1. Buyers consider nails and lumber to be 6.

Which of the coefficient points out that

complements. If nails just increased its total revenue will increase if you sell one
prices, what would you expect to occur in more.
the lumber market?
MR > MC
Demand would rise, and lumber would reduce price. MR > 0
Demand would fall, and lumber would reduce MR < MC
price. MR < 0
Demand would rise, and lumberwould increase 7. Jim recently graduated from college. His
supply. income increased tremendously from
Demand would fall, and lumberwould increase price. $5,000 a year to $60,000 a year. Jim
2. It’s lunch time, you are hungry and you decided that instead of renting he will buy
would like to have some pizza. By the law a house. This implies that
of diminishing marginal value,
You would pay an equal amount of money for both houses are normal goods for Jim.
the slices since they are identical. need information on the price of houses.
You would pay more for your first slice of pizza
than your second houses are inferior goods for Jim.
None of these renting and owning are complementary for Jim.
You would pay more for your second slice of pizza 8. An economist estimated the cross-price
than your first. elasticity for peanut butter and jelly to be
3. Demand is elastic if 1.5. Based on this information, we know
the goods are
|e| > 1
|e| = 1 inferior goods.
|e| < 1
substitutes.
|e| ≠ 1
4. Which of the following is not the factor that inelastic.
make demand more elastic complements.
Demand for brands is more elastic than industry 9. Pricing is an extent decision. Decrease
demand. price if
In the long run, demand becomes more elastic MR ≠ MC
Products with close substitutes have more elastic MR > MC
demand. MR = MC
As price decreases, demand becomes more elastic. MR < MC
( increases ) 10. Which of the coefficient points out that
total profit will increase if you sell one
5. Jim has estimated elasticity of demand for more.
gasoline to be -0.7 in the short-run and -1.8
in the long run. A decrease in taxes on MR < MC
gasoline would:
MR < 1
lower revenue in both the short and long run. MR > MC
raise tax revenue in the short run but lower tax MR > 0
revenue in the long run.
11. Which of the following statement is false?
raise revenue in both the short and long run.
Lower revenue in the short run but raise revenue Inferior goods: demand decreases as income
in the long run. increases.
complement goods: demand increases as the price of 16. Once marginal cost rises above average cost,
a complement increases.
substitute goods: demand decreases as the price of a Average costs are unaffectedCorrect!
substitute decreases, Average costs will increase
None of the above
normal goods: demand increases (decreases) as Average costs will decrease
income increases, 17. What might you reasonably expect of an
industry in which firms tend to have economies of
12. Which of the following goods has a negative scale?
income elasticity of demand?
Exceptional competition among firms .
Items from Dollar stores. Highly diversified firms .
A large number of firms .
Cars
A small number of firms.
Bread 18. A security system company’s total production
Shoes costs depend on the number of systems produced
according to the following equation: Total Costs =
13. Christine has purchased five bananas and is $20,000,000 + $4000 * quantity produced. Given
considering the purchase of a sixth. It is likely she these data, which of the following is
will purchase the sixth banana if a false statement?

the average value of the sixth bananas exceeds the There are diseconomies of scale .
price. A firm that produces a larger output has a cost
the marginal benefit of the sixth banana exceeds advantage over a smaller firm.
its price. There are economies of scale.
the total personal value of six bananas exceeds the
There are fixed costs associated with this business.
total expenditure to purchase six bananas.
the marginal value she gets from the sixth banana is 19.It costs a firm $90 per unit to produce product
lower than its price. A and $70 per unit to produce product B
individually. If the firm can produce both
14. If long-run average costs are constant with products together at $175 per unit of product A
respect to output, then you have constant returns and B, this exhibits signs of
to scale. If long run average costs rise with
output, you have increasing returns to scale. economies of scope
(decreasing) diseconomies of scale
economies of scale
Both statements are false. diseconomies of scope
The first statement is true and the second 20. As a golf club production company produces
statement is false. more clubs, the average total cost of each club
The first statement is false and the second statement produced decreases. This is because:
is true.
average variable cost is decreasing as more clubs are
Both statements are true. produced .

