Homework for Chapter 7 (modified end-of-chapter questions, plus additional questions)

(12 points possible)

12. Briefly explain why firms operating with significant excess capacity are more likely to instigate price wars. (2 points)

14. It is often argued that price wars may be more likely to occur during low-demand periods than high-demand periods.

a.What factors that might support this implication? (1 point)

b.Might some other factors reverse this implication? (1 point)

15. Why does Sutton draw a distinction between endogenous sunk costs, such as advertising, and other sunk costs, such as capital investments? (2 points)