BUS-G 202 Self-Test Questions (Topics 5 —> 7)

Below is a table of information on a local monopolist’s Sales Quantity, Price, and Total Cost

What is the monopolist’s profit maximizing price (Pf)?

A. $35

B. $30

C. $25

D. $20

B. $30

Below is a table of information on a local monopolist’s Sales Quantity, Price, and Total Cost

What is the monopolist’s socially efficient quantity (Qe)?

A. 2

B. 3

C. 4

D. 5

D. 5

To achieve the socially efficient equilibrium, a firm with market power should

A. Set a sales target where MR = MC and then markup price over costs according to demand for the firm’s product

B. Set a sales target where D = MC and then markup price over costs according to demand for the firm’s product

C. Set a sales target where MR = MC and then set price equal to marginal cost at that output level

D. Set a sales target where D = MC and then set price equal to marginal cost at that output level

D. Set a sales target where D = MC and then set price equal to marginal cost at that output level

When compared to the efficiently competitive industry, the firm with significant market power produces

A. too few units, giving up some units that would normally have more productive cost than consumer value

B. too few units, giving up some units that would normally have more consumer value than product cost

C. too many units, as some units produced will have more consumer value than productive costs

D. too many units, as some units produced will have more productive costs than consumer value

B. too few units, giving up some units that would normally have more consumer value than product cost

When firms are imperfectly price discriminating (charing different prices to different segmented groups of consumers), which of the following statements is true?

A. Over a given range of production, producer surplus increases as the number of segmented consumer groups increase

B. Over a given range of production, consumer surplus increases as the number of consumer groups increase

C. All market surplus goes to the producers

D. All market surplus goes to the consumers

A. Over a given range of production, producer surplus increases as the number of segmented consumer groups increase

You are the manager of a movie theater that is the only one in a local market, so you have strong market power. You have extensively researched your customer base and realize you have two types of segmentable customers: (i) students who have an elasticity of demand for movies of -2.7 and (ii) senior citizens who have an elasticity of demand for movies of -5.1. Which of the following pricing schemas would you employ to enhance profits?

A. Set higher prices to the students as their demand is relatively more elastic.

B. Set higher prices to the students as their demand is relatively more inelastic

C. Set higher prices to the senior citizens as their demand is relatively more elastic

D. Set higher prices to the senior citizens as their demand is relatively more inelastic

B. Set higher prices to the students as their demand is relatively more inelastic

How will the monopolist’s output and price (Qm and Pm) compare to the socially efficient output and price (Qe and Pe) in any given market?

A. Qm < Qe and Pm > Pe

B. Qm < Qe and Pm < Pe

C. Qm > Qe and Pm < Pe

D. Qm > Qe and Pm > Pe

A. Qm < Qe and Pm > Pe

Which of the following is the correct stakeholder hierarchy of the USLP?

A. Society — Employees — Shareholders — Consumers

B. Employees — Shareholders — Consumers — Society

C. Consumers — Society — Employees — Shareholders

D. Shareholders — Consumers — Society — Employees

C. Consumers — Society — Employees — Shareholders

What is the result of Unilever’s USLP differentiation strategy?

A. Unilever sets a sales target where D = MC and then markup price over cost according to demand for the firm’s product

B. Unilever produces too few things, giving up some units that would normally have more productive cost than consumer value

C. Unilever sets higher prices to their shoppers as their demand is relatively more inelastic

D. Unilever only thinks about the short-term profit from their differentiation efforts

C. Unilever sets higher prices to their shoppers as their demand is relatively more inelastic

Which of the following is not one of the potential pros of doubling down on the USLP?

A. The USLP generated early profit increases and improved shareholder value

B. Employees are motivated by the incentive structures of the USLP and are driving product innovation

C. Customers responded to the culture of social accountability under the USLP by increasing their brand loyalty

D. There are diminishing returns to expanding the USLP beyond the brand considered to be low-hanging fruit

D. There are diminishing returns to expanding the USLP beyond the brands considered to be low-hanging fruit

Airbus and Boeing are playing a game where each manufacturer is deciding between making planes capable of carrying large numbers of passengers by increasing seat capacity (Seats) or making planes that are more fuel efficient (Fuel). Suppose that the following matrix represents this situation:

What is/are the Nash Equilibrium(s) in this game?

