⇡i

⇡e
INCUMBENT

Accomodate Deter
entry entry

ENTRANT ENTRANT

Enter Stay Stay Enter

out out

πi = 20 πi = 50 πi = 40 πi = 15
πe= 20 πe= 0 πe= 0 πe= -5
 C(q, Q)
q Q
C(100, 100) = 500 C(200, 100) = 1200 C(100, 200) = 400 C(200, 200) = 900
 150
AC(q) = +6q
q

Alf a Beta
D(pa , pb ) = ua +ub (pa +pb )
Alf a
Beta

Alf a
f1 f2 c1 c2

2
c1 c2
1 f1
f2
Exercise 1 As a regional market for health treatments increases in size,
medical doctors tend to specialize in narrower subfields. This is an example of:
a) Economies of learning
b) Economies of scale
c) Economies of scope
d) Diseconomies of scope
e) High labor costs

Exercise 2 Which of the following statements is true?

a) The strategy of a firm determines the choice of a business model
through which a firm will compete. A business model therefore
reflects a firm’s realized strategy
b) The strategy of a firm and its business model are the same strategic
concepts.
c) The strategy of a firm is the residual choice open to a firm by virtue of
the business model it chooses to employ.
d) None of the above.

Exercise 3 Which of the following statements is true?

The business model describes…
a) How a firm creates and captures value, where the firm’s value creation
is the difference between customers’ willingness to pay and its price
and the firm’s value capture is the difference between customers’
willingness to pay and its cost.
b) How a firm creates value but not how it captures value, where the
firm’s value creation is the difference between customers’ willingness
to pay and its price.
c) How a firm creates and captures value, where the firm’s value creation
is the difference between customers’ willingness to pay and its price
and the firm’s value capture is the difference between its price and its
cost.
d) None of the above.

Exercise 4 Consider the following statements

I. A firm may wish to outsource some inputs if contracting with other firms
is expensive.
II. Firms should make, rather than buy, to control the distribution channel
and exclude competitors.
III. A monopolist should integrate downstream when downstream firms
have market power.
 Which of the above statements is correct?
a) Statement I
b) Statement III
c) Statement II and III
d) Statement I and III
e) None of the above

Exercise 5 A firm’s cost function is given by 𝐶(𝑞𝑎 , 𝑞𝑏 ) = 𝐹 + 𝑐𝑎 𝑞𝑎 + 𝑐𝑏 𝑞𝑏 ,

where 𝐹 represents fixed costs, 𝑐𝑎 the marginal cost of product a, and 𝑐𝑏 the
marginal cost of product b. Which statement is correct?
a) The firm has economies of scale
b) The firm has economies of scope
c) The firm has economies of scale, but only for certain levels of
production
d) Answers (a) and (b) are correct
e) None of the above

Exercise 6 There are two universities in Amsterdam, one on each side of

the city. Universities compete over price. Students care about tuition price, but
they also dislike traveling far. What type of model describes the market for higher
education in Amsterdam the best?
a) The circular city
b) Vertical differentiation
c) The linear city
d) Cournot

Exercise 7 Consider the following statements:

I. Cooperation between firms is more difficult when it is costly for firms to
monitor each other.
II. Strong antitrust regulation increases the likelihood of cooperation
between firms.
III. A firm can make a credible promise to collude by using a most favored
customer clause.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statement I and III
e) Statement II and III
Exercise 8 Facebook must attract both users of its social network and
advertisers. If over time users become more dissatisfied with seeing too many
advertisement, how does the pricing strategy of Facebook should change?
a) Advertisement prices should decrease
b) Users should be charged a (higher) price
c) Advertisement prices should increase
d) No change should be taken

Exercise 9 Airbus wishes to outsource the production its planes’ onboard

entertainment system to GBD electronics. GBD will have to design and produce
a special system which can only work on Airbus airplanes. Why such a deal is
likely to be difficult to succeed?
a) Economies of scale
b) Incomplete contracts
c) Assert specificity
d) Agency costs
e) Answers (b) and (c) are correct

