Monopolist Marketing Quiz

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  • 1/19 Questions

    Which of the following firms maintains a monopoly or cartel by controlling essential inputs thus creating a barrier to entry?

    • DeBeers in diamonds
    • Nike in shoes
    • Pepsi in beverages
    • Subway in sandwich fast food
    • Levis in denim jeans
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  • 2. 

    What type of entry exists if (1) the incumbent can keep the entrant out by employing an entry-deterring strategy and (2) employing the entry-deterring strategy boosts the incumbent's profits?

    • Deterred Entry

    • Judo Entry

    • Stealth Entry

    • Accommodated Entry

    • Blockaded Entry

    Correct Answer
    A. Deterred Entry
    Explanation
    In this scenario, the type of entry that exists is "Deterred Entry". This means that the incumbent is able to prevent the entrant from entering the market by employing a strategy specifically designed to deter entry. Furthermore, employing this entry-deterring strategy actually increases the profits of the incumbent. Therefore, the correct answer is "Deterred Entry".

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  • 3. 

    What type of firm is one that is already operating in a particular market?

    • Market leader

    • Entrant

    • Incumbent

    • Market follower

    • Monopolist

    Correct Answer
    A. Incumbent
    Explanation
    An incumbent is a type of firm that is already operating in a particular market. They have an established presence and are typically the dominant players in the market. Incumbents have already built a customer base, brand reputation, and have a strong understanding of the market dynamics. They often enjoy certain advantages such as economies of scale, established distribution networks, and loyal customers. Being an incumbent gives them a competitive edge over new entrants and allows them to maintain their market position.

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  • 4. 

    What situation occurs when a large incumbent sets a low price to drive smaller rivals from the market?

    • Limit pricing

    • Price leading

    • Predatory pricing

    • Quality pricing

    • Capacity expansion

    Correct Answer
    A. Predatory pricing
    Explanation
    Predatory pricing occurs when a large incumbent in a market sets a low price with the intention of driving smaller rivals out of the market. By offering lower prices, the incumbent aims to attract customers away from its competitors and gain a larger market share. This strategy can be seen as predatory because it is aimed at eliminating competition rather than achieving long-term profitability.

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  • 5. 

    What is the term defined as the withdrad of a product from a market?

    • Shut-down

    • Exit

    • Sale

    • Removal

    • Withdraw

    Correct Answer
    A. Exit
    Explanation
    Exit refers to the term defined as the withdrawal of a product from a market. It implies the decision of a company or business to cease the production or sale of a particular product and remove it from the market. This can be due to various reasons such as low demand, financial constraints, or strategic decisions. Exit allows the company to focus on other products or markets that may be more profitable or align better with their business objectives.

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  • 6. 

    What term describes a market where a monopolist cannot raise price above long run average cost?

    • Blockaded

    • Perfectly contestable

    • Accommodated

    • Deterred

    • Predatory

    Correct Answer
    A. Perfectly contestable
    Explanation
    Perfectly contestable is the correct answer because in a perfectly contestable market, there are no barriers to entry or exit, which means that new firms can easily enter the market and compete with the monopolist. This competition keeps the monopolist from raising prices above the long run average cost because if they do, new firms will enter the market and undercut their prices. Therefore, the monopolist is "perfectly contested" and cannot exercise their market power to raise prices.

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  • 7. 

    How can incumbents legally erect entry barriers around novel and nonobvious products or production processes?

    • Collusive pricing

    • Predatory pricing

    • Patents

    • Formation of a cartel

    • Price fixing

    Correct Answer
    A. Patents
    Explanation
    Patents are a legal mechanism that allows incumbents to protect their novel and nonobvious products or production processes. By obtaining a patent, the incumbent gains exclusive rights to the invention for a certain period of time, usually 20 years. This prevents others from using, making, or selling the patented invention without permission. Patents serve as entry barriers by preventing competitors from easily replicating or entering the market with similar products or processes, thus giving the incumbent a competitive advantage and the ability to maintain market dominance.

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  • 8. 

    Which of the following terms refers to the practice whereby an incumbent firm discourages entry by charging a low price before entry occurs?

