Posted: November 3rd, 2015

MANAGERIAL ECONOMICS

MANAGERIAL ECONOMICS

2.    Dunne, Roberts, and Samuelson found that industries which have high entry rates, tend to also have

high exit rates.
Can you explain this finding? (1 point)
What does this imply for pricing strategies of incumbent firms? (1 point)

3.    “All else equal, a firm would prefer blockaded entry to deterable entry.” Explain. (2 points)

4.      How HEB behaves toward Walmart is a major determinant of whether it will face entry by new

competitors. Explain.    (2 points)

5.     Suppose HEB considers expanding the capacity of its fresh sushi making equipment at its stores at the

corner of SPID & Staples and at the corner of SPID & Waldron. It can do so in one of two ways: (1) HEB can

purchase fungible, general-purpose equipment that can be resold at close to its original value. Or (2) HEB

can invest in highly specialized equipment which, once in place, has virtually no salvage value. Assuming

that each choice results in the same production costs once installed, under which choice is the HEB likely to

encounter greater likelihood of entry into fresh sushi-making by Walmart and other potential competitors, and

why? (2 points)

6.  Consider HEB selling two products, Hill Country Fare chicken fajitas and Tyson chicken fajitas, which

substitute for each other. Suppose that Walmart introduces Great Value chicken fajitas, a product that seems

to the typical consumer to be identical to Hill Country Fare chicken fajitas. Being careful to consider

factors that may affect the following:

(a) Will a price war be initiated? (1 point)

(b) If so, which firm would be more likely to win the price war? (1 point)

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