Exercise 10 In the illicit drug market there are many cartels. Since this
market is illegal, we have very little information about this market. We only know
that the largest cartel controls about half the market. What can we say about the
illicit drug market?
a) It is a monopoly
b) It is an oligopoly
c) It is in monopolistic competition
d) There is likely to be collusion in this market
e) None of the above

Exercise 11 A firm produces an innovative new product which the average

consumer value at 900 Euro. The cost of the product is 250 Euro. The firm
decides to price the product at 550 Euro. How much value is created by the firm?
a) 250 Euro
b) 300 Euro
c) 350 Euro
d) 650 Euro
e) None of the above
Exercise 12 Firms in the market can erect an ____ barrier by sustaining a
____ enough price such that potential entrants will decide not to enter the market
a) entry; low
b) exit; high
c) exit; low
d) entry; high

Exercise 13 Consider the following statements:

I. With only few firms in a finite time Bertrand competition, small profits
are possible.
II. In Cournot competition, the higher the marginal cost is, the lower is the
equilibrium quantity.
III. In Cournot competition, a firm with a lower marginal cost than its
competitors also has a higher profit than its competitors.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statement I and II
e) Statement II and III

Exercise 14 Strategic complementarity…

a) Never exists in a Bertrand competition
b) Increases the incentive of a firm to increase its quantity if other firms
increase their quantity
c) Results from vertical integration
d) Is graphically seen with downward sloping reaction curves
e) None of the above

Exercise 15 Vueling has a lower price for consumers who book flights early.
This is an example of:
a) First-price discrimination
b) Second-price discrimination
c) Give-away versioning
d) None of the above
Exercise 16 The market for a cancer-treating drug is controlled by 4 firms
which compete over prices. These firms are considering cooperation in order to
maintain high prices. The patents for this drug are due to expire in a year, at
which time many more firms will enter the market, eliminating any possibility of
cooperation. What is the maximal discount rate that can sustain cooperation by
the 4 firms?
a) r = 0.5
b) r = 0.33
c) r = 0.1
d) No level of discount rate can sustain cooperation

Exercise 17 Observe the graph on the right.

Which situation does it describe?
a) Blockaded entry
b) Credible threat
c) Accommodated entry
d) Non-credible threat

Exercise 18 Many movie-goers find that home-theater experience is

becoming increasingly similar in quality to the cinema experience. In that case, it
is likely that over time the movie-theater industry experienced:
a) Increase in the number of firms operating
b) Increasing fixed costs
c) Decreasing profits
d) Increased differentiation
e) Answers (a) and (c)
Exercise 19 Which of the following firms enjoy a competitive advantage?
a) Firms competing in a horizontally differentiated market and making
positive profits
b) Firms producing and operating under perfect competition with zero
profits
c) Firms producing a homogeneous good operating under collusion with
positive profits.
d) None of the above

Exercise 20 A firm sells two different products to two different consumers –

Ann and Bob. Ann is willing to pay 100 for good 1 and 400 for good 2. Bob is
willing to pay 300 for good 1 and X for good 2. For what value of X should the
firm bundle its products together?
a) X = 0
b) X = 200
c) X = 400
d) X = 500
Exercise 1 Most airlines rely on a hub-and-spoke system. These firms do
so due the existence of:
a) Economies of learning
b) Economies of scope
c) Excess capacity
d) Vertical differentiation
e) Economies of scale

Exercise 2 Which of the following argument does support the need for
strong intellectual property rights?
a) Strong first-mover advantage to innovators
b) Innovating firms spend resources on litigation and lobbying
c) Innovations require large sunk costs
d) Many artists share their music freely on-line

Exercise 3 In the standard model of Bertrand competition with 2 firms that

offer homogeneous products, have constant marginal cost and compete purely
in prices. The best reaction curves cross
a) When price is higher than monopoly price.
b) When price is lower than marginal cost.
c) Once.
d) Twice.
e) When price is higher than marginal cost but lower than monopoly
price.

