A Firm That Is First to the Market with a New

question 158

Multiple Choice

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)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.
• D)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.

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Definitions:

Market Units

Denotes the standardized quantities or measures used to specify transactions in a particular market.

Consumer Surplus

The difference between the total amount that consumers are willing to pay for a good or service and the total amount that they actually pay.

Government Policy

Principles and actions by which a government aims to influence or control the economy, social and financial matters.

Consumer Surplus

Represents the difference between the total amount that consumers are willing to pay for a good or service and the total amount they actually pay.