Slides 18

Question 1

What is a market?

Answer 1

A market is a group of buyers and sellers that exchange payment for goods or services.

Value is created for both the buyer (satisfying a need) and the seller (earning revenue).

Question 2

What are the three factors of market segmentation?

Answer 2

Market segmentation can be divided into:
* Geographic
* Demographic
* Psychographic

These factors help identify specific needs and problems of individuals.

Question 3

What is the significance of geographic location in market segmentation?

Answer 3

Needs and problems may vary between or be specific to geographic locations.

Question 4

What demographic factors are considered in market segmentation?

Answer 4

Demographic factors include:
* Age
* Gender
* Income level
* Education

Different people encounter different needs and problems at different life stages.

Question 5

What is psychographic segmentation?

Answer 5

Psychographic segmentation considers individual values and interests that drive consumers’ needs and wants.

Question 6

How do you identify a competitive market?

Answer 6

Identify a competitive market by looking at how consumers are solving a problem, rather than product similarities.

Question 7

What criteria do antitrust regulators use to identify a competitive market?

Answer 7

Antitrust regulators identify competitors based on pricing criteria and whether a merger would lead to a significant increase in price.

Question 8

What is the definition of Net Profit Margin?

Answer 8

Net Profit Margin is a financial metric that shows the percentage of revenue remaining after all expenses have been deducted.

Question 9

What is Return on Assets (ROA)?

Answer 9

Return on Assets (ROA) measures a company’s profitability relative to its total assets.

Question 10

What does Asset Utilization refer to?

Answer 10

Asset Utilization refers to how effectively a company uses its assets to generate revenue.

Question 11

What is the Asset Turnover Ratio?

Answer 11

The Asset Turnover Ratio measures the efficiency of a company’s use of its assets in generating sales revenue.

Question 12

What is the Average Cost per Unit?

Answer 12

Average Cost per Unit is calculated by dividing total production costs by the number of units produced.

Question 13

What is the Contribution Margin?

Answer 13

Contribution Margin is the difference between sales revenue and variable costs.

Question 14

What is the Break-Even Point in Revenue?

Answer 14

The Break-Even Point in Revenue is the amount of revenue needed to cover total costs.

Question 15

What is the Break-Even Point in Units?

Answer 15

The Break-Even Point in Units is the number of units that must be sold to cover total costs.

Question 16

What is the expected life of the investment for Plants A, B, and C?

Answer 16

The expected life of the investment is 25 years.

Question 17

True or False: The maximum capacity of Plant A is 2,500,000 units.

Answer 17

True.

Question 18

True or False: The direct labor cost for Plant B is higher than for Plant A.

Answer 18

False.

Question 19

What is the annual maintenance cost for Plant C?

Answer 19

The annual maintenance cost for Plant C is €7,300,000.

Question 20

What is the direct materials cost for the supplier’s component parts in Plant C?

Answer 20

The direct materials cost for the supplier’s component parts in Plant C is €30.00.

Question 21

In the context of competition, what does SSNIP stand for?

Answer 21

SSNIP stands for Small but Significant Nontransitory Increase in Price.

Question 22

What was the outcome of Facebook’s acquisition of Instagram in 2012?

Answer 22

The government allowed the merger because the combined company would lack dominant market share in the ‘personal social networking’ market.

Question 23

What was the government’s concern regarding the merger between DirecTV and DISH in 2002?

Answer 23

The government believed it would create a monopoly for rural consumers who had no other options.

Question 24

In 2024, why did the government allow the merger between DirecTV and DISH?

Answer 24

Because these companies were now competing with online video streaming services, reducing the risk of a television monopoly.

Question 25

What is the primary focus of the upcoming lectures?

Answer 25

The focus is on where firms compete and with whom, as well as how they compete against each other.

Question 26

What do Siemens and Alstom represent in the context of European rail manufacturers?

Answer 26

They are Europe’s two largest rail manufacturers.

Question 27

What was the EU Commission's focus regarding the merger of Siemens and Alstom?

Answer 27

The EU Commission focused on Siemens and Alstom's share in Europe.

Question 28

Did the EU allow the merger between Siemens and Alstom?

Answer 28

No.

Question 29

What did regulators consider when evaluating Six Flags and Cedar Fair?

Answer 29

Regulators considered the market for family entertainment.

Question 30

Are Six Flags and Cedar Fair considered direct competitors?

Answer 30

No, they did not compete in the same city.

Question 31

What is a competitor?

Answer 31

Firms whose strategic choices impact one another.

Question 32

What are product performance characteristics?

Answer 32

What my product does for consumers and if there are similarly performing products.

Question 33

What does the geographic market refer to?

Answer 33

Are there other similar products being sold in the same location?

Question 34

Define direct competition.

Answer 34

Direct competitors operate within the same industry and offer similar products or services.

Question 35

What is an example of direct competition?

Answer 35

Uber vs. Lyft vs. FreeNow.