Exercise 4 In the standard model of Cournot competition with 2 firms with

different marginal costs. The equilibrium production of one firm
a) Is decreasing in the rival marginal cost.
b) Depends (it is increasing) on the own marginal cost but not on the
rival marginal cost.
c) Depends (it is decreasing) on the own marginal cost but not on the
rival marginal cost.
d) Only the firm with the lowest cost, produces in equilibrium.
e) Is increasing in the rival marginal cost.
Exercise 5 Next sentences describe different results related to price
discrimination. Identify the one which is a fallacy.
a) Price discrimination may increase consumer surplus.
b) Price discrimination allows to a better match between demand
elasticity and prices.
c) Price discrimination may lead to prices below marginal cost.
d) Price discrimination increases production and then, total surplus.
e) Price discrimination is less effective if there is arbitrage.

Exercise 6 Airbnb is a platform which connects house-owners and short-

time renters. If Airbnb would like to increase the number of house-owners on its
platform, what can it do?
a) Decrease the fees it charges from house-owners
b) Decrease the fees it charges from renters
c) Give more useful information on renters to house-owners
d) Answers (b) and (c) are correct
e) All answers are correct

Exercise 7 Contestable markets are characterized by not having:

a) Significant scale economies.
b) A high speed of reactions by competitors.
c) Significant sunk entry costs.
d) Significant number of potential entrants.
e) High volatility of the demand.

Exercise 8 A firm with a differentiation advantage in the market will increase

its price above average market price if
a) Consumers are highly price sensitive
b) The market is horizontally differentiated
c) Its share in the market is low
d) The elasticity of demand is low
e) None of the above

Exercise 9 Identify which of the following statements regarding firm value

creation is false:
a) A product with perceived benefits below its costs is not viable.
b) The lower the price, the higher the value created.
c) The creation of positive value does not guarantee positive profits in
the market.
d) Higher value creation guaranties a competitive comparative
advantage (higher profits than average).
e) The creation of positive value does not depend on pricing decisions.
Exercise 10 In what kind of processes is one more likely to find learning
economies:
a) In those with important scale economies.
b) In those with complex technological processes.
c) In those that require a significant initial investment.
d) In those for producing search goods.
e) In those that are related to two sides markets

Exercise 11 The unraveling result is key for understanding incentives to

disclose vertical (quality) information. Identify the fallacy in the following
statements:
a) Unraveling result predicts that the highest quality firm will disclose
information.
b) Unraveling result predicts that the lowest quality firm will disclose
information.
c) Unraveling result specifies an interior indifferent type of firm, such
that, it is indifferent between disclosing or not information..
d) Unraveling result may fail if it is costly to disclose and certify quality
information..
e) Unraveling process may fail if consumers may not have good
assessment of the possible quality levels a product can have.

Exercise 12 What important differences are there between Porter’s five

forces analysis and Brandenberger and Nalebuff’s value net?
a) Consideration of the supply chain
b) Firms’ profitability
c) Thinking of the market as a zero-sum game
d) Answers (a) and (b) are correct
e) Answers (b) and (c) are correct

Exercise 13 Learning curves deter entry when they are…

a) Very steep
b) Due to accumulated experience.
c) Higher than 90%.
d) Very flat.
e) Not too steep or too flat.
Exercise 14 Monopolist will never produce
a) If demand is such that marginal revenue equal marginal cost.
b) Where demand is elastic.
c) Where demand is inelastic.
d) If demand is lower than a given amount.
e) If demand is linear or with constant elasticity.

Exercise 15 Consider the following statements

I. A firm should buy rather than make if an input involves firm-specific
investment by the supplier.
II. A firm should buy rather than make if an input has larger economies of
scale than the firm’s.
III. It is more profitable to be a downstream monopolist than an upstream
monopolist.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statements II and III
d) Statements I and III
e) None of the above

Exercise 16 There are two markets. In each market there are 3 symmetric
firms. Competition in market A can be characterized as perfect Bertand
competition. Competition in market B can be characterized as Cournot
competition. Which market is likely to have a higher Herfindahl Index?
a) Market B, since firms make positive profits
b) Market B, since it has strategic complementarity
c) Market A, since it has strategic complementarity
d) There is not enough information to say the likely answer
e) None of the above

