grocery stores in town decide to charge the same price for a gallon of milk, they are engaging in horizontal price fixing.

Question 11

Predatory pricing

Accepted Answer

Predatory pricing is illegal in the United States under both the Sherman Antitrust Act and the Federal Trade Commission Act. It occurs when a company sets a very low price to drive its competition out of business. This practice is harmful to competition and consumers, which is why it is regulated by these laws.

Question 12

In a market with ________ there are many firms providing differentiated products.

Accepted Answer

Monopolistic competition is characterized by many firms that offer differentiated products. This means that each firm has some control over the price of its product, but there are also many substitutes available, keeping the market competitive.

Question 13

Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the ________, which refers to a decrease in unit cost as product volume increases.

Accepted Answer

The experience curve effect refers to the decrease in unit cost as product volume increases. The production of the DeLorean never reached the necessary volume to achieve this effect. Choices A, B, C, and E are unrelated to the concept of experience curve effect.

Question 14

How can a company find its way out of a market characterized by pure competition?

Accepted Answer

The best way for a company to find its way out of a market characterized by pure competition is to differentiate the product in some way, even by packaging or marketing, so that customers will see it as distinct. This will make the product stand out from its competitors and potentially attract loyal customers who are willing to pay a slightly higher price for the perceived value of the unique product. Consistently offering the lowest price (option A) may attract some customers in the short term, but it is not sustainable in the long run and may lead to a price war with competitors. Increasing prices (option B) could alienate current customers and may not necessarily attract quality-oriented customers. Decreasing the amount of available product (option C) or flooding the market with more product (option D) could also lead to a price war and reduce profit margins.

Question 15

The point at which the number of units sold generates enough revenue to equal the total costs of running an operation is known as the

Accepted Answer

The break-even point is the point at which revenue equals total costs, meaning there is no profit or loss. This is an important financial analysis tool for businesses to determine how many units must be sold to cover all costs and begin making a profit. Choice A refers to the amount of revenue generated by each unit sold, choice B is not a commonly used term in finance or accounting, choice D refers to the cost of producing each unit, and choice E refers to the additional revenue generated by selling one more unit.

Question 16

In one year, the Hotel by the Shore incurred $100,000 in fixed costs. Because the hotel booked 10,000 room nights, its total variable cost is $100,000 (10,000 room nights × $10 per room). Thus, its total cost is

Accepted Answer

The total cost is the sum of fixed costs and total variable costs. Fixed costs are $100,000, and total variable costs are $100,000, so the total cost is $200,000.

Question 17

A reference price might be considered deceptive if

Accepted Answer

If a reference price has been inflated or is fictitious, it can be considered deceptive as it misleads the consumer into thinking they are getting a better deal than they actually are.

Question 18

Which of the following is most likely to be characterized by pure competition in the United States?

Accepted Answer

Spices are typically characterized by pure competition because there are many sellers offering similar products, and no single seller can influence the market price.

Question 19

In ________ many firms provide similar products that are considered substitutes for each other.

Accepted Answer

The answer of In ________ many firms provide similar products...

Question 20

When members of the marketing channel collude to control the prices passed on to consumers, they are engaging in

Accepted Answer

Vertical price fixing occurs when members at different levels of the marketing channel collude to control prices passed on to consumers. This can include manufacturers and retailers setting minimum or fixed prices for a product.

Quiz 14: Pricing Concepts for Establishing Value