Question 1

From an economic perspective, price discrimination is desirable because

Accepted Answer

A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms. 
A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms.

Question 2

What is yield management? How is yield management being used in the airline industry?

Accepted Answer

Yield management is the use of sophistic

Question 3

If a firm could practice perfect price discrimination, it would

Accepted Answer

A)  allow resale of its product. 
B)  charge every buyer a different price. 
C)  charge a price based on the quantity of a product bought. 
D)  use odd pricing. 
A)  allow resale of its product. 
B)  charge every buyer a different price. 
C)  charge a price based on the quantity of a product bought. 
D)  use odd pricing.

Question 4

Which of the following does not arise from price discrimination?

Accepted Answer

A)  an increase in producer surplus 
B)  an increase in consumer surplus 
C)  an increase in quantity sold 
D)  an increase in profits 
A)  an increase in producer surplus 
B)  an increase in consumer surplus 
C)  an increase in quantity sold 
D)  an increase in profits

Question 5

The term "early adopters" refers to

Accepted Answer

A)  firms that are the first to implement a new technology that is used to produce new goods or services. 
B)  book clubs that are first to recommend best-selling books to their members. 
C)  consumers who respond quickly to fads, seasonal changes, etc. 
D)  consumers who are willing to pay high prices to be among the first to own new products. 
A)  firms that are the first to implement a new technology that is used to produce new goods or services. 
B)  book clubs that are first to recommend best-selling books to their members. 
C)  consumers who respond quickly to fads, seasonal changes, etc. 
D)  consumers who are willing to pay high prices to be among the first to own new products.

Question 6

Figure 16-7   The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options: 
a. A single price scheme where the cocktail price equals the monopoly price.
b. A single price scheme where the cocktail price equals the competitive price.
c. A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
d. A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Under which scheme are the Lounge customers best off?

Accepted Answer

A)  scheme a 
B)  scheme b 
C)  scheme c 
D)  scheme d 
A)  scheme a 
B)  scheme b 
C)  scheme c 
D)  scheme d

Question 7

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal. Can price discrimination be illegal as well?

Accepted Answer

In 1936, Congress passed the Robinson-Pa

Question 8

Harry attended a baseball card show in New York City where he bought a number of rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s. Harry then sold the cards in Pittsburgh, Harry's hometown, where he knew the cards sold for higher prices. The profits Harry earned from these transactions are called

Accepted Answer

A)  arbitrage profits. 
B)  normal profits. 
C)  accounting profits. 
D)  implicit profits. 
A)  arbitrage profits. 
B)  normal profits. 
C)  accounting profits. 
D)  implicit profits.

Question 9

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Accepted Answer

A)  The total revenue received under the two pricing schedules is the same. 
B)  The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C)  The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D)  The total revenue received under an optimal two-part tariff could be greater than, less than, or equal to that received under perfect price discrimination, depending on the fixed-fee portion of the two-part tariff. 
A)  The total revenue received under the two pricing schedules is the same. 
B)  The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C)  The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D)  The total revenue received under an optimal two-part tariff could be greater than, less than, or equal to that received under perfect price discrimination, depending on the fixed-fee portion of the two-part tariff.

Question 10

Which of the following is necessary in order for a firm to successfully practice price discrimination?

Accepted Answer

A)  The firm must practice product differentiation. 
B)  The demand for the firm's product is inelastic. 
C)  The firm must be able to segment the market for the product. 
D)  The firm's transactions costs must be zero. 
A)  The firm must practice product differentiation. 
B)  The demand for the firm's product is inelastic. 
C)  The firm must be able to segment the market for the product. 
D)  The firm's transactions costs must be zero.

Question 11

What is meant by the "law of one price"?

Accepted Answer

A)  Identical products should sell for the same price everywhere. 
B)  A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C)  This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company) to charge the same price for the same good or service in different states. 
D)  Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries. 
A)  Identical products should sell for the same price everywhere. 
B)  A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C)  This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company) to charge the same price for the same good or service in different states. 
D)  Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.

Question 12

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Accepted Answer

A) True 
 B)False

Question 13

Figure 16-1  
-Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell

Accepted Answer

A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units. 
A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units.

Question 14

An article on how hotel prices rose during the solar eclipse on August 21, 2017 noted that in Hopkinsville, Kentucky: "At the local La Quinta Inn & Suites, prices are $425 a night, up from a $93 average on Google for the weekend before." Source: David Gernon, "Once-in-a-lifetime solar eclipse is a bonanza for hotels, airlines," cnbc.com, July 27, 2017.
Which of the following statements is true?