A. (Fuel, Seats) and (Seats, Fuel)

B. (Fuel, Fuel) and (Seats, Seats)

C. (Fuel, Seats) only

D. (Seats, Fuel) only

A. (Fuel, Seats) and (Seats, Fuel)

What is/are the Nash Equilibrium(s) in this game?

A. (Generic, Generic)

B. (Customized, Customized)

C. (Generic, Generic) and (Customized, Customized)

D. There are no Nash Equilibriums in this game

B. (Customized, Customized)

Which of the following statements is true regarding the dominant strategies of the players?

A. Both firms have a dominant strategy to play high price

B. Both firms have a dominant strategy to play low price

C. Only Firm A has a dominant strategy to play low price

D. Only Firm B has a dominant strategy to play high price

B. Both firms have a dominant strategy to play low price

Which of the following statements is true regarding the secure strategies of the players?

A. Both firms have a secure strategy to play high price

B. Both firms have a secure strategy to play low price

C. Only Firm A has a secure strategy to play low price

D. Only Firm B has a secure strategy to play high price

A. Both firms have a secure strategy to play high price

Within game theory, the condition describing a set of strategies in which no player can improve her payoff by unilaterally changing her strategy given her rival’s strategy, is called the

A. Dominant Equilibrium

B. Secure Equilibrium

C. Mixed Equilibrium

D. Nash Equilibrium

D. Nash Equilibrium

Regarding a normal form (box) game, which of the following statements is false?

A. Player 1 controls what row the game is in and can move the game up and down

B. Player 2 controls what column the game is in and can move the game left and right

C. It is assumed that each player would accept a lower payoff to hurt their rival’s payoff

D. Player 1’s payoff is always listed first in the payoff set and Player 2’s payoff is always listed second

C. It is assumed that each player would accept a lower payoff to hurt their rival’s payoff

Within game theory, the risk averse strategy that results in the highest payoff for a player after eliminating the worst possible payoff, is called the

A. Secure Strategy

B. Dominant Strategy

C. Nash Strategy

D. Mixed Strategy

A. Secure Strategy

According to the DeBeers case, which of the following is a correct statement?

A. DeBeers was unsuccessful at capturing a significant share of the U.S. diamond market because of strict anti-trust policies

B. DeBeers uses stockpiling to balance the number of diamonds released to the market in an effort to stabilize diamond valuations at a high level

C. DeBeers does not actually control any of the raw diamond mines located throughout the world

D. DeBeers and its subsidiary have little influence over world diamond prices, but they are able to effectively influence the world output of diamonds

B. DeBeers uses stockpiling to balance the umber of diamonds released to the market in an effort to stabilize diamond valuations at a high level

According to the DeBeers Case, the US courts were unsuccessful at prosecuting DeBeers for antitrust violations because:

A. US antitrust policy does not apply to firms based outside of the US

B. US antitrust policy does not apply to cartel agreements, as it only targets pure monopolies

C. DeBeers was bribing US court officials with large campaign contributions and other financial gifts

D. DeBeers could not be shown to have a significant presence in the US market

D. DeBeers could not be shown to have a significant business presence in the US market

What strategic approach did DeBeers adopt to leverage its brand premium in the US market?

A. Flood the market with diamonds to change antitrust regulations

B. Initiate lobbying efforts to change antitrust regulations

C. Focus on entering the US market directly after settling an anti-trust lawsuit

D. Cease all advertising efforts to mitigate antitrust liabilities

C. Focus on entering the US market directly after settling an anti-trust lawsuit

Steve’s paper factory is polluting a local river and the following information is provided on its production quantity, demand, and cost conditions

Compare Steve’s un-regulated profit maximizing production quantity (Qf) to his socially efficient production quantity (Qe) that would result from an optimally set pollution tax.