    • Limit pricing

    • Price leading

    • Predatory pricing

    • Quality pricing

    • Capacity expansion

    Correct Answer
    A. Limit pricing
    Explanation
    Limit pricing refers to the practice whereby an incumbent firm discourages entry into the market by charging a low price before entry occurs. By setting a low price, the incumbent firm aims to make it unprofitable for potential entrants to enter the market and compete. This strategy allows the incumbent firm to maintain its market share and deter new competitors from entering the market.

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  • 9. 

    What term represents the conduct and performance of firms in the market after entry has occured?

    • Postentry competition

    • Postentry actions

    • Postentry procedures

    • Postentry diversification

    • Postentry strategic decisions

    Correct Answer
    A. Postentry competition
    Explanation
    Postentry competition refers to the conduct and performance of firms in the market after entry has occurred. It involves the competition between firms that have already entered the market and are now competing for customers, market share, and profits. This competition can take various forms, such as price competition, product differentiation, advertising, and innovation. Postentry competition is an important concept in understanding how firms behave and compete in a market once they have entered it.

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  • 10. 

    What type of entry exists if structural barriers are so high the incumbent need do nothing to deter entry?

    • Deterred Entry

    • Judo Entry

    • Stealth Entry

    • Accommodated Entry

    • Blockaded Entry

    Correct Answer
    A. Blockaded Entry
    Explanation
    A "blockaded entry" exists when structural barriers are so high that the incumbent does not need to take any action to deter potential entrants. This means that the barriers to entry are so formidable that it effectively blocks any new competitors from entering the market. Unlike other types of entry, such as deterred entry or judo entry, where incumbents actively take measures to discourage or counter new entrants, in the case of blockaded entry, the barriers are already so insurmountable that the incumbent does not need to make any effort to prevent competition.

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  • 11. 

    What situation occurs if an incumbent firm with increasing marginal costs or limited capacity sets a price just below the entrants' marginal costs even though the incumbent may be unable to meet all market demand (or possibly may have to sacrifice its profits to do so)?

    • Contestable limit pricing

    • Strategic limit pricing

    • Predatory pricing

    • Quality pricing

    • Capacity expansion

    Correct Answer
    A. Strategic limit pricing
    Explanation
    Strategic limit pricing occurs when an incumbent firm with increasing marginal costs or limited capacity sets a price just below the entrants' marginal costs, even if it means sacrificing its profits or being unable to meet all market demand. This strategy is used to deter potential entrants from entering the market by making it unprofitable for them. By setting a low price, the incumbent firm aims to discourage competition and maintain its market dominance. This pricing tactic is strategic because it is employed to protect the incumbent's market position rather than maximize profits.

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  • 12. 

    What type of entry exists if structural entry barriers are low, and either (1) entry-deterring strategies will be ineffective or (2) the cost to the incumbent of trying to deter entry exceeds the benefits it could gain from keeping the entrant out?

    • Deterred Entry

    • Judo Entry

    • Stealth Entry

    • Accommodated Entry

    • Blockaded Entry

    Correct Answer
    A. Accommodated Entry
    Explanation
    Accommodated entry exists when structural entry barriers are low and the incumbent decides to allow the entrant to enter the market without trying to deter their entry. This could happen when the incumbent believes that entry-deterring strategies would be ineffective or when the cost of trying to deter entry is higher than the benefits they could gain from keeping the entrant out. In this case, the incumbent chooses to accommodate the entry of the new competitor.

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  • 13. 

    Which of the following is a potential risk of a brand umbrella?

    • The brand umbrella reduces the incumbents sunk cost of introducing a new product

    • The umbrella brand may help the incumbent navigate the vertical chain

    • The brand umbrella allows an incumbent offset uncertainty about the quality of a new product

    • A brand umbrella may make suppliers and distributors more willing to enter relationship specific investments in or sell credit to incumbents

    • If a new product under the umbrella fails, consumers may become disenchanted with the entire brand

    Correct Answer
    A. If a new product under the umbrella fails, consumers may become disenchanted with the entire brand
    Explanation
    If a new product under the umbrella fails, consumers may become disenchanted with the entire brand. This is a potential risk of a brand umbrella because if a new product fails to meet consumer expectations, it can negatively impact the perception and trust that consumers have in the overall brand. This can lead to a loss of customer loyalty and potential decline in sales for all products under the brand umbrella.

