TRUE • If the lost profit from overpricing is less than the

lost profit from underpricing, then the firm

• Sustainable competitive advantage creates a should set price above the target price.
moat around the company to help protect its
• Product differentiation as a strategy makes
profits from the forces of competition.
consumers perceive products or services to be
• In the case of Iceland in Chapter 11, the market of higher quality despite homogeneity.
for foreign exchange bring together the
• Qualcomm Snapdragon, IOS and Android
demanders of pounds and the suppliers of
platforms are examples of coring platform
pounds and the equilibrium price is the
strategies for smartphones
exchange rate Or the price of pounds measured
• Resource can be hard to imitate because of the
in krona.
firm’s unique historical conditions which will be
• If a firm in a perfectly competitive industry
difficult for competitors to match
charges a higher price than that charged by
• if P>MC, produce more and if P<MC, produce
other firms in the industry it will be unable to
less
sell any of its output.
• Monopoly firms have attributes that protect
• Bubbles are prices that cannot be explained by
them from the forces of competition because
normal economic forces.
they have no rivals.
• In the long‐run, the competition brought about
• Competitive firms operate in an industry that
by the entry of new firms will cause each firm in
has no or little barriers to entry or exit
a monopolistically competitive market to earn
• Profit exhibits what is called mean reversion, or
normal profits, just like a perfectly competitive
“regression toward the mean.”
firm.
• The difference between stock returns and bond
• If MR>MC at capacity, price to fill available
yields includes a compensating risk premium.
capacity - because the capacity is fixed, the firm
• To increase profit, one must move the products
cannot sell more by reducing price.
farther apart after acquiring a substitute
• When demand is difficult to predict, pricing to
product.
fill capacity is also difficult.
• For product-related promotions like quality
• Sustainable competitive advantage creates a
advertising, celebrity endorsements, etc. tends
moat around the company to help protect its
to make demand less elastic.
profits from the forces of competition.
• Prices can affect customer perception of quality
• Bubbles are prices that cannot be explained by
– i.e. higher price equals higher quality in the
normal economic forces.
mind of the consumer.
• In the case of Iceland in Chapter 11, the market
• Pricing strategy for a commonly owned
for foreign exchange bring together the
complements requires reduction of prices.
demanders of pounds and the suppliers of
• One reason why we trade one currency for
pounds and the equilibrium price is the
another is to increase demand for the foreign
exchange rate Or the price of pounds measured
currency.
in krona.
• Arbitrage happen when importers could make
• If MR>MC at capacity, price to fill available
money by buying the good in one country and
capacity - because the capacity is fixed, the firm
selling it in another.
cannot sell more by reducing price.
• Strengthening of foreign currency (appreciation)
• In the long‐run, the competition brought about
help suppliers because they make exports less
by the entry of new firms will cause each firm in
expensive in the foreign currency; but they hurt
a monopolistically competitive market to earn
consumers because they make imports more
normal profits, just like a perfectly competitive
expensive in the domestic currency.
firm.
FALSE
• Cartels is an agreement between parties to
refrain in participating in an activity that they
normally would in order to reduce competition
and gain higher profits.
• Buyer power tends to be higher when the
inputs they provide are critical inputs or highly
differentiated while supplier power tends to be
higher when switching from firm to firm is easy,
or concentration of them.
• After acquiring a complementary product, you
can reposition the products so they don't
directly compete with each other.
• Rivalry tends to be lower when products are not
very well differentiated and buyers find it easy
to switch back and forth.
• If buyers expect a future price increase, they
will decrease their purchases to avoid it.
• Currency devaluations help suppliers in
exporting with less expense in domestic
currency; but they hurt consumers because
they make importation more expensive in the
foreign currency.
• The purchasing power parity means that
exchange rates and/or prices remain constant
so that tradable goods cost the same
everywhere.
• Strategy is about raising price or raising cost
• In perfectly competitive industry firms produce