15. Average costs curves initially fall total variable cost is decreasing as more clubs are
produced.
due to declining average fixed costs.
there are scale economies.
due to rising average fixed costs .
total fixed costs are decreasing as more clubs are
due to rising marginal costs. produced .
due to declining accounting costs.
21.Learning curves mean that current production decreasing marginal costs
lowers future costs. It’s important to look over the
life cycle of a product when working with 26. When the demand of a product is elastic to
products characterized by learning curves. increase the revenue is to decrease the price
because the increase in quantity is bigger than
The first statement is true and the second statement is the decrease in price.
false.
The first statement is false and the second statement True
is true. False
Both statements are true.
Both statements are false. 27. Assuming other factors are held constant
22.According to the law of diminishing marginal consumers purchase less as price increases
returns, marginal returns:
True
diminish constantly. False
diminish always prior to increasing.
diminish eventually. 28. If demand is elastic, price cuts increase
diminish never. revenue.
23. Diminishing marginal returns True
causes marginal productivity to decline. False
Diminishing marginal productivity
causes marginal costs to increase. 29. The term aggregate demand is not the same or
different from market demand. (same)
The first statement is false and the second statement
is true. True
False
The first statement is true and the second statement
30. Consumers make consumption decisions using
is false.
marginal analysis, consume more if marginal
Both statements are true. value is less than the price (more than)
Both statements are false True
24. As a T-shirt making company producing T- False
shirts, the average total cost of each T-
shirts produced increases. This is because: 31. “Demand is elastic” in business vernacular it
often means the the price is too low. (high)
average variable cost is decreasing as more T-shirts
are produced. True
total fixed costs are increasing as T-shirts are False
produced. 32. Estimated price elasticity is used to estimate
total variable cost is decreasing as more T-shirts are demand from a price and quantity change.
produced.
True
There is a diseconomies of scale. False

25 Microsoft found that instead of producing a 33. The marginal value of consuming each
DVD player and a gaming system separately, it is subsequent unit diminishes the more you consume
cheaper to incorporate DVD playing capabilities
in its new version of the gaming system. Microsoft True
is taking advantage of False

learning curve
economies of scale
economies of scope
34. Marginal analysis finds the profit increasing Chapter 8-9 Market Structure
solution to the pricing tradeoff.It tells you which
direction to go whether to raise or lower price, The following are controllable factors that can
and also tells you how far to go ( but do not ) affect demand, except

True distribution speed

False warranties
prices of substitute also owned by the company
35.In business investments if you hear the words prices of substitutes owned by other companies
“efficiency” or “synergy,” hold on to your money.
The following dimensions help the firm to define
True market before making investment, except
False
36.Increasing marginal costs eventually cause Time
increasing average costs and make it easier Product
to compute break-even prices. (difficult) Location
Amount of capital
True
False The price of peanuts increases. At the same time,
we see the price of jelly (which is often consumed
with peanut butter) rise. How does this affect the
37.If average cost increases with output, then you market for peanut butter?
have increasing returns to scale. (decreasing)
The demand curve will shift to the left; the supply
True curve will shift to the right.
The demand curve will shift to the right; the supply
False curve will shift to the left .
The demand curve will shift to the left; the supply
38.If the cost of producing two outputs jointly is curve will shift to the left.
less than the cost of producing them The demand curve will shift to the right; the supply
separately then there are diseconomies of scope curve will shift to the right
between the two products. (economies)
True The following are the uncontrollable factors that
False can cause demand shift, except

39.Economies of scope between the two products prices of complementary products owned by other
can be an important source of competitive companies
advantage and shape acquisition strategy. Income
advertising
True
False interest rates
Suppose there are seven sellers and seven buyers
in a competitive market, each willing to buy or sell
40.The law of diminishing marginal returns states one unit of a good, with values {$10, $9, $8, $7, $6,
that as you expand output, your $5, $4}. Assuming there are no transactions costs,
marginal productivity eventually declines. what is the equilibrium price in this market?
True $5
False
$7
$6

