A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?
A) The firm is protected by a first-mover advantage: initial design flaws tend not to harm a firm significantly because consumers resist changing products for fear of incurring high switching costs.
B) They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product.
C) The firm's cost increases as it improves the product but it will not be able to raise its price for fear of alienating customers. Consequently, its profits will erode although its market share remains secure.
D) Because these design flaws were not anticipated, consumers tend to be more forgiving and are likely to remain loyal to the company and its products.
B
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The Stackelberg model is more appropriate than the Cournot model in situations where
A) there are more than two firms. B) all firms enter the market simultaneously. C) one firm makes its output decision before the other. D) firms will be likely to collude.
To finance medical care, the federal government raises the tax per pack paid by sellers of cigarettes. Other things being equal, the price of cigarettes rises because of a(n):
a. upward movement along the supply curve for cigarettes. b. rightward shift of the supply curve for cigarettes. c. upward movement along the demand curve for cigarettes. d. leftward shift of the supply curve for cigarettes.