a product or service with very close substitute,
firm have no rivals and many cost advantages
and the industry has entry or exit barriers.
• Psychological biases suggests “framing” price
changes as losses rather than as gains.
• Prospect theory implies that consumers are
motivated by the actual price level.
• The so-called "carry trade", borrowing in foreign
currencies to spend or invest domestically,
decreases demand for the domestic currency,
appreciating the domestic currency.
• The purchasing power parity means that
exchange rates and/or prices remain constant
so that tradable goods cost the same
everywhere
• Buyer power tends to be higher when the
inputs they provide are critical inputs or highly
differentiated while supplier power tends to be
higher when switching from firm to firm is easy,
or concentration of them.
• Cartels is an agreement between parties to
refrain in participating in an activity that they
normally would in order to reduce competition
and gain higher profits.
• Currency devaluations help suppliers in
exporting with less expense in domestic
currency; but they hurt consumers because
they make importation more expensive in the
foreign currency.
• Prospect theory implies that consumers are
motivated by the actual price level.
• After acquiring a complementary product, you
can reposition the products so they don't
directly compete with each other.
• Psychological biases suggests “framing” price
changes as losses rather than as gains.
• In perfectly competitive industry firms produce
a product or service with very close substitute,
firm have no rivals and many cost advantages
and the industry has entry or exit barriers.
• According to Warren Buffett, the most
important investment criterion is for companies
to maintain and protect its temporary
competitive advantage
• In the Five Forces model, attractive industries
are characterized to have low supplier power,
low buyer power, high entry barriers, low threat
of substitutes, and intense rivalry
• A firm is comprised of a group of firms
producing products that are close substitutes to
each other to serve each other
• Strategies increase economic performance,
figure out a way to increase P (price) or reduce
C (cost) and speeds up profit erosion.
• Positive profit (P<AC) leads to entry, decreasing
price and profit
• The higher return on a risky stock is known as
the risk free rate.
• For firms that sell multiple products, or those
who use low prices to win new customers, the
MR=MC pricing rule applies.
 • Products such as cruise ships, hotels, stadiums, avoid it. Similarly, sellers will __________ selling to take
commercial parking lots, etc. have similar advantage of it
characteristics. Hence, once capacity is built,
The dollar would depreciate relative to the peso, and
firms make pricing decisions, and should not
Mexican prices would decrease - Following an increase
ignore the sunk or fixed costs of building
in Mexican interest rates relative to U.S. interest rates,
capacity.
which caused Mexican investors to borrow abroad to
• Companies operating under a monopoly type of
invest domestically, which of the following is expected
market structure tends to heavily invest on
to occur? (An increase in foreign borrowing means that
advertising than those operating in a
Mexicans are borrowing dollars in the US, and then
competitive market.
selling those dollars to buy pesos, which is an increase
• Bubbles are prices that cannot be explained by
the supply of dollars in the market for foreign
normal economic forces and the popping or
exchange. This decreases the price of a dollar measured
bursting of the bubble is predictable.
in the foreign currency, also called a dollar
• ABS (ABS-CBN Corporation) stock value
depreciation. The dollar depreciation also means that it
closed/last traded price posted at the PSE is at
takes more dollars for US consumers to buy Mexican
P16.24 per share dated October 8, 2021. (see
goods and services and so decreases demand for
www.pse.com.ph (http://www.pse.com.ph) )
Mexican goods and services, which results in a decline
• Forex setting authority in the Philippines is the
in prices for Mexican goods and services)
Philippine Stocks Exchange (PSE).
• The Korean Won (KRW) exchange rate relative The dollar will depreciate relative to the yuan, and U.S.
to Philippine Peso as posted in the BSP bulletin prices will increase - If the U.S. economy strengthens,
dated October 11, 2021 is at 0.0416 (see consumer incomes increase, and consumers buy more
https://www.bsp.gov.ph/SitePages/Statistics/St imported goods and services. How will this affect
atistics.aspx) exchange rates? (To buy imports, US consumers have to
exchange more dollars for yuan. This increase in the
Resource mobility - The following are the primary