$8
Suppose there are seven sellers and seven buyers If the market for a certain product experiences an
in a competitive market, each willing to buy or sell increase in supply and a decrease in demand,
one unit of a good, with values {$10, $9, $8, $7, $6, which of the following results is expected to occur?
$5, $4}. If the government imposes a price floor at
$8 in the above market, how many goods will be The equilibrium price would rise, and the equilibrium
traded? quantity could rise or fall.
The equilibrium price would fall, and the equilibrium
Four quantity would fall.
Five Both the equilibrium price and the equilibrium
Three quantity could rise or fall.
Two The equilibrium price would fall, and the
equilibrium quantity could rise or fall.
Suppose there are seven sellers and seven buyers
in a competitive market, each willing to buy or sell A competitive firm’s profit maximizing price is
one unit of a good, with values { $9, $8, $7, $6, $5, $15. At MC=MR, the output is 100 units. At this
$4, $3}. If the government imposes a price ceiling level of production, average total costs are $12.
at $7 in the above market, how many goods will be The firm’s profits are
traded?
$300 in the short run and long run
Two $500 in the short-run and zero in the long run
Four $500 in the short-run and long-run
Five $300 in the short-run and zero in the long run
Three
The following are attributes of monopoly firms
Suppose there are six sellers and six buyers in a that protect them from the forces of competition,
competitive market, each willing to buy or sell two except
units of a good, with values { $8, $7, $6, $5, $4,
They dominates the entire market.
$3}. If the government imposes a price floor at $6
they have no rivals
in the above market, how many goods will be
there are barriers to entry, so no other firms can enter
traded?
the industry.
Six they produce diversified products or service

Eight What would happen to revenues if a firm in a

perfectly competitive industry raised prices?
Three
They would increase
Four They would increase but profit would decrease
They would fall to zero
Suppose a recent and widely circulated medical They would increase along with profit
article has reported new benefits of cycling for
exercise. Simultaneously, the price of the parts What is the main difference between a competitive
needed to make bikes falls. If the change in firm and a monopoly firm?
supply is greater than the change in demand, the
price will _________ and the quantity will Monopoly firms can generally earn positive profits
_________. over a longer period of time.
Monopoly firms enjoy government protection from
fall, fall competition.
fall, rise
Monopoly firms are more efficient and therefore have
rise, fall
lower costs.
rise, rise
The number of customers served by the firm
In the long-run, which of the following outcomes is Both a perfectly competitive firm and a monopoly
most likely for a firm? A perfectly competitive firm but not a monopoly
A monopoly but not a perfectly competitive firm
Positive accounting profits and positive economic Neither a perfectly competitive firm nor a
profits monopoly
Zero accounting profits
Zero economic profits but positive accounting
profits Which of the products below is closest to
Zero accounting profits but positive economic profit operating in a perfectly competitive industry?

If a firm in a perfectly competitive industry is Mang Inasal's Chicken

experiencing average revenues greater than Restaurants
average costs, in the long-run Nike shoes
Carrots
some firms will enter the industry and price will rise
some firms will enter the industry and price will
fall At the individual firm level, which of the following
some firms will leave the industry and price will fall types of firms faces a downward-sloping demand
some firms will leave the industry and price will rise curve?
A perfectly competitive firm but not a monopoly firm
A competitive firm can earn positive or negative Both a perfectly competitive firm and a monopoly
profit in the short run until entry or exit occurs. firm
In the long run, competitive firms are condemned Neither a perfectly competitive firm nor a monopoly
to earn only an low rate of return. firm
Both statements are true. A monopoly firm but not a perfectly competitive
The first statement is true and the second firm
statement is false.
Both statements are false.
A firm in a perfectly competitive market faces
The first statement is false and the second statement
what type of demand curve?
is true.
Perfectly inelastic
The following items are the characteristics of a
None of these
competitive firm, except
Unit elastic
many rivals and no cost advantage over them Perfectly elastic .
has no barriers to entry or exit.
produce a product or service with no substitute
one that cannot affect price. Which of the following items does not cause entry
barrier of a firm?
low capital requirement
A sudden decrease in the market demand in a
none of these
competitive industry leads to
complex technology,
above average profits in the short-run and average large firm’s economies of scale
profits in the long-run
losses in the short-run and average profits in the
long-run Which of the following market structure has the
demand creating supply highest level of market power?
new firms being attracted to the industry Monopoly
Monopolistic competition
Which of the following types of firms are Perfect competition
guaranteed to make positive economic profit? Oligopoly
Which of the following describes the features of Which of the following items is the product that
perfect competition monopolistic competition engaged in?
large number of buyers and sellers, engaged in Trucks
homogeneous products. Men’s Shoes
large number of buyers and sellers, engaged in Fruits
heterogeneous products. Salt
there is barrier in entry and exit to the market.
few number of sellers, engaged in homogeneous or The following are features of monopoly.
differentiated products.
maximizes profit
all of these
Which of the following describes the features of
dominates the entire market
monopolistic competition?
high barriers to entry and exit
there is no barrier in entry and exit to the market,
engaged identical products The following are features of oligopoly, except
there is barrier in entry and exit to the market, engage
there are high barriers to entry and engage in
in one single products
heterogeneous product.
there is barrier in entry and exit to the market, engage Interdependence and lack of uniformity.
in differentiated products there are high barriers to entry and engage in one
there is no barrier in entry and exit to the market, single product.
engaged in differentiated products selling the homogeneous or differentiated products.