A. Steve’s profit maximizing quantity is Qf = 4, while his socially efficient quantity is Qe = 2

B. Steve’s profit maximizing quantity is Qf = 3, while his socially efficient quantity is Qe = 3

C. Steve’s profit maximizing quantity is Qf = 2, while his socially efficient quantity is Qe = 4

D. Steve’s profit maximizing quantity is Qf = 1, while his socially efficient quantity is Qe = 5

A. Steve’s profit maximizing quantity is Qf = 4, while his socially efficient quantity is Qe = 2

Consider a good that generates external damages. A competitive market that is left un-regulated tends to

A. produce less than the efficient amount of the good

B. charge a lower price than the price that would result in maximized social welfare

C. Produce more than the profit maximizing amount of the good

D. charge a cheaper price than the price that would result in profit maximization

B. charge a lower price than the price that would result in maximized social welfare

When a firm’s production leads to external costs, and the firm is not forced to internalize such costs, the firm’s

A. supply curve will underestimate the true costs of productin

B. supply curve will underestimate the true value of ouput

C. demand curve will underestimate the true value of output

D. demand curve will underestimate the true costs of production

A. supply curve will underestimate the true costs of production

When compared to the efficient level, a firm that is polluting and not taking into account its external costs will produce

A. too many units, as some units produced will have more social costs than social benefits

B. too many units, as some units produced will have more social benefits than social costs

C. too few units, giving up some units that would normally result in more social costs than social benefit

D. too few units, giving up some units that would normally result in more social benefits than social costs

A. too many units, as some units produced will have more social costs than social benefits

Which of the following is not a reason for employing strategic sustainability efforts?

A. to attract green venture funds

B. to retain and attract employees that are concerned about green issues

C. to retain consumer valuation of your brand

D. to further differentiate your business model from the demands of green NGOs

D. to further differentiate your business model from the demands of green NGOs

A carbon tax will cause polluting firm’s marginal private

A. benefits to decrease, which will decrease supply

B. benefits to increase, which will increase supply

C. costs to increase, which will decrease supply

D. costs to decrease, which will increase supply

C. costs to increase, which will decrease supply

Which of the following is not one of the incentive mechanisms used to street corporations toward more sustainable business practices?

A. NGO threats of boycotts placed on polluting firms’ products

B. Taxes placed on the development of green technology

C. Assigning high disposal charges on industrial wastes

D. Government-Industry partnerships that lower the costs of green R&D

B. Taxes placed on the development of green technology

Which of the following best describes the consequences of the textile industry strategically locating production facilities in areas with low regulations against toxins?

A. Increased accountability for producers and higher compliance costs

B. Minimal accountability to society due to the industry’s focus on environmental sustainability

C. Over-production leading to a net cost on society and potential environmental harm

D. Enhanced economic growth without any negative externalities

C. Over-production leading to a net cost on society and potential envionrmental harm

Which of the following is a correct statement regarding the pros and cons of Levi’s investing in the Screened Chemistry program first, before all others?

A. The pro of Levi’s investing first is the first-mover advantage with implementing the new chemical screening program

B. The con of Levi’s investing first is the fact that its rivals can easily catch up to Levi’s standards with only minor processing fees

C. The pro of Levi’s investing first is gaining reputational leadership over all others in the industry

D. Given Levi’s incumbent advantage, there is no downside risk to Levi’s investing first

B. The con of Levi’s investing first is the fact that its rivals can easily catch up to Levi’s standards with only minor processing fees

According to Levi’s case, which of the following statements is true regarding the ZDHC?

A. Levi’s put its brand on the Screened Chemistry proposal to signal to the members of the ZDHC that is the industry leader

B. There are not many significant barriers to adopting the Screen Chemistry approach, so the members of the ZDHC can easily coordinate towards the new standards

C. Even though the ZDHC is good at communicating best practices, it is not large enough to gain economies of scale in lowering the costs of screening chemcials

D. Given its philosophy, member consensus is required before the ZDHC can successfully scale out adoption of the Screen Chemistry approach

D. Given its philosophy, member consensus is required before the ZDHC can successfully scale out adoption of the Screen Chemistry approach