1) Using examples, explain the term 'sunk cost'. (3 Marks)
2) With reference to the pharmaceutical industry analyse why the following are significant barriers to entry:
A) Economies of scale (3 Marks)
B) Brand loyalty (3 Marks)
C) Patents (3 Marks)
3) Explain the likely impact on a firm's pricing of its market becoming more contestable (4 Marks)
4) Read the following
Extract A
Mobile phone apps
It is estimated that in 2015, over 180 billion smartphone apps will be downloaded, with over 1.5 million apps available on both the Apple App Store and Google Play. Every week over 15,000 new apps are launched, as firms take advantage of the relatively low entry costs. Apps make programs that were once only available on PCs available to smartphone users too. They include programs such as Facebook, streaming radio and, of course, the game Angry Birds.
However, revenue gained from apps is concentrated among a few developers. In the USA, for example, 25 developers accounted for half of all app revenue, most of these being gaming apps from well-known brands such as Electronic Arts and Disney.
A) Define the term 'contestable market'. (2 Marks)
B) To what extent is the mobile app industry contestable? (10 Marks)
2) With reference to the pharmaceutical industry analyse why the following are significant barriers to entry:
A) Economies of scale (3 Marks)
B) Brand loyalty (3 Marks)
C) Patents (3 Marks)
3) Explain the likely impact on a firm's pricing of its market becoming more contestable (4 Marks)
4) Read the following
Extract A
Mobile phone apps
It is estimated that in 2015, over 180 billion smartphone apps will be downloaded, with over 1.5 million apps available on both the Apple App Store and Google Play. Every week over 15,000 new apps are launched, as firms take advantage of the relatively low entry costs. Apps make programs that were once only available on PCs available to smartphone users too. They include programs such as Facebook, streaming radio and, of course, the game Angry Birds.
However, revenue gained from apps is concentrated among a few developers. In the USA, for example, 25 developers accounted for half of all app revenue, most of these being gaming apps from well-known brands such as Electronic Arts and Disney.
A) Define the term 'contestable market'. (2 Marks)
B) To what extent is the mobile app industry contestable? (10 Marks)
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