A market structure with no direct competition A “market maker” makes a market – by buying
between rivals? low and selling high.
Monopoly
Oligopoly True
Monopolistic competition False
Perfect competition
Setting a single price for a single product of a
Which of the following characterize monopolistic
single firm is referred to as a “monopoly” model
competition?
of pricing.
A firm that controls the entire market.
None of these. True
Engage in differentiated products with high barriers False
in entry and exit.
sell identically the same products at a single price. If the costs of making a market are large, then the
equilibrium price may be better viewed as
A market structure with high barriers to entry a spread rather than a single price.
and exit and dominates the entire market. True
Pure competition False
Monopolistic competition
Oligopoly If price is below the equilibrium price, there are
Monopoly too many sellers, forcing price down.
True
False
Prices are a primary way that market participants that is, no matter where it goes it will make the no
communicate with one another. High prices profit
tell suppliers to supply less.
True
True False
False

Quantities are a primary way that market Perfect competition is theoretical, but
participants communicate with one another. benchmarking on it is valuable to expose the
forces that move prices and firm profit in the long
True run .
False
True
False
The behavior of sellers is determined by a
“demand” curve. A competitive firm produces a product or service
with very close substitutes so they have
True very elastic demand.
False
True
False
It is highly recommended to use demand and
supply analysis for an individual firm Profit exhibits what is called mean reversion, or
True “regression toward the mean.”
False True
False
In a competitive equilibrium there are no
consummated wealth-creating transactions. Without continuing stream of innovations and
brand support, the product’s profits would
True
have been slowly eroded away by the forces of
False competition.
True
Risk premia are analogous to compensating wage
False
differentials: just as workers are compensated for
unpleasant work, so too are investors
compensated for bearing risk. For competitive firms price is always greater than
marginal revenue.
True
True
False
False
Compensating wage differentials reflect
Sometimes price taking behavior of a competitive
differences in the inherent attractiveness of
firm means that the marginal revenue of another
various professions.
unit is equal to the price.
True
True
False
False

If an asset is mobile, then in long-run equilibrium,

the asset will be indifferent about where it is used;
No industry is perfectly competitive thus few firms The oligopoly market structure lies between the
are almost close to it. pure monopoly and pure competition,
True True
False
False
When risk premia become too small, some
investors view this as a time to get out of risky
In monopolistic competition there is an intense
assets because the market may be ignoring risk in
competition among the firms, the entity incurring
the pursuit of higher returns
the loss cannot easily move out of the industry at
True any time it wants.
False
True
False
The indifference principle tells us that in long-run
equilibrium, all professions should be
equally attractive, provided labor is mobile. The monopolistic competition is also called as
imperfect competition because this market
True
structure lies between the pure monopoly and the
Fals
pure oligopoly competition.
True
Competitive firms, cannot affect price; they can
False
choose how many quantities to produce and
sell all they want at a very competitive price.
Under the perfect competition, a seller is the price
True
maker and can influence the market price.
False
True
The monopolistic competition, is a market
False
structure with a large number of firms that
produce differentiated products which are not
close substitutes for each other. The oligopoly market is characterized by few
sellers, selling the homogeneous or
True
differentiated products.
False
True
Monopolistic competition refers to a market False
structure, where a large number of small firms
compete against each other with differentiated
products. Product variation means that firms operating
under the monopolistic competition produces
True the product which is not identical from each other.
False
The Oligopoly firms producing the homogeneous True
products are called as Imperfect Oligopoly False