Accepted Answer

A)  The La Quinta Inn & Suites is practicing first-degree price discrimination by charging what the market will bear. 
B)  This is evidence of third-degree price discrimination because hotel accommodation on a particular day is not a product that can be resold later. 
C)  There is no evidence of price discrimination; the La Quinta Inn & Suites is responding to increased demand for hotel rooms in the face of constant supply. 
D)  The La Quinta Inn & Suites has adopted this pricing strategy to capitalize on arbitrage profits. 
A)  The La Quinta Inn & Suites is practicing first-degree price discrimination by charging what the market will bear. 
B)  This is evidence of third-degree price discrimination because hotel accommodation on a particular day is not a product that can be resold later. 
C)  There is no evidence of price discrimination; the La Quinta Inn & Suites is responding to increased demand for hotel rooms in the face of constant supply. 
D)  The La Quinta Inn & Suites has adopted this pricing strategy to capitalize on arbitrage profits.

Question 15

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product. This means that

Accepted Answer

A)  the firm must set different prices for different regions where the product is sold. 
B)  the firm must be willing to offer price discounts for senior citizens and children. 
C)  the firm must be able to divide the market in a way that makes arbitrage impossible. 
D)  the firm must choose a marketing strategy that appeals to different segments of the economy. 
A)  the firm must set different prices for different regions where the product is sold. 
B)  the firm must be willing to offer price discounts for senior citizens and children. 
C)  the firm must be able to divide the market in a way that makes arbitrage impossible. 
D)  the firm must choose a marketing strategy that appeals to different segments of the economy.

Question 16

Today, Walt Disney World charges different customers different prices for admission, even though the differences in prices is not due to differences in costs. This pricing strategy is called

Accepted Answer

A)  arbitrage. 
B)  odd pricing. 
C)  cost-price pricing. 
D)  price discrimination. 
A)  arbitrage. 
B)  odd pricing. 
C)  cost-price pricing. 
D)  price discrimination.

Question 17

The law of one price

Accepted Answer

A)  states that consumers can only buy one good or service at a time. 
B)  is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time. 
C)  states that consumers will pay any price for a product that has a perfectly inelastic demand curve. 
D)  states that identical products should sell for the same price everywhere. 
A)  states that consumers can only buy one good or service at a time. 
B)  is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time. 
C)  states that consumers will pay any price for a product that has a perfectly inelastic demand curve. 
D)  states that identical products should sell for the same price everywhere.

Question 18

Successful price discrimination cannot take place if

Accepted Answer

A)  the market is perfectly competitive. 
B)  the market can be segmented into different buyer groups. 
C)  customers are not able to resell the product. 
D)  the demand curve facing the firm is downward sloping. 
A)  the market is perfectly competitive. 
B)  the market can be segmented into different buyer groups. 
C)  customers are not able to resell the product. 
D)  the demand curve facing the firm is downward sloping.

Question 19

Figure 16-3   Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical.
-Refer to Figure 16-3. Suppose Chantal charges all her customers a uniform price of $10 for a haircut. Which of the following statements is true?

Accepted Answer

A)  Chantal is selling more than the profit-maximizing quantity of haircuts in market B. 
B)  Chantal is selling less than the profit-maximizing quantity of haircuts in market B. 
C)  Chantal is maximizing revenue in market B. 
D)  Chantal will earn a greater profit through uniform pricing than if she practices price discriminates. 
A)  Chantal is selling more than the profit-maximizing quantity of haircuts in market B. 
B)  Chantal is selling less than the profit-maximizing quantity of haircuts in market B. 
C)  Chantal is maximizing revenue in market B. 
D)  Chantal will earn a greater profit through uniform pricing than if she practices price discriminates.

Question 20

Table 16-3
   Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results.
-Refer to Table 16-3. If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?

Accepted Answer

A)  $2 
B)  $10 
C)  $12 
D)  $22 
A)  $2 
B)  $10 
C)  $12 
D)  $22

Exam 16: Pricing Strategy

From an economic perspective, price discrimination is desirable because

What is yield management? How is yield management being used in the airline industry?

If a firm could practice perfect price discrimination, it would

Which of the following does not arise from price discrimination?

The term "early adopters" refers to

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal. Can price discrimination be illegal as well?

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Which of the following is necessary in order for a firm to successfully practice price discrimination?

What is meant by the "law of one price"?

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Figure 16-1 -Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product. This means that

Today, Walt Disney World charges different customers different prices for admission, even though the differences in prices is not due to differences in costs. This pricing strategy is called

The law of one price

Successful price discrimination cannot take place if

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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