Exercise 17 Horizontally differentiated firms can try and increase their profits
by:
a) Persuasive advertising
b) Informative advertising
c) Collusive behavior
d) Answers (a) and (c) are correct
e) Answers (b) and (c) are correct
Exercise 18 The market for antivirus software is controlled by a number of
firms who collude on price. Which of the following changes may lead to a
breakup of collusion?
a) The demand for antivirus software increases for a short period
b) Entry barriers to the antivirus software market decrease
c) New regulation forces firms to publish the price of their software
d) None of the above
e) Answers (a), (b), and (c) are correct

Exercise 19 A monopolist in the market for kidney disease drug is earning

the profit of 𝜋 𝑀 . It knows that another drug company is considering entry into the
market with zero entry costs. If entry occurs, both firms profits’ would be 𝜋 𝐷 .
Assume firms can lobby the government for and against high entry barriers in the
market, and that the firm which invest the most money in lobbying convinces the
government to do what it wants. What condition predicts that no entry will occur?
a) 𝜋 𝑀 > 𝜋 𝐷
b) 𝜋 𝑀 < 𝜋 𝐷
c) 𝜋 𝑀 − 𝜋 𝐷 > 0
d) 𝜋 𝑀 − 𝜋 𝐷 > 𝜋 𝐷
e) 𝜋 𝐷 > 0

Exercise 20 Report cards:

a) Are more helpful in horizontally differentiated markets
b) Are helpful since they cannot be manipulated by firms
c) Can help match consumers who value quality with quality products
d) Answers (a) and (c)
e) Answers (b) and (c)
Exercise 1. Large firms like Coca-Cola have a lower cost of communicating
and reaching a large customer base. This is evidence of:

a. Economies of scale
b. Economies of scope
c. Network externalities
d. Transaction costs
e. Both a. and b. are correct

Exercise 2. The following circumstances are sources of diseconomies of scale

and scope:

a. Agency costs
b. Umbrella branding
c. The cube square rule
d. Inventories
e. A high level of fixed costs

Exercise 3. Void - Annulled

Exercise 4. Hold up problems are related to circumstances where

a. There is incomplete contracting to define the horizontal boundaries of the

firm
b. Relation specific assets increase transaction costs
c. Vertical integration leads to outsourcing
d. Vertical integration leads to diversification
e. There is bounded rationality

Exercise 5. According to following graph, there are two monopoly firms,

upstream and downstream. The constant unit cost of the downstream firm
(MCd) is zero. In this situation we can affirm that
a. Vertical integration increases profits
b. Vertical integration increases consumer surplus
c. Two separate monopolies increase consumer welfare, because they
counterbalance each other so the consumer is better off.
d. Vertical integration reduces efficiency because it increases monopoly power
e. Both a. and b. are true

Exercise 6. To analyze the impact of market power in the vertical chain, we

can consider the case where one stage of the production chain is monopolized
by a single firm and there is no market power in the remaining stages. A single
monopolist can extract full monopoly profits from the vertical chain…

a. Without engaging in vertical integration or exclusion

b. Only when it fully controls the distribution, the last stage of the vertical chain
c. Only when it fully controls the supply of the raw inputs, the first stage of the
vertical chain
d. Only when it fully controls the intermediate stages of the vertical chain to
coordinate above and below the vertical chain
e. Only when it is vertically integrated

Exercise 7. In the cereal for breakfast industry there are few firms. This market
is pretty much concentrated, we know that the largest firm controls about half of
the market. What can we say about the structure of this market?

a. It is a monopoly
b. It is an oligopoly
c. There is monopolistic competition
d. There must be collusion in this market
e. There must be a structural barrier to entry
Exercise 8. Then the mark up ((p – p) that arises in the solution of the
monopoly problem

a. Is increasing with respect to the Herfindahl index

b. In decreasing in the level of the demand.
c. Is increasing with respect to the demand elasticity
d. Implies that the monopoly production should be such that the demand at
this point is elastic (the elasticity of the demand is higher than 1).
e. Implies that the production of the monopoly is lower than the production in
oligopoly.

Exercise 9. There are just two universities in a linear city, one on each extreme
of the city. Universities are neoliberal, private and profit maximizing entities
that compete in prices. Students care about tuition fees (prices), and dislike
traveling too far. What would the impact of higher transportation costs be?

a. Tuition fees will increase.

b. Horizontal differentiation will be more intense.
c. Vertical differentiation will be more intense.
d. The universities now have incentives to locate in the center of the city.
e. There will be more incentive to collude in prices.

