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Assume two pizza parlors locked into such extreme

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Assume   two   pizza   parlors   “locked”   into   such   extreme   price   competition   that   neither  generates a profit.  The owners meet and agree not to continue to drop price in order that  they can both survive.  This is most likely an example of explicit collusion. 1. true b.  false   3. Excess rents are typically observed for premium-pricers but not for discounters.  1. true b.   false 4. 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… 1. the new price policy is revenue enhancing b.  the new price policy would increase  net income 5. both of the above d.  none of the above   5. Whole Foods has recently increased the prices of their prepared sandwiches by about 10%.  Assume that quantity sold decreased by about 2%.  From just this information, we can  conclude that… 1. their sandwiches are price elastic products 2. the new price policy is revenue neutral 3. both of the above d.  none of the above 6. A target return is a profit-maximizing price strategy. 1. true  b.   false 7. Penetration pricing can be used to achieve entry barrier pricing objectives. 1. true   b.  false  8. Mark-up pricing… 1. is an example of a heuristic  b.  is frequently used by smaller retail shops 6. both of the above d.  none of the above 9. In the growth phase of the product life cycle, we generally observe increasing prices and  capacity shortage.  From this we can conclude most first movers use price skimming. 1. true b.   false 10. If price = variable costs, 1. F = 0 b.  the breakeven quantity = capacity
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7. breakeven cannot be achieved   d.  all of the above 11. Since the long term profit of a firm in perfect competition is 0, … 1. CM = 0 b.  breakeven price = the equilibrium price 8. F = 0 d.  all of the above  12. A necessary condition for breakeven is… 1. CM > 0 b.  breakeven quantity   capacity 9. both of the above d.  none of the above  2. If breakeven quantity = capacity, then NI = 0. 2. true b.   false 13. Assume that a firm lowers price, lowers direct material costs, and lowers direct labor costs.  Given just this information, our best guess is that… 1. the firm is in the growth phase of the product life cycle 2. the firm is in the mature phase of the product life cycle 3. CM has decreased (relative to the previous situation) 4. CM has increased (relative to the previous situation) 14. A standard assumption of the breakeven model is that variable costs and revenues are linear  over a wide range of quantity. 1. true b.  false
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