ECON2410 Economics of Business Strategy Semester 1, 2021
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ECON2410 Semester One Final Examination 2021
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Sophia currently works for a well-known management consulting irm and earns $180,000 a year. She is considering opening her own management consulting irm, where she expects to earn $250,000 per year once she gets it established. To run her own irm, Sophia would need an oice and a secretary. She has found the oice in good location, which rents $25,000 per year. A secretary could be hired for $40,000 a year. Based on this information, Sophia would make _________ by openning her own management consulting irm.
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If the irst unit took 60 hours to produce, and you have determined that an 80% learning curve is appropriate, how long will it take to produce 5 units when rounded to the nearest integer? Hint: calculate the cumulative average production time per unit.
a. 36 hours
b. 60 hours
c. 48 hours
d. 75 hours
Which one of the following statements is NOT correct regarding vertical foreclosure?
a. An upstream monopolist acquires a downstream competitor but not necessarily refuses to supply other downstream irms.
b. One danger of vertical foreclosure strategy is that competitors may open new channels.
c. Vertical foreclosure is a type of anti-competitive behaviour.
d. A downstream monopolist acquires an upstream irm and refuses to purchase from other upstream suppliers.
Consider the following statements: (a) Lucas buys life insurance
because he has a risky lifestyle that is not known to the life insurance
company; (b) Karen does not need to lock her car because she has
insured her car against theft.
a. Statement (a) is a problem of adverse selection and statement (b) is a problem of moral hazard.
b. Both statements (a) and (b) are problems of adverse selection.
c. Statement (a) is a problem of moral hazard and statement (b) is a problem of adverse selection.
d. Both statement (a) and statement (b) are problems of moral hazard.
Which one of the following is considered as an implicit cost to a irm?
a. The cost of worker wages and salaries for the irm.
b. The cost of wages foregone by the owner of the irm.
c. The cost paid by the irm for leasing a building.
d. The cost paid by the irm for production supplies.
_________ is achieved when resources are used to produce the goods
and services that best satisfy society's needs and wants.
a. Allocative eiciency
b. Productive eiciency
c. Dynamic eiciency
d. Technical eiciency
Two symmetric irms in a Bertrand duopoly face the inverse market demand P = 60 - 2Q., and the marginal cost of the two irms are $8. Also, ixed costs are zero for both irms. Based on this information, how much output does each irm produce?
a. 11
b. 26
c. 13
d. 22
Which of the following statements is true about commitment?
a. A soft commitment may be beneicial and will have a proitable strategic efect when it involves strategic complements.
b. A soft commitment may be beneicial and will have a proitable strategic efect when it involves strategic substitutes.
c. In Cournot game, a soft commitment will cause the irm to produce relatively more output, while in Bertrand game a soft commitment will induce the irm to charge a higher price.
d. In Cournot game, a soft commitment will cause the irm to produce relatively less output, while in Bertrand game a soft commitment will induce the irm to charge a lower price.
Which of the following statements is true about Porter's generic strategies?
a. Firms with a beneit advantage can either underprice competitors or charge a price premium.
b. Firms with a beneit advantage can either underprice competitors or maintain price parity with competitors.
c. Firms with a cost advantage can either underprice competitors or maintain price parity with competitors.
d. Firms with a cost advantage can either charge a price premium or maintain price parity with competitors.
Which of the following would most likely be considered predatory pricing?
a. Price reduction to get rid of surplus stocks.
b. Price increase to motivate new irms to enter the industry.
c. Price reduction to drive out competitors.
d. Price increase to increase proits.
Explain in detail three factors that tend to make demand less senstive
to price.
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Explain in detail three factors that prevent complete contracting.
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Explain in detail the taxonomy of commitment strategies developed
by Drew Fudenberg and Jean Tirole based on two important
dimensions.
Building a competitive advantage based on superior cost position is likely to be attractive when three conditions are met. Explain in detail the three conditions.
Suppose that the demand function is estimated to be Q = 20 - 2P. What would be the arc elasticity of demand for the impact of a change in price from 4 to 5. Show all your work for full marks.
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Suppose your company manufactures 3 million hard drives per year speciically for HP laptop computers. Suppose your company's average variable cost is $18 per unit, annualised cost of investment to build a hard drive factory is $12 million, and market price (market price in the event HP does not buy) is $20 per unit.
Based on the above information, answer the following questions.
(a) How much is your company's relationship speciic investment? (3
marks)
(b) How much is your company's rent if HP agrees to purchase the 3
million hard drives at $25 per unit? (3 marks)
(c) How much is your company's quasi-rent if the deal your company
had with HP in part (b) falls apart? (3 marks)
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In a nine-irm market, if all irms charge the monopoly price, the per- period industry proit equals $300,000. In that same nine-irm market, if all irms charge the prevailing price, the per-period industry proit is $200,000.
If the pricing period is one-month long, what is the maximum
discount rate required for each irm to have an incentive to
independently price at the monopoly level? Show your work for full
marks.
Consider two industries, industry A and industry B. In industry A there are four companies, each with a market share of 25% of total sales. In industry B there are ive companies, where one company has 40% market share and each of the other four irms has a market share of 15%.
Based on the above information,
(a) calculate the three-irm concentration ratio for each industry. (3
marks)
(b) calculate the Hirindahl index for industry B. (3 marks)
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Suppose the demand curve for product x is given by Qx = 200 -
0.06(Px)3 - 0.04(Py)4 . Based on this information,
(a) calculate the cross-price elasticity of demand x with respect to y
when Px = $10 and Py = $5. (4 marks). Show all your work for full
marks.
(b) interpret your result in (a) (1 mark)
Suppose two irms (Firm 1 and Firm 2) are producing a product. The
total demand is: Q = 1,600 - P, where Q = Q1 + Q2 . Each of the two
irms has the cost function TC = 100Q.
Based on the information given, calculate the equilibrium P, Q, Q1,
Q2, Profit1 and Profit2 under:
(a) monopoly (collusion) (5 marks)
(b) Cournot (5 marks)
(c) Stackelberg (5 marks)
For the Stackelberg model, assume Firm 1 is the leader and Firm 2 is
the follower.
Show all your work for full mark.
Attach File
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2023-06-05