Exercise 10. Consider the Hotelling linear city model when your competitor is
in one extreme of the city. According to the so called “strategic effect,” the
closer your product is to your competitor’s…

a. The higher your demand will be, for a given set of prices.
b. The more intense price competition will be, and thus the lower your
price will be.
c. The less intense price competition will be, and thus the lower your price will
be.
d. The lower your demand will be, for a given set of prices.
e. The higher your product quality must be, for a given set of prices.
Exercise 11. Consider a firm producing two products a and b. With the
following data over the production function: C(qa,qb); C(0,2)=1; C(2,0)=2;
C(4,4)=4; C(4,0)=3; and C(0,4)=2, we can say that
a. Economies of scope are present but scale economies not.
b. Economies of scope are present but scale economies exists only for good b.
c. Economies of scope are present but scale economies exists only for good
a.
d. Economies of scope are not present.
e. Economies of scale are present but scope eonomies not.

Exercise 12. A learning curve of 80% means that…..

a. The unit cost of production will decrease at a rate of 80% with accumulated
production (linear dependence).
b. The unit cost of production will decrease at a rate of 20% with accumulated
production (linear dependence).
c. The unit cost of production will decrease by a 20% each time the
production quantity is doubled.
d. The unit of production will decrease by a 80% each time the production
quantity is doubled.
e. The average cost is 80% of the total cost due to the learning process.

Exercise 13. Tapered integration facilitates…

a. Vertical integration.
b. To reduce suppliers’ profits.
c. To take advantage of scope/scale economies.
d. To improve the incentive system.
e. To invest in specific assets.

Exercise 14. Consider the following statements

I. Firms should make an asset, rather than buy it, if that asset is a source of
competitive advantage for that firm.
II. Firms should buy, rather than make, to avoid the costs of making the product.
III. Firms should make, rather than buy, to avoid paying a profit margin to
independent firms.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statements I and III
e) None of the above

Exercise 15. Consider the following statements

I. If firms have the same market share, the Herfindahl index increases with the
number of firms.
II. If firms have the same market share, the Herfindahl index increases with the
size of the market (all market shares increase).
III. Taking as given the number of firms, the Herfindahl index is higher the
more unequal (higher variance) is the distribution of market shares.

Which of the above statements is correct?

a) Statement I
b) Statement I and II
c) Statement III
d) Statements I and III
e) All statements

Exercise 16. In the Cournot game with a linear costs and linear inverse demand
function, the firm’s optimal quantity (best response) if the other firm is
producing zero is

a. Higher than the perfect competition level of production.

b. Is also zero.
c. Equal to the perfect competition level of production.
d. Higher than the optimal monopoly production.
e. Equal to the optimal monopoly production.

Exercise 17. Consider the following statements

I. In differentiation models, persuasive advertising tends to soften competition.

II. In the Salop model, the equilibrium number of firms is decreasing in the
transportation costs.
III. In differentiation models, informative advertising tends to soften
competition.

Which of the above statements is correct?

a) Statement I
b) Statement I and II
c) Statement III
d) Statements I and III
e) All statements

Exercise 18. What of the following factors make collusion more likely to arise

I. Prices are observable.

II. Firms have similar market shares.
III The volatility of the demand is high.

Which of the above statements is correct?

a) Statement I
b) Statement I and II
c) Statement III
d) Statements I and III
e) All statements

Exercise 19. Consider the following statements

I. In a perfectly contestable market, concentration is necessarily low (HHI is

low)
II. A tough commitment with a negative direct effect can be optimal if firms
compete a la Bertrand but not if they compete a la Cournot.
III. A soft commitment with a negative direct effect can be optimal if firms
compete a la Bertrand but not if they compete a la Cournot.