True
False
A monopoly refers to a market structure where a
single firm controls the entire market.
True
False
 Chapter 10-12 firms producing items that sell through the same
distribution channels.
1.Buyers have higher power when
they are not a significant purchaser of their supplier's 6. When a resource or capability is valuable, rare,
output. hard to imitate, and non-substitutable firms may
switching costs are low. gain
their suppliers sell a highly differentiated product.
the buyer industry is highly fragmented a temporary competitive advantage.
a complex competitive advantage.
a sustainable competitive advantage.
2. Attractive industries have all the following, competitive parity.
except

high supplier power 7. The concept that describes firms possessing

low buyer power different bundles of resources is
low rivalry
high entry barriers barriers to entry
resource immobility
imitability
3. Which of the following is NOT an example of an resource heterogeneity
entry barrier?

Low capital requirements for entry 8. The following are one of three strategies
Lower costs driven by economies of scale a firm can adopt in order to stay one step ahead
Government protection through patents or licensing of the forces of competition, except
requirements
Strong brands product differentiation
cost reduction
encourage product substitution
4. Firms have a competitive advantage when they reduction in the intensity of competition
can deliver the same product or service benefits as 9. Which of the following is NOT a factor that
competitors at a lower cost. Also firms have a contributes to higher rivalry in an industry?
competitive advantage when they can deliver
High fixed costs.
superior product or service benefits than the
Low switching costs for buyers.
competitor at a higher cost.
Fast industry growth.
Numerous competitors.
The first statement is false and the second statement
is true.
Both statements are false. 10. The following are composition of the resources
Both statements are true. and capabilities of an excellent firm performance,
The first statement is true and the second except
statement is false.
organizational excellence
5. An industry is defined as customer’s loyalty
intellectual assets
human capital
a group of firms producing products that are close
substitutes.
firms that have the same resources and capabilities. 11. Which of the following is critical for a firm
a group of firms producing the exact same products adopting a long-term cost-reduction strategy?
and services.
The firm must also differentiate its product or
service.
The strategy reduces costs by at least 10%. Accelerate; accelerate
The strategy is focused on reducing internal Accelerate; delay
production costs. Delay; delay
The methods of achieving cost reductions are Delay; accelerate
difficult to imitate.
17. The intersection between demand for dollars
12. The following are some conditions that make a and the supply of dollars is known as the
resource hard to imitate or duplicate , except
Inflation rate
When the link between resources and advantage is Price
ambiguous. Quantity
When sustainable competitive advantage is Exchange rate
publicly available knowledge.
When a resource is socially complex.
18. An individual in the United States wants to
Resources that flow from a firm’s unique historical
buy office equipment from England that costs
conditions.
2,800 pounds. If the exchange rate is $1.92, how
much will it cost him in dollar terms?
13. One of characteristics of the best industries
which was not included in Porter’s Five Forces $5,376 (2800*1.92)
Need more information
cooperation from complements $2,800
high entry barriers $1,458
low threat of substitutes
low supplier power 19. Currency appreciation help consumers
because they make imports cheaper in the
domestic currency. Also helps suppliers because
14. If a firm successfully adopts a product they make exports less expensive in the foreign
differentiation strategy, the elasticity of demand currency.
for its products should
The first statement is true and the second
be unaffected. statement is false.
decrease. Both statements are true.
increase. Both statements are false.
become marginal. The first statement is false and the second statement
is true.

