Managing in Complex Environments QUIZ 3 Name Fall semester 2009 Professor Atkin This closed book closed note quiz has 35 3 point questions to be answered on optical scan sheets To get a grade you must return a the quiz and b the answer sheet Good luck My lecture time is 1 2 both of the above If supply equals demand then D a the observed price is the equilibrium price b excess rents equal zero c In a perfect competition shopping on price is equivalent to shopping on value This is occurs because A a prices are equilibrium prices and products are homogeneous b both sellers and buyers are small c entry and exit in perfect competition is costless d long term profits in a perfect competition 0 d none of the above 3 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 Based on this observation we can reasonably conclude that a Pitt uses a entry barrier pricing objective B b a Pitt education is apparently price inelastic over the range observed c high school seniors and their parents shop on price d all of the above 4 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 C a that explicit collusion has likely occurred b that the parties agreed before hand to raise prices c both parties seek excess rents Excess rents are typically observed for premium pricers but not for discounters B a true d all of the above b false 5 6 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 D a the new price policy is revenue enhancing b the new price policy would decrease net income both of the above 7 c Excess rents usually imply that firms have B a engaged in explicit collusion c both of the above d none of the above b escaped perfect competition d none of the above 8 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 D a the two price policies are revenue neutral b the firm uses a competition based pricing strategy c the firm has an entry barrier pricing objective Pricing below competition is an appropriate means to achieve market share objectives A a true d none of the above b false 9 10 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 C a defensive pricing c If a firm reaches breakeven we can reasonably conclude that contribution margin 0 A a true b signaling d none of the above both of the above b false 11 12 13 If a firm reaches breakeven we can reasonably conclude that breakeven quantity capacity A a true If price decreases direct labor costs decrease and direct material costs decrease then contribution margin must also decrease B a true b false b false 14 A standard assumption of breakeven analysis is that worker productivity changes linearly over the time period considered B a true If CM 0 then the product is probably in its growth phase B a true b false b false 15 16 Other things equal the contribution margin increases if D b breakeven quantity decreases d none of the above a fixed cost decreases c In cost plus pricing the seller s profit is independent of increases in raw material costs A a true both of the above b false 17 18 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 a true b false 19 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 B a true b false 20 Assume you are a brand manager You know from experience that the market is very 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 likely to consider C a increasing price c d all three are equally appropriate b decreasing fixed costs decreasing variable costs 21 Assume you are a brand manager You know from experience that the market is very 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 D a c increasing price decreasing variable costs d all three can help achieve this outcome b decreasing fixed costs 22 Many restaurants in the Pittsburgh area routinely price wine at 2 5 times the cost of the wine This is an example of B a competition based pricing c both of the above b mark up pricing d none of the above 23 T Mobile is a German firm that also sells mobile phone services in the US Assume they learn that a particular promotion mix is very effective in Germany Most likely the same mix will be effective in the US market B a true b false 24 Public relations can assist a firm D 25 repairing a tarnished image a building a new image c In class I discussed my experience as the target of a promotion mix at a Mercedes dealership As you should recall I test drove a car but did not purchase one This suggests the campaign was not effective a true b reinforcing an existing image d all of the above b false B 26 Assume market research learns that our firm s target market is especially price sensitive In this case the firm s promotion mix should most probably emphasize A a our low price c b our knowledgeable salespeople our broad range of products d our reputation for friendly service 27 An effective promotion mix may increase a product s brand equity A a true b false 28 Many sports cars are simultaneously targeted at different market segments an example in the notes concerned the Miata Since the product is identical we would expect the firm to use virtually the same promotion mix for both segments B a true b false 29 Scholarships offered to university students are a form of D a direct marketing life cycle pricing c b mark down pricing d sales promotion 30 Sales promotions are generally not used with premium priced goods B a true b