Which of the above statements is correct?

a) Statement I
b) Statement I and II
c) Statement III
d) Statements I and III
e) All statements

Exercise 20. When the elasticity of demand is low, the best way to take
advantage of a competitive advantage in costs is setting the price

a. Equal to the average of costs of the industry.

b. Below than the average of costs of the industry.
c. Higher than the average of costs of the industry.
d. Equal to the industry price.
e. Below than the industry price.
 Strategic Management II exam, June 19, 2017

Name:
NIA:
Permutation: 2

Read the instructions carefully before starting the exam:

The exam sheet cannot be touched until permission is given. Touching the
exam sheet before the instructor allows it will be recorded as an attempt to
cheat. All students must start the exam at exactly the same time.

The very first thing you have to do when the exam starts is to .fill out your
name and NIA in the appropriate place. Mark your answers on both the exam
copy and the optical sheet.

All the sheets of the exam should be kept stapled together. The only
additional piece of paper allowed is the optical sheet.

Importantly: On the optical sheet you must correctly enter:

o DNI
o PERMUT: your exam’s permutation number
o GRUP: your group number
o Your user ID (Uxxxxxx): Fill only the 5 or 6 digits on the rightest box.
e.g. With user ID number U12345, fill

There is only one correct answer out of the four or five proposed answers. For
the correct answer you get 5 points, for any incorrect answer you lose
1.5 point.
Exercise 1. Large firms like Coca-Cola have a lower cost of communicating
and reaching a large customer base. This is evidence of:

a. Economies of scale
b. Economies of scope
c. Both a. and b. are correct
d. Transaction costs
e. Network externalities.

Exercise 2. The following circumstances are sources of diseconomies of scale

and scope:

a. Inventories
b. Umbrella branding
c. The cube square rule
d. Agency costs
e. A high level of fixed costs

Exercise 3. VOID / Annulled

Exercise 4. Inventories Hold up problems are related to circumstances where

a. There is incomplete contracting to define the horizontal boundaries of the

firm.
b. There is bounded rationality
c. Vertical integration leads to outsourcing
d. Vertical integration leads to diversification
e. Relation specific assets increase transaction costs

Exercise 5. According to following graph, there are two monopoly firms,

upstream and downstream. The constant unit cost of the downstream firm
(MCd) is zero. In this situation we can affirm that
a. Vertical integration increases profits
b. Vertical integration increases consumer surplus
c. Both a. and b. are true .
d. Vertical integration reduces efficiency because it increases monopoly power
e. Two separate monopolies increase consumer welfare, because they
counterbalance each other so the consumer is better off.

Exercise 6. To analyze the impact of market power in the vertical chain, we

can consider the case where one stage of the production chain is monopolized
by a single firm and there is no market power in the remaining stages. A single
monopolist can extract full monopoly profits from the vertical chain…

a. Only when it is vertically integrated

b. Only when it fully controls the distribution, the last stage of the vertical chain
c. Only when it fully controls the supply of the raw inputs, the first stage of the
vertical chain
d. Only when it fully controls the intermediate stages of the vertical chain to
coordinate above and below the vertical chain
e. Without engaging in vertical integration or exclusion

Exercise 7. In the cereal for breakfast industry there are few firms. This market
is pretty much concentrated, we know that the largest firm controls about half of
the market. What can we say about the structure of this market?

a. It is a monopoly
b. It is an oligopoly
c. There is monopolistic competition
d. There must be collusion in this market
e. There must be a structural barrier to entry

Exercise 8. Then the mark up ((p – p) that arises in the solution of the
monopoly problem

a. Is increasing with respect to the Herfindahl index

b. In decreasing in the level of the demand.
c. Is increasing with respect to the demand elasticity
d. Implies that the production of the monopoly is lower than the production in
oligopoly.
e. Implies that the monopoly production should be such that the demand at this
point is elastic (the elasticity of the demand is higher than 1).

Exercise 9. There are just two universities in a linear city, one on each extreme
of the city. Universities are neoliberal, private and profit maximizing entities
that compete in prices. Students care about tuition fees (prices), and dislike
traveling too far. What would the impact of higher transportation costs be?

a. There will be more incentive to collude in prices.

b. Horizontal differentiation will be more intense.
c. Vertical differentiation will be more intense.
d. The universities now have incentives to locate in the center of the city.
e. Tuition fees will increase.

