MCE CHAPTER 5 QUESTION BANK1. If supply equals demand, then…a. the observed price is the equilibrium price b. excess rents equal zeroc. both of the above d. none of the above2. In a perfect competition, shopping on price is equivalent to shopping on value. This is occurs because…a. prices are equilibrium prices and products are homogeneousb. both sellers and buyers are smallc. entry and exit in perfect competition is costlessd. long-term profits in a perfect competition = 03. Over the past several years, the University has increased tuition and observed an increase in students (and an increase in the quality of these students). Basedon this observation we can reasonably conclude that…a. Pitt uses a entry barrier pricing objectiveb. a Pitt education is apparently price inelastic over the range observedc. high school seniors (and their parents) shop on priced. all of the above4. Assume two pizza parlors engaged in such extreme price competition that neither generates a profit. One owner increases price out of desperation, making the changes on signs and menus inside his shop. A day later the other owner also raises prices. Given just this information, we can reasonably conclude…a. that explicit collusion has likely occurredb. that the parties agreed before-hand to raise pricesc. both parties seek excess rents d. all of the above5. Excess rents are typically observed for premium-pricers but not for discounters. a. true b. false6. Assume that iTunes sells songs for $.99. Further assume it drops the price to $ .89 and observes an increase in quantity sold. Given just this information, we would expect that… a. the new price policy is revenue enhancing b. the new price policy would decrease net incomec. both of the above d. none of the above 7. Excess rents usually imply that firms have…a. engaged in explicit collusion b. escaped perfect competition c. both of the above d. none of the above8. Assume firm A sets its price at P1 and generates demand of Q1. It then changes its policy, dropping price to P2, generating a greater demand Q2. From this we can reasonably conclude… a. the two price policies are revenue neutralb. the firm uses a competition-based pricing strategyc. the firm has an entry barrier pricing objective d. none of the above9. Pricing below competition is an appropriate means to achieve market share objectives. a. true b. false10. Assume AT&T drops the price of breaking a mobile phone contract from $175 to $150, and a few days later T-mobile announces an identical move. This is an example of…a. defensive pricing b. signalingc. both of the above d. none of the above11. If a firm reaches breakeven, we can reasonably conclude that contribution margin > 0a. true b. false12. If a firm reaches breakeven, we can reasonably conclude that breakeven quantity ≤ capacity.a. true b. false13. If price decreases, direct labor costs decrease, and direct material costs decrease, then contribution margin must also decrease.a. true b. false14. A standard assumption of breakeven analysis is that worker productivity changeslinearly over the time period considered.a. true b. false15. If CM > 0, then the product is probably in its growth phase.a. true b. false16. Other things equal, the contribution margin increases if…a. fixed cost decreases b. breakeven quantity decreasesc. both of the above d. none of the above 17. In “cost plus” pricing, the seller’s profit is independent of increases in raw material costs.a. true b. false18. Assume A and B are head-to-head rivals. Also assume both regularly earn excess rent. Given just this information our best guess is that both firms are competing in an oligopoly.a. true b. false19. Assume firm A has tried two pricing policies and determined that they are revenue neutral. From this we can reasonably conclude that the profit generated by both policies is more or less equal.a. true b. false20. Assume you are a brand manager. You know from experience that the market isvery price sensitive and all rivals are fighting to increase share. Your boss has challenged you to increase contribution margin by 4-5% over the next year. Your first move is most like to consider…a. increasing price b. decreasing fixed costsc. decreasing variable costs d. all three are equally appropriate21. Assume you are a brand manager. You know from experience that the market isvery price sensitive and all rivals are fighting to increase share. Your boss has challenged you to decrease breakeven quantity by 4-5% over the next year. Which of the following could achieve this outcome?a. increasing price b. decreasing fixed costsc. decreasing variable costs d. all three can help achieve this outcome22. Many restaurants in the Pittsburgh area routinely price wine at 2.5 times the costof the wine. This is an example of…a. competition based pricing b. mark-up pricingc. both of the above d. none of the above23. Prices in oligopoly… a. are virtually identical over firms since the product is homogenousb. often appear to be collusivec. both of the above d. none of the above24. Explicit collusion is most likely to occur in… a. perfect competition b. oligopolyd. monopoly d. equally likely in all three25. In theory and in practice there are no constraints on the pricing policy of… a. monopolists b. first moverse. both of the above d. none of the above26. Firms prefer excess rents in all markets in which they participate.b. true b. false27. Tuition at Pitt increases more or less each year, yet the number and quality of applicants generally goes up. From this we can conclude…a. annual increase in tuition is generally revenue enhancingb. over the range observed, tuition is price elasticc. both of the above d. none of the above 28. Recent data observes that, compared to February 2007, US sales of existing (notbrand new) houses in February 2008 were down by 23.8%. From this, we can conclude that house prices have most likely increased. a. true b. false 29. Consider two pricing policies, P1 and P2. If we know they are revenue neutral, then we can reasonably conclude both produce the same NI. a. true b. false 30. In the airline industry, we have seen many firms add fuel surcharges and fees fora second piece of luggage. This is probably the result of signaling.a. true b. false 31. Price skimming can be used to achieve profitability pricing objectives.a. true b. false 32. In simple auctions such