True/False. If False, explain briefly. A. to strengthen impression of product di

Question

True/False. If False, explain briefly.

A. to strengthen impression of product differentiation, a firm usually emphasizes the uniqueness or superiority of its product in advertising and marketing. These practices intensify market competition and lead to a lower market price and profit for the firm.

B. In an assymetric market with both strong firms that are in good financial shape and weak ones that are financially troubled, it is the strong firms that always start the price war. They believe that by driving their rivals out of the market they can control bigger market shares.

C. In reality sometimes it is difficult for a firm to observe its competitors' price. Which can lead to the flactuation of market price in the long run.

Explanation / Answer

A. False

To strengthen impression of product differentiation, a firm usually emphasizes the uniqueness or superiority of its product in advertising and marketing. These practices reduce market competition and lead to a higher market price and profit for the firm.

This is the reason why firms advertise. Profit may not rise necessarily but the rise in total revenues is what firms are looking for.

B. True

In an asymmetric market with both strong firms that are in good financial shape and weak ones that are financially troubled, it is the strong firms that always start the price war. They believe that by driving their rivals out of the market they can control bigger market shares.

When there is concentration of market power restricted to some firms, these firms are always the price and quantity dictators so that other smaller firms become followers.

C. False

In reality sometimes it is difficult for a firm to observe its competitors' price which can lead to the fluctuation of market price in the long run.

Economic theory is very certain about long run. In that period it is impossible for any agent to have more information than the others. Injection of all the available information provides stability in the long-run. Hence there shall be no fluctuations in the market in the long-run

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