QUESTION: 85

Which of the following statements about oligopoly is incorrect?

A few firms play an important role in the sale of a product
Oligopolistic firms recognize their interdependence
One firm's behaviour is a function of what its rivals do
Prices in oligopoly are predicted to fluctuate widely and frequently

Answer(s): D

Explanation:

An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly's main characteristics are discussed as follows:
- Interdependence
The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competi¬tors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be.
- Importance of advertising and selling costs
A direct effect of interdependence of oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly
- Group behaviour
Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is impor-tant.
- Indeterminateness of demand curve facing an oligopolist ...
In this question, 'Prices in oligopoly are predicted to fluctuate widely and frequently' is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition.
LO 2, AC 2.2

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QUESTION: 86

Which of the following are most likely to be fundamentals of Fisher & Ury's principled negotiation?
1. Depersonalise the argument
2. Focus on positions
3. Generate creative options
4. Using subjective criteria

2 and 3 only
2 and 4 only
1 and 3 only
1 and 4 only

Answer(s): C

Explanation:

Principled negotiation is based on four fundamentals: people, interest, options and criteria:

1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to develop
2nd principle: focus on interests, not positions: It is important in principled negotiations not to focus on their parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them
3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would benefit from. The more options - or tradeables - that can be brought to the table the better.
4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on outcomes based on objective criteria and that it is productive.
LO 1, AC 1.2

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QUESTION: 87

There are no commitments in hypothetical questions. Is this statement true?

No, because the party who makes hypothetical questions cannot withdraw their proposals
No, because hypothetical questions are made explicitly to the other party
Yes, because hypothetical questions generate a specific response
Yes, because hypothetical questions only mention possible situations

Answer(s): D

Explanation:

There are four types of questions that can be used in a commercial negotiation:
Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if something happens, then ...'. This type of question can be useful at giving suggestion.

LO 3, AC 3.3

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QUESTION: 88

Which of the following is the internal factor that is taken into price of a product?

Risk management
Customer tastes
Elasticity
Exchange rate

Answer(s): A

Explanation:

In order to answer this question, you should better consider each option:
'Exchange rate' is the value of one nation's currency versus the currency of another nation or economic zone. This is a macroeconomic factor.

'Elasticity' refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. This is a microeconomic factor Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer tastes are so powerful that they can change how businesses conduct their activity. Like elasticity, this is also a microeconomic factor.
Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many companies in the world. To learn how to price the risk, you can read an article from McKinsey:
https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk- to-win-and-profit
This is a question that a student met in her actual exam. The knowledge section is unknown.
LO: Unknown, AC: Unknown

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