Question 1

When one company produces several different versions of a product, the company is using _____ to _____.

Accepted Answer

Brand proliferation is a strategy used by companies to occupy more shelf space and offer variety to consumers, making it harder for new competitors to find space in the market or to offer a new product that isn't already available through the existing company's product lines.

Question 2

The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _____ to _____.

Accepted Answer

The presence of many versions of toothpaste produced by a small number of sellers suggests that these producers are engaging in brand proliferation to deter new entrants from the market. By offering a wide variety of toothpastes under different brands, established producers are making it more difficult and costly for new competitors to enter the market and gain a share of the market. This strategy helps to protect the market power of existing producers and maintain their profits.

Question 3

The shampoo aisle at a large store that sells personal care products contains many versions of shampoo produced by a small number of companies. This indicates that shampoo producers are engaging in _____ to _____.

Accepted Answer

The fact that there are many versions of shampoo produced by a small number of companies indicates that these companies are engaging in brand proliferation. This strategy aims to deter new entrants from entering the market by saturating the shelves with different versions of their products, making it difficult for new brands to gain a foothold.

Question 4

A company engaged in brand proliferation is _____ to _____.

Accepted Answer

Brand proliferation involves a company producing many versions of its product to fill the market, making it harder for new competitors to find profitable opportunities.

Question 5

In what two ways can a company's reputation be a barrier to other companies entering its market?

Accepted Answer

A company's reputation can create customer loyalty and intimidation towards entering rivals, as customers may not switch to a new or unknown brand and rivals may be hesitant to compete against a well-established and reputable brand.

Question 6

Strategies used by entrepreneurs to overcome barriers to entry do NOT include:

Accepted Answer

Duplicating the product of the industry leader is not a recommended strategy as it can lead to legal repercussions and does not promote innovation. The other options, including finding ways to reduce costs, using regulatory strategies to the entrepreneur's advantage, and combatting customer lock-in, are commonly used strategies by entrepreneurs to overcome entry barriers.

Question 7

Which of the following is an example of a strategy that an entrepreneur might use to overcome barriers to entry to an established product market?

Accepted Answer

Differentiating the product in ways that make it attractive to the goals of government regulators can provide a unique selling point for the product and make it more difficult for new competitors to enter the market. This can help overcome barriers to entry created by established competitors. Options A and B are not recommended as they involve copying or pushing for stricter regulations, which may not be ethical or sustainable practices. Option C may help keep costs low, but does not address the issue of barriers to entry.

Question 8

The cost advantages of established, large-scale producers in a market might be overcome by a new entrant who can:

Accepted Answer

Developing a new, low-cost, small-scale production technology can help a new entrant overcome the cost advantages of established, large-scale producers. This would allow the new entrant to produce goods at a lower cost, and therefore be able to compete on price with the established producers. Increasing market demand (choice A) may help grow the market, but would not necessarily help a new entrant compete with established producers on cost. Similarly, convincing the government to stop issuing new patents (choice C) would not necessarily help a new entrant compete on cost. Pushing the market price down (choice B) may help the new entrant gain market share, but would not necessarily help them overcome the cost advantages of established producers.

Question 9

In the short run, a seller _____, but in the long run, _____.

Accepted Answer

In the short run, a seller faces a fixed number of rivals since it cannot easily enter or exit the market. However, in the long run, the number of rivals can vary as new firms enter or existing firms exit the market, leading to changes in competition. Therefore, option C is the correct choice. The other choices do not accurately describe the short run and long run behavior of a seller.

Question 10

The strong incentive of sellers to deter the entry of new sellers is a major reason that:

Accepted Answer

The strong incentive of sellers to deter the entry of new sellers contributes to imperfect competition in markets. This is because existing sellers will engage in various strategies to maintain their market share and prevent new competitors from entering, leading to a market structure that is not perfectly competitive.

Question 11

What is the difference between explicit financial costs and implicit opportunity costs?

Accepted Answer

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Question 12

Explain the difference between accounting profit and economic profit. Why do economists prefer to use economic profit when analyzing the profitability of firms?

Accepted Answer

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Question 13

Hua Xing forgoes a job with an annual salary of $80,000 to start her own interior design company. She invests $30,000 of her own savings in the company, which means forgoing the $3,000 per year that she has been earning on those savings. During her first year in business, Hua Xing's firm collects revenue of $250,000 and pays out $160,000 in expenses. What is Hua Xing's economic profit or loss situation at the end of her first year in business? Provide the specific amount of economic profit or loss, and explain how you arrived at that conclusion.

Accepted Answer

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Question 14

Why is the average cost curve typically a U-shaped curve?

Accepted Answer

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Question 15

Why will an industry naturally move to zero economic profits in the long run if it has free entry and exit of firms?

Accepted Answer

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Question 16

In the long run, what is the main determinant of price when a market has free entry and exit? Explain why this occurs.

Accepted Answer

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Question 17

Explain how the entry of new sellers into a market decreases the demand faced by incumbent sellers in the market.

Accepted Answer

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Question 18

Describe four strategies firms may use to deter new companies from entering a market.

Accepted Answer

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Question 19

How can government regulations that focus on ensuring the health and safety of the public effectively create barriers to entry in markets?

Accepted Answer

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Question 20

How does brand proliferation create a barrier to entry in a market?

Accepted Answer

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Quiz 15: Entry, Exit, and Long-Run Profitability

When one company produces several different versions of a product, the company is using _ to _.

The toothpaste aisle at a large store that sells personal care products contains many versions of toothpaste produced by a small number of sellers. This indicates that toothpaste producers are engaging in _ to _.

The shampoo aisle at a large store that sells personal care products contains many versions of shampoo produced by a small number of companies. This indicates that shampoo producers are engaging in _ to _.

A company engaged in brand proliferation is _ to _.