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  • 14. 

    Wich of the following is a method a monopolist firm might use to prevent entry into a market?

    • Limit pricing

    • Predatory pricing

    • Capacity expansion

    • All of the above

    • None of the above

    Correct Answer
    A. All of the above
    Explanation
    A monopolist firm might use all of the mentioned methods to prevent entry into a market. Limit pricing involves setting a low price to discourage potential competitors from entering the market. Predatory pricing involves setting prices below cost temporarily to drive competitors out of the market. Capacity expansion refers to increasing production capacity to deter new entrants by creating the perception of high barriers to entry. Therefore, all three methods can be employed by a monopolist firm to maintain their monopoly power and prevent competition.

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  • 15. 

    Which of the following methods is believed to be used by Brazilian cement makers to prevent entry into the market?

    • Limit pricing

    • Price leading

    • Predatory pricing

    • Quality pricing

    • Capacity expansion

    Correct Answer
    A. Limit pricing
    Explanation
    Limit pricing is a method believed to be used by Brazilian cement makers to prevent entry into the market. This strategy involves setting prices at a level that is low enough to discourage potential competitors from entering the market, but high enough to still generate a profit. By employing limit pricing, existing cement makers can maintain their market dominance and deter new entrants by making it financially unattractive for them to compete. This strategy helps to protect the market share and profitability of the existing cement makers in Brazil.

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  • 16. 

    Which of the following is not an exit barrier for firms in an industry?

    • Sunk costs

    • Labor agreements or commitments to purchase raw materials

    • Obligations to input suppliers

    • Excess capacity

    • Government restrictions

    Correct Answer
    A. Excess capacity
    Explanation
    Excess capacity is not an exit barrier for firms in an industry because it refers to the unused or underutilized production capacity that a firm has. In fact, excess capacity can often be a burden for firms as it represents unproductive resources and can lead to inefficiencies. Exit barriers, on the other hand, are factors that make it difficult for firms to leave an industry, such as sunk costs, labor agreements, obligations to input suppliers, and government restrictions.

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  • 17. 

    What term best describes the paradox which says despite the conclusion the predatory pricing to deter entry appears irrational, many firms are commonly perceived as slashing prices to deter entry?

    • Cloud paradox

    • Credit paradox

    • Entry paradox

    • Chain-store paradox

    • Pricing paradox

    Correct Answer
    A. Chain-store paradox
    Explanation
    The chain-store paradox best describes the situation where firms are commonly perceived as slashing prices to deter entry, even though it may seem irrational to do so. This paradox highlights the contradictory nature of predatory pricing, as it appears to go against the logic of rational economic behavior. Despite this, many firms still engage in predatory pricing strategies, leading to the perception of a paradox.

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  • 18. 

    What is the typical "capacity use" ratio as reported by plant managers to the U.S. Census of Manufacturers annually?

    • 40%

    • 50%

    • 60%

    • 70%

    • 80%

    Correct Answer
    A. 80%
    Explanation
    The typical "capacity use" ratio reported by plant managers to the U.S. Census of Manufacturers annually is 80%. This means that on average, plant managers report that their plants are operating at 80% of their maximum capacity. This indicates that the plants are being utilized efficiently and are running close to their full potential.

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  • 19. 

    Which of the followings is not a condition under which an incumbent firm can successfully deter entry by holding excess capacity?

    • The investment in excess capacity must be sunk prior to entry

    • The incumbent should have a sustainable cost advantage

    • Market demand growth should be slow

    • The potential entrant should not itself be attempting to establish a reputation for toughness

    • The excess capacity investment must be recoverable prior to entry

    Correct Answer
    A. The excess capacity investment must be recoverable prior to entry
    Explanation
    The given answer states that the excess capacity investment must be recoverable prior to entry. This means that the incumbent firm should be able to recoup the costs of their excess capacity investment before any potential entrant can enter the market. This condition is not necessary for successful deterrence of entry, as the recoverability of the investment does not directly affect the ability of the incumbent firm to deter entry.

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  • Current Version
  • Mar 19, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jun 17, 2012
    Quiz Created by
    Orsay
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