Question

In: Economics

If the price is less than the average total cost but higher than the average variable...

If the price is less than the average total cost but higher than the average variable cost, then the firm is making a _________.

a. loss and is making a negative contribution to fixed costs

b. loss but will continue to produce in the short-run

c. loss and will shut down in the short-run

d. profit

What two types of market scopes did Michael Porter use in developing his generic strategies model?

Broad and narrow.

Cost leadership and focus.

Benefit leadership and focus.

Cost leadership and benefit leadership.

Assume firm 1 but not firm 2 is contemplating making a strategic commitment. Fudenberg and Tirole call it a ________ if the tactical variables are _______ and the commitment makes firm 1 __________.

a. lean and hungry look; strategic complements; soft

b. puppy-dog ploy; strategic complements; tough

c. fat-cat effect; strategic complements; tough

d. top-dog; strategic substitutes; soft

Solutions

Expert Solution

1. (B)

If the price is less than the average costs but higher than the average variable costs the firm is making a loss but will continue to produce in the short term because a contribution is being made to the fixed costs.

2.(A)

reason porter model follow two market scope broad and narrow scope. broad scope has cost leadership and differentiation leadership and narrow scope has cost focus and differentiation focus strategy.

3. (B)

Fudenberg and Tirole call this the “puppy-dog ploy.” if the tactical variables are strategic complements, the commitment makes the firm tough due to the reason that the firm lower prices, other firm follow it and causes rival firms to behave more aggressivelythen they also lower prices in response.

Rahul Sunny answered 2 years ago
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