CEA Market & Industry Analysis 2 — Questions and Answers
Question 1: Which framework analyzes industry attractiveness using supplier power, buyer power, competitive rivalry, threat of substitutes, and threat of new entrants?
- PESTLE Analysis
- Porter's Five Forces (Correct answer)
- SWOT Analysis
- BCG Matrix
Correct answer: Porter's Five Forces
Porter's Five Forces is a structural framework used to evaluate industry attractiveness and competitive intensity.
Question 2: In a perfectly competitive market, the long-run equilibrium price equals:
- Marginal revenue
- Average total cost at its minimum (Correct answer)
- Average fixed cost
- Marginal cost plus a normal profit margin
Correct answer: Average total cost at its minimum
In long-run perfectly competitive equilibrium, firms earn zero economic profit, so price equals minimum average total cost.
Question 3: A market where two firms dominate and each must consider the other's pricing decisions is best described as:
- Monopolistic competition
- Oligopoly
- Duopoly (Correct answer)
- Monopsony
Correct answer: Duopoly
A duopoly is a specific form of oligopoly where exactly two firms control the market and exhibit strategic interdependence.
Question 4: The Herfindahl-Hirschman Index (HHI) is used primarily to measure:
- Consumer price sensitivity
- Market concentration (Correct answer)
- Industry profitability
- Entry barrier height
Correct answer: Market concentration
HHI sums the squares of each firm's market share, providing a measure of market concentration used by antitrust regulators.
Question 5: Which market structure allows firms to earn positive long-run economic profits due to product differentiation?
- Perfect competition
- Pure monopoly (Correct answer)
- Monopolistic competition
- Contestable market
Correct answer: Pure monopoly
A pure monopoly can sustain long-run economic profits because barriers to entry prevent competitors from eliminating the profit.
Question 6: An industry with high fixed costs relative to variable costs tends to exhibit:
- Low minimum efficient scale
- Intense price competition during downturns (Correct answer)
- Rapid entry by new competitors
- Low breakeven output levels
Correct answer: Intense price competition during downturns
High fixed cost industries experience intense price competition during downturns as firms price down to marginal cost to cover variable costs and contribute to fixed overhead.
Question 7: When analyzing industry life cycles, which stage is typically characterized by consolidation and shakeout of weaker competitors?
- Introduction
- Growth
- Maturity (Correct answer)
- Decline
Correct answer: Maturity
During the maturity stage, growth slows, price competition intensifies, and weaker firms exit through mergers or bankruptcy, leading to market consolidation.
CEA Market & Industry Analysis 2
Which framework analyzes industry attractiveness using supplier power, buyer power, competitive rivalry, threat of substitutes, and threat of new entrants?