Suppose there are four firms in a market and each of them sell differentiated products. Does it make sense for these firms to engage in a price war? Why or why not?
What will be an ideal response?
The answer is often no. In a differentiated product market, the products offered by different firms are close but not perfect substitutes. In such a market, firms need to account for consumers' willingness to substitute among products. By reducing the price of its products or engaging in a price war, a firm may not be able to capture the entire market. Since the products are not exact substitutes, some consumers may continue to buy products sold by other firms at relatively higher prices.
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When accounting profits are positive, economic profits
A) must be positive. B) will be negative. C) will equal zero. D) could be positive, negative or zero.
Which of the following statements is true?
A) Savings deposits are a part of M2, but not M1. B) M1 is sometimes referred to as the "broad definition of the money supply". C) Time deposits are a part of M1, but not M2. D) M1 is a larger dollar amount than M2.
An increase in the price of gasoline will cause the demand curve for tires to shift in which direction?
A. To the left, because gasoline and tires are substitutes B. To the left, because gasoline and tires are complements C. To the right, because gasoline and tires are substitutes D. To the right, because gasoline and tires are complements E. To the right, because an increase in the price of gasoline makes consumers poorer and thus not willing to pay as much for tires
In the case of perfectly elastic demand, the demand curve is:
A. upward sloping. B. downward sloping. C. vertical. D. horizontal.