15. When a resource or capability is valuable,

inimitable and rare, a firm may gain 20. Should the Philippine peso devalue relative to
the U.S. dollar which of the following is not true?
temporary competitive advantage.
cost advantage. U.S. producers will benefit
sustainable competitive advantage. Filipino consumers will be hurt.
competitive parity. U.S. consumers will not be affected.
Filipino producers will benefit.
16. If buyers expect future price increases, they
will ___________ their purchases to avoid it.
Similarly, sellers will __________ selling to take
advantage of it.
21. Following a peso appreciation relative to the The dollar will appreciate relative to the yuan, and
dollar, which of the following results is expected to U.S. prices will decrease.
occur? The dollar will appreciate relative to the yuan, and
U.S. prices will increase.
Prices in the United States would rise, and prices
in Mexico would fall.
Prices in the United States would rise, and prices in 25. Following a peso appreciation relative to the
Mexico would rise. dollar, which of the following results is expected to
Prices in the United States would fall, and prices in occur?
Mexico would rise.
Prices in the United States would fall, and prices in U.S. consumers would benefit, and Mexican
Mexico would fall. producers would benefit.
U.S. consumers would benefit, and Mexican
producers would be hurt.
22. Following an increase in Mexican interest rates U.S. consumers would be hurt, and Mexican
relative to U.S. interest rates, which caused producers would be hurt.
Mexican investors to borrow abroad to invest U.S. consumers would be hurt, and Mexican
domestically, which of the following is expected to producers would benefit.
occur?
26. The so-called “carry trade,” borrowing in
The dollar would depreciate relative to the peso, foreign currency to buy imports or invest in a
and Mexican prices would decrease. foreign country does not affect the exchange rates,
The dollar would depreciate relative to the peso, and However, borrowing in foreign currencies to
Mexican prices would increase. spend or invest domestically, increases demand
The dollar would appreciate relative to the peso, and for the domestic currency, appreciating the
Mexican prices would increase. domestic currency.
The dollar would appreciate relative to the peso, and Both statements are false.
Mexican prices would decrease.
Both statements are true.
The first statement is false and the second statement
23. Following are certain features of bubbles that is true.
economists have documented, except The first statement is true and the second statement is
false.
it's more costly to bet on prices going down than up,
because the bullish investors dominate.
Financial bubbles are marked by huge increases in 27. Bubbles (if they exist) are prices that can be
trading explained by normal economic forces. Purchasing
Bubbles emerge at times when investors disagree power parity means that exchange rates and/or
about the significance of a big economic prices adjust so that tradable goods cost is the
development. same everywhere.
Bubbles can easily figure out by most
businessmen, henceforth its occurrence can easily The first statement is true and the second statement is
be predicted. false.
Both statements are true.
24. If the U.S. economy strengthens, consumer Both statements are false.
incomes increase, and consumers buy more The first statement is false and the second
imported goods and services. How will this affect statement is true.
exchange rates?

The dollar will depreciate relative to the yuan, and

U.S. prices will increase.
The dollar will depreciate relative to the yuan, and
U.S. prices will decrease.
28. If the Chinese yuan devalues relative to the US 33. A shoe-producing firm decides to acquire a
dollar, then firm that produces shoe laces. This implies that
the firm’s aggregate demand (shoes + laces) will
US producers will benefit; Chinese consumers will be:
benefit
Currency devaluation helps domestic firms by more elastic than the individual demands.
increasing demand but hurts domestic consumers by less elastic than the individual demands.
increasing domestic price. equally elastic as the individual demands.
US producers will be hurt; Chinese consumers None of these
will be hurt.
US producers will benefit; Chinese consumers will be
34. After firm A producing one good acquired
hurt
another firm B producing another good, it
lowered the prices for both goods. One can
29. If buyers expect a future price increase, they conclude that the goods were
will delay their purchases to avoid it. Similarly,
complements.
sellers will accelerate selling to take advantage of None of these
it. not related.
Both statements are true. substitutes.
Both statements are false.
The first statement is true and the second statement is
35. After massive promotion of Rihanna’s latest
false.
music album, the producers reacted by raising
The first statement is false and the second statement
prices for her albums. This implies that promotion
is true.
expenditures made the album demand
30. Following an increase in Mexican interest rates
relative to U.S. interest rates, which caused US change due to psychological pricing.
investors to invest in Mexican Bonds. Which of unitary elastic.
the following would occur? less elastic.
more elastic.
The dollar would depreciate relative to the peso, and
Mexican prices would increase.
The dollar would appreciate relative to the peso, and 36. Firms tend to raise the price of their goods
Mexican prices would increase. after acquiring a firm that sells a substitute good
The exchange rate would not be affected, and because
neither would Mexican prices.
The dollar would depreciate relative to the peso, and they lose market power.
Mexican prices would decrease. the aggregate demand for both goods is less elastic
than the demand for the individual goods.
31. On average, if demand is unknown and costs the aggregate demand for both goods is more elastic
of underpricing are _______ than the costs of than the demand for the individual goods.
overpricing, then _________. there is an increase in the overall demand for their
None of these products.
smaller; overprice
larger; underprice 37. After acquiring a substitute product, which of
smaller; underprice the following is not the recommended action to
32. All of the following choices are examples of do?
promoting a firm’s product, except
discount coupons. raise price more on the low-margin (more price
pricing elastic demand) product.
celebrity endorsements. reduce price on both products to eliminate price
end-of-aisle displays. competition between them.
reposition the products so that there is less 42. Tipping is an element of strategy by using a set
substitutability between them. of techniques to create a platform by making a
raise price on both products to eliminate price technology to a particular technological system
competition between them. and market.