supply of dollars in the market for foreign exchange
assumptions that underlie the RBV, except? (resource
reduces the “price” of a dollar measured in yuan, which
heterogeneity & resource immobility)
is a dollar depreciation)
Exchange rate - The intersection between demand for
U.S. consumers would be hurt, and Mexican producers
dollars and the supply of dollars is known as the (the
would be hurt - Following a peso appreciation relative
exchange rate reflects the price point at which demand
to the dollar, which of the following results is expected
for dollars (those who want to buy dollars and sell the
to occur? (A currency devaluation helps domestic firms
foreign currency) and supply of foreign exchange (those
by increasing demand but hurts domestic consumers by
who want to sell dollars and buy the foreign currency)
increasing domestic price. It also hurts foreign firms by
intersect)
decreasing demand but helps foreign consumers by
$5,376 - An individual in the United States wants to buy decreasing price)
office equipment from England that costs 2,800 pounds.
Monopoly firms can generally earn positive profits
If the exchange rate is $1.92, how much will it cost him
over a longer period of time - What is the main
in dollar terms? (If 1 pound = $1.92, then to purchase
difference between a competitive firm and a monopoly
2800 pounds worth of goods, you would need
firm? (this profit is a reward for doing something
2800*1.92 = $5,736)
unique, innovative, or creative—something that gives
Accelerate; delay - If buyers expect future price the firm less elastic demand)
increases, they will ___________ their purchases to
$300 in the short-run and zero in the long run - A
competitive firm’s profit maximizing price is $15. At
MC=MR, the output is 100 units. At this level of
production, average total costs are $12. The firm’s
profits are…( (15-12)*100. Long run profit is always
driven to zero.)
losses in the short-run and average profits in the long-
run - A sudden decrease in the market demand in a
competitive industry leads to..
Zero economic profits but positive accounting profits -
In the long-run, which of the following outcomes is
most likely for a firm? (in the long-run economic profit is
driven to zero)
Perfectly elastic - A firm in a perfectly competitive
market (a price taker) faces what type of demand
curve? (the demand curve for the output of a perfectly
competitive firm is perfectly elastic (flat))
the promotional expenditures made the demand for
the advertised products more elastic - After running a
promotional campaign, the owners of a local hardware
store decided to decrease the prices for the advertised
prices sold in their store. One can infer that.
(promotional activity that makes demand more elastic
should be accompanied by a decrease in price)
raise price from $10 to $15 - A firm started advertising
its product and this changed the product’s elasticity
from -2 to -1.5. The firm should …( using the formula (P-
MC)/P=1/|e|, prices rise by 50%)
to sell more, but one cannot sell more than capacity
allows)
a sustainable competitive advantage - When a
resource or capability is valuable, rare, hard to imitate,
and non substitutable firms may gain…
switching costs are low - Buyers have higher power
when..( low switching costs put buyers in a better
negotiating position because it is easier to buy a rival’s
product)
Low capital requirements for entry - Which of the
following is NOT an example of an entry barrier?
(if capital requirements are low, it will be less costly
(easier) to enter)
high supplier power - Attractive industries have all the
following, except..( high supplier power would allow
suppliers to capture more of the industry value) [low
rivalry, high entry barriers, low buyer power, low
supplier power]
The methods of achieving cost reductions are difficult
to imitate - Which of the following is critical for a firm
adopting a long-term cost reduction strategy? (for the
advantage to be sustainable, it must be difficult for
rivals to imitate)

smaller; underprice - On average, if demand is

unknown and costs of underpricing are _______ than
the costs of overpricing, then _________ (since the
costs of underpricing are smaller, one should
underprice)

pricing - All of the following choices are examples of

promoting a firm’s product, except (pricing often
responds to changes in demand brought about by
promotions) [end of aisle diplay, celebrity
endorsements, discount coupons]

if MR>MC at capacity, then the firms should price to fill

capacity - For products like parking lots and hotels,
costs of building capacity are mostly fixed or sunk and
firms in this industry typically face capacity constraints.
Therefore,…( when MR>MC, it is optimal to reduce price