In Early 2007, Pioneer and JVC, Two Japanese Electronics Firms

question 210

Multiple Choice

In early 2007, Pioneer and JVC, two Japanese electronics firms, each announced that their profits were going to be lower than expected because they both had to cut prices for LCD and plasma television sets.Which of the following could explain why these firms did not simply raise their prices and increase their profits?

• A)The move to cut prices is probably just a temporary one to gain market share. In the long run the firms will raise prices and be able to increase their profits.
• B)Most likely, intense competition between these two major producers probably pushed prices down. Thereafter, each feared that it would lose its customers to the other if it raised its prices.
• C)In perfect competition, prices are determined by the market and firms will keep lowering prices until there are no profits to be earned.
• D)The firms are still making profits, just not as high as expected so there is room to lower prices until one can force the other out of business.

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Definitions:

Issued

Refers to the total number of shares that have been allocated by a company and are held by shareholders.

Market Rate

The prevailing interest rate available in the marketplace for securities or loans, which can fluctuate based on supply and demand, inflation, and other economic factors.

Carrying Value

The book value of assets and liabilities as recorded in a company's financial statements, reflecting their historical cost adjusted for any depreciation or amortization.

Effective Interest Method

A technique used for calculating the interest income of a debt investment over its expected life, adjusting for the impact of amortizing any discount or premium on the purchase price of the bond.