True
38. For products like parking lots and hotels, False
costs of building capacity are mostly fixed or sunk 43. Competitive advantage flows from having
and firms in this industry typically face capacity something that competitors can't easily duplicate
constraints. Therefore,
True
if MR<MC at capacity, then the firms should price to False
fill capacity. 44. According to the resource-based view (RBV),
if LRMR<LRMC at capacity, then the firms should individual firms may exhibit sustained
price to fill capacity. performance advantages due to the superiority of
if MR>MC at capacity, then the firms should their resources.
price to fill capacity.
if LRMR>LRMC at capacity, then the firms should True
price to fill capacity. False
39. A firm that acquires a substitute product can
reduce cannibalization by
45. Resources that may generate unstable
setting the same price on both products. competitive advantage do not necessarily lead to a
doing nothing. sustainable competitive advantage.
repositioning a product so that it does not directly
compete with the substitute. True
lowering prices on the low-margin products. False

40. Which of the following statements is false? 46. A valuable resource must allow a business to
conceive of and implement strategies that improve
After acquiring a substitute product, reduce price its efficiency or effectiveness.
on both products to eliminate price competition
between them. True
If demand is unknown, and the costs of underpricing False
are smaller than the costs of over-pricing, then
47. Sustaining competitive advantage creates a
underprice, on average, and vice-versa.
“moat” around the company to help protect its
If demand is unknown, and the costs of underpricing
profits from the forces of competition.
are smaller than the costs of over-pricing, then
underprice, on average, and vice-versa. True
After acquiring a complementary product, reduce False
price on both products to increase demand for both
products. 48. Strategy is the art of matching the resources
and capabilities of a firm to the opportunities and
41. Resources are defined as “the tangible and risks in its external environment for the purpose
intangible assets firms use to conceive of and of developing a sustainable competitive advantage
implement their “strategies”
True
True False

False
49. Publicly available knowledge is going to help 56. Currency devaluation hurts consumers
you create a competitive advantage. because they make imports more expensive in the
domestic currency.
True
False True
False

50. The so-called “carry trade,” borrowing in

foreign currencies to spend or invest in foreign 57. Bubbles persist because no one has the
country does not affect the exchange rates. firepower to successfully attack them.
True True
False False

51. Currency devaluations help consumers

because they make imports less expensive in the 58. Investing in a foreign country or importing
domestic currency. goods from a foreign country increases the
True demand for foreign currency.
False
True
52. If sellers expect a future price increase, they False
will accelerate their sales to take advantage of it.
59. Reducing price at one store steals sales from
True the other (reduces MR at both) to counter the
falling MR, raise prices at both stores
False to maximize profits.
True
53. The bubble will never pop even if sufficient False
number of skeptical investor act simultaneously.
60. Psychological biases suggests “framing” price
True changes as gains rather than as losses.
False
54. Increasing demand for foreign currency leads True
to the depreciation or devaluation of domestic False
currency.

True
False

55. Borrowing in foreign currency to buy imports

or invest in a foreign country devalue domestic
currency.

True
False