Exercise 10. Consider the Hotelling linear city model when your competitor is
in one extreme of the city. According to the so called “strategic effect,” the
closer your product is to your competitor’s…

a. The higher your demand will be, for a given set of prices.
b. The less intense price competition will be, and thus the lower your price will
be.
c. The more intense price competition will be, and thus the lower your price will
be.
d. The lower your demand will be, for a given set of prices.
e. The higher your product quality must be, for a given set of prices.
Exercise 11. Consider a firm producing two products a and b. With the
following data over the production function: C(qa,qb); C(0,2)=1; C(2,0)=2;
C(4,4)=4; C(4,0)=3; and C(0,4)=2, we can say that
f. Economies of scope are present but scale economies not.
g. Economies of scope are present but scale economies exists only for good a.
h. Economies of scope are present but scale economies exists only for good b.
i. Economies of scope are not present.
j. Economies of scale are present but scope eonomies not.

Exercise 12. A learning curve of 80% means that…..

a. The unit cost of production will decrease at a rate of 80% with accumulated
production (linear dependence).
b. The unit cost of production will decrease by a 20% each time the production
quantity is doubled.
c. The unit cost of production will decrease at a rate of 20% with accumulated
production (linear dependence).
d. The unit of production will decrease by a 80% each time the production
quantity is doubled.
e. The average cost is 80% of the total cost due to the learning process.

Exercise 13. Tapered integration facilitates…

a. Vertical integration.
b. To reduce suppliers’ profits.
c. To take advantage of scope/scale economies.
d. To invest in specific assets.
e. To improve the incentive system.

Exercise 14. Consider the following statements

I. Firms should make an asset, rather than buy it, if that asset is a source of
competitive advantage for that firm.
II. Firms should buy, rather than make, to avoid the costs of making the product.
III. Firms should make, rather than buy, to avoid paying a profit margin to
independent firms.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statements I and III
e) None of the above

Exercise 15. Consider the following statements

I. If firms have the same market share, the Herfindahl index increases with the
number of firms.
II. If firms have the same market share, the Herfindahl index increases with the
size of the market (all market shares increase).
III. Taking as given the number of firms, the Herfindahl index is higher the
more unequal (higher variance) is the distribution of market shares.

Which of the above statements is correct?

a) Statement I
b) Statement I and II
c) Statements I and III
d) Statement III
e) All statements

Exercise 16. In the Cournot game with a linear costs and linear inverse demand
function, the firm’s optimal quantity (best response) if the other firm is
producing zero is

a. Higher than the perfect competition level of production.

b. Is also zero.
c. Equal to the optimal monopoly production.
d. Higher than the optimal monopoly production.
e. Equal to the perfect competition level of production.

Exercise 17. Consider the following statements

I. In differentiation models, persuasive advertising tends to soften competition.

II. In the Salop model, the equilibrium number of firms is decreasing in the
transportation costs.
III. In differentiation models, informative advertising tends to soften
competition.

Which of the above statements is correct?

a) Statement I
b) Statement II
c) Statement III
d) Statements I and II
e) All statements

Exercise 18. What of the following factors make collusion more likely to arise
I. Prices are observable.
II. Firms have similar market shares.
III The volatility of the demand is high.

Which of the above statements is correct?

a) Statement I
b) Statement III
c) Statement I and II
d) Statements I and III
e) All statements

Exercise 19. Consider the following statements

I. In a perfectly contestable market, concentration is necessarily low (HHI is

low)
II. A tough commitment with a negative direct effect can be optimal if firms
compete a la Bertrand but not if they compete a la Cournot.
III. A soft commitment with a negative direct effect can be optimal if firms
compete a la Bertrand but not if they compete a la Cournot.

Which of the above statements is correct?

a) Statement I
b) Statement III
c) Statement I and II
d) Statements I and III
e) All statements

Exercise 20. When the elasticity of demand is low, the best way to take
advantage of a competitive advantage in costs is setting the price

a. Equal to the average of costs of the industry.

b. Below than the average of costs of the industry.
c. Equal to the industry price.
d. Below than the industry price.
e. Higher than the average of costs of the industry.