Question 36

What defines indirect competition?

Answer 36

Products that are fundamentally different but satisfy a similar need.

Question 37

What is an example of indirect competition?

Answer 37

Different products that can satisfy thirst, such as water, soda, and beer.

Question 38

True or False: Orange juice is a competitor for beer.

Answer 38

False.

Question 39

What is diversion analysis?

Answer 39

Asking customers to identify their 'second choice' to identify direct competitors.

Question 40

What is a catchment area?

Answer 40

The locations where a firm receives most of its customers.

Question 41

Define market structure.

Answer 41

The number of individual firms and the distribution of firms in a market.

Question 42

What does a lower Herfindahl Index indicate?

Answer 42

More perfect competition.

Question 43

What is perfect competition?

Answer 43

Occurs when there are many producers selling easily substitutable products.

Question 44

What are the necessary conditions for perfect competition?

Answer 44

Many sellers, perceived product homogeneity, and excess capacity.

Question 45

Provide an example of perfect competition.

Answer 45

Agriculture with many farmers producing similar crops.

Question 46

Define monopolistic competition.

Answer 46

A market with many sellers and buyers where products are differentiated.

Question 47

What is monopoly power?

Answer 47

The ability to act in an unconstrained way, such as increasing price or reducing quality.

Question 48

What happens to demand as a monopolist raises prices?

Answer 48

Demand decreases.

Question 49

How do monopolies determine their prices?

Answer 49

By producing the quantity where Marginal Revenue equals Marginal Cost.

Question 50

What is the primary goal of monopolists regarding pricing?

Answer 50

To maximize their own profit.

Question 51

True or False: Monopolists can price discriminate.

Answer 51

False.

Question 52

What is the typical outcome of monopolistic markets for consumers?

Answer 52

Higher prices and lower available supply.

Question 53

What condition must be met to determine the production quantity in a monopoly?

Answer 53

Marginal Revenue = Marginal Cost.

Question 54

What Herfindahl score indicates a monopoly?

Answer 54

> 0.63.

Question 55

Provide an example of a monopoly.

Answer 55

De Beers.

Question 56

What percentage of the world's diamond mines does De Beers control?

Answer 56

85%.

Question 57

What strategy does De Beers use to maximize profits?

Answer 57

Purposefully limits the supply of diamonds.

Question 58

What are the barriers to entry in diamond mining?

Answer 58

Incredibly high barriers; all diamond mines are already owned.

Question 59

What is the impact of lab-grown diamonds on De Beers?

Answer 59

They are cutting into De Beers' market share.

Question 60

Define oligopoly.

Answer 60

Markets with only a few sellers.

Question 61

What is the typical Herfindahl score for an oligopoly?

Answer 61

0.2 < Oligopoly < 0.6.

Question 62

What is a common characteristic of firms in an oligopoly?

Answer 62

They are highly aware of each other's actions.

Question 63

What is the profit comparison of an oligopoly to other market structures?

Answer 63

Greater than perfect or monopolistic competition, but lower than a monopoly.

Question 64

Provide an example of an oligopoly.

Answer 64

Telecommunications Industry.

Question 65

What keeps competitors out of the telecommunications market?

Answer 65

High capitalization costs.

Question 66

What is Cournot Quantity Competition?

Answer 66

A model simulating a duopoly selling homogenous products.

Question 67

What occurs at a Cournot-Nash Equilibrium?

Answer 67

Each firm's output decision is the best response to the other's output.

Question 68

What is the Revenue Destruction Effect in Cournot competition?

Answer 68

The combined output of both firms determines the market price.

Question 69

Provide an example of Cournot competition.

Answer 69

Global Oil Production.

Question 70

What is the role of OPEC in oil production?

Answer 70

They coordinate on yearly production to maintain high prices.

Question 71

What does the Bertrand Price Competition model emphasize?

Answer 71

Firms compete on price.

Question 72

In the Bertrand model, what happens if prices are the same?

Answer 72

Companies will split demand 50/50.

Question 73

What is the outcome when a firm lowers its price in the Bertrand model?

Answer 73

It captures 100% of the market.

Question 74

What drives firms to reduce prices in the Bertrand model?

Answer 74

To reach Price = Marginal Cost.

Question 75

What distinguishes Cournot from Bertrand competition?

Answer 75

Cournot focuses on capacity while Bertrand focuses on price.

Question 76

In Cournot competition, firms are ______ constrained.

Answer 76

capacity.

Question 77

In Bertrand competition, firms can service the entire market without being ______ constrained.

Answer 77

capacity.

Question 78

What strategy can firms use to avoid Bertrand Price competition?

Answer 78

Diversifying their products horizontally.

Question 79

What happens to prices when the number of firms increases in a market with undifferentiated products?

Answer 79

Prices decrease and the number of units sold increases.

Question 80

What is the result of a reduction in the number of firms operating?

Answer 80

Price increases.