Question 1

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Accepted Answer

A)  75 percent 
B)  33.33 percent 
C)  25 percent 
D)  impossible to determine with the information given 
A)  75 percent 
B)  33.33 percent 
C)  25 percent 
D)  impossible to determine with the information given

Question 2

Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill. All else equal, customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.

Accepted Answer

A)  higher price elasticity of demand 
B)  lower price elasticity of demand 
C)  higher price elasticity of supply 
D)  lower price elasticity of supply 
A)  higher price elasticity of demand 
B)  lower price elasticity of demand 
C)  higher price elasticity of supply 
D)  lower price elasticity of supply

Question 3

Joss is a marketing consultant. Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose that the opportunity cost of Joss's time is $1,200. Assume that Iris and Daphne do not know each other. If Joss charges the same price per copy of the report to both Iris and Daphne

Accepted Answer

A)  the report will not get written. 
B)  only Daphne will commission the job and the report will be written. 
C)  both Iris and Daphne will commission the job and the report will be written. 
D)  no conclusion can be drawn without information on the price. 
A)  the report will not get written. 
B)  only Daphne will commission the job and the report will be written. 
C)  both Iris and Daphne will commission the job and the report will be written. 
D)  no conclusion can be drawn without information on the price.

Question 4

Joss is a marketing consultant. Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report. Iris is willing to pay $500 for the service while Daphne is willing to pay $800. Suppose that the opportunity cost of Joss's time is $1,200. Assume that Iris and Daphne do not know each other. If the price of the report is $800 per copy

Accepted Answer

A)  both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B)  only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C)  only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D)  neither Iris nor Daphne will commission the work. 
A)  both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B)  only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C)  only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D)  neither Iris nor Daphne will commission the work.

Question 5

Assume that a monopolist practices perfect price discrimination. The firm will produce an output

Accepted Answer

A)  that is less than the efficient level of output. 
B)  that is greater than the efficient level of output. 
C)  that is equal to the efficient level of output. 
D)  that converts consumers surplus into a deadweight loss. 
A)  that is less than the efficient level of output. 
B)  that is greater than the efficient level of output. 
C)  that is equal to the efficient level of output. 
D)  that converts consumers surplus into a deadweight loss.

Question 6

Cost-price pricing typically does not result in profit-maximization. As a result, economists have two views of cost-plus pricing. One of these views is

Accepted Answer

A)  cost-plus pricing is more likely to lead to profit-maximization for large firms than for small firms. 
B)  cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine. 
C)  cost-plus pricing is more likely to lead to profit-maximization for monopolistically competitive firms than for oligopoly firms. 
D)  cost-plus pricing is more likely to result in profit-maximization the more elastic the firm's demand curve is. 
A)  cost-plus pricing is more likely to lead to profit-maximization for large firms than for small firms. 
B)  cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine. 
C)  cost-plus pricing is more likely to lead to profit-maximization for monopolistically competitive firms than for oligopoly firms. 
D)  cost-plus pricing is more likely to result in profit-maximization the more elastic the firm's demand curve is.

Question 7

According to the law of one price, identical products should sell for the same price everywhere if

Accepted Answer

A)  consumers have knowledge of the prices charged for products in different markets. 
B)  transactions costs are zero. 
C)  firms can prevent consumers from engaging in arbitrage. 
D)  there are no tariffs or other restrictions on imports or exports. 
A)  consumers have knowledge of the prices charged for products in different markets. 
B)  transactions costs are zero. 
C)  firms can prevent consumers from engaging in arbitrage. 
D)  there are no tariffs or other restrictions on imports or exports.

Question 8

In an optimal two-part tariff pricing schedule, consumer surplus is zero.

Accepted Answer

A) True 
 B)False

Question 9

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores. Apple charges lower prices to college students and faculty members because

Accepted Answer

A)  college students and faculty members have a more elastic demand for computers than the general public. 
B)  Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C)  college students and faculty members have a more inelastic demand for computers than the general public. 
D)  college students and faculty members typically buy more supplies from Apple (print cartridges, paper, etc.,) than the general public. 
A)  college students and faculty members have a more elastic demand for computers than the general public. 
B)  Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C)  college students and faculty members have a more inelastic demand for computers than the general public. 
D)  college students and faculty members typically buy more supplies from Apple (print cartridges, paper, etc.,) than the general public.

Question 10

One method of setting price using the cost-plus method is to add

Accepted Answer

A)  a given percentage of marginal cost to marginal cost of production. 
B)  a given percentage of fixed cost to total fixed cost. 
C)  a given percentage of average total cost to average total cost. 
D)  a given percentage of average variable cost to average total cost. 
A)  a given percentage of marginal cost to marginal cost of production. 
B)  a given percentage of fixed cost to total fixed cost. 
C)  a given percentage of average total cost to average total cost. 
D)  a given percentage of average variable cost to average total cost.

Question 11

Yield management is the practice of

Accepted Answer

A)  determining production functions to minimize production costs. 
B)  forecasting competitors' responses to price changes. 
C)  using buyer data to rapidly adjust prices. 
D)  using information technology to find the best interest rate. 
A)  determining production functions to minimize production costs. 
B)  forecasting competitors' responses to price changes. 
C)  using buyer data to rapidly adjust prices. 
D)  using information technology to find the best interest rate.

Question 12

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

Accepted Answer

A)  yield management. 
B)  elasticity management. 
C)  brand management. 
D)  marketing. 
A)  yield management. 
B)  elasticity management. 
C)  brand management. 
D)  marketing.

Question 13

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 practices price discrimination. Which of the following statements is true?

Accepted Answer

A)  Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B)  By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C)  By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D)  By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit. 
A)  Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B)  By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C)  By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D)  By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit.

Question 14

Delaware and North Dakota have identical state gasoline taxes of 23.0 cents per gallon. When added to the federal gasoline tax of 18.4 cents per gallon, the total tax on one gallon of gasoline in these two states is 41.4 cents. On October 19, 2017, the average price of one gallon of regular gasoline was $2.25 in Delaware and $2.33 in North Dakota. Briefly explain whether this is an example of price discrimination. Assume that the gasoline being sold is identical in both states and there is no cost difference in the gasoline.
Sources: gaspricewatch.com and taxfoundation.org

Accepted Answer

This appears to be a case of p

Question 15

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

Accepted Answer

A) True 
 B)False

Question 16

What three conditions must hold for a firm to successfully price discriminate?

Accepted Answer

Successful price discrimination has thre

Question 17

Figure 16-2   Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers:
students and the non-student population.
Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2. Suppose Plato Playhouse price discriminates. Which of the following statements is true?

Accepted Answer

A)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency. 
B)  By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity. 
D)  Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers. 
A)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency. 
B)  By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity. 
D)  Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers.

Question 18

Assume that a firm is able to use an optimal two-part tariff.
a. Is the outcome economically efficient? Why or why not?
b. What happens to consumer surplus?
c. Does this represent perfect price discrimination? Why or why not?

Accepted Answer

a. If a firm uses an optimal two-part ta

Question 19

Which of the following is not an example of price discrimination?

Accepted Answer

A)  Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B)  Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C)  Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D)  Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities. 
A)  Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B)  Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C)  Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D)  Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.

Question 20

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 the salon price discriminates. What prices are charged in the two markets?

Accepted Answer

A)  price in market A = price in market B = $15 
B)  price in market A = $10; price in market B = $15 
C)  price in market A = price in market B = $5 
D)  price in market A = price in market B = $10 
A)  price in market A = price in market B = $15 
B)  price in market A = $10; price in market B = $15 
C)  price in market A = price in market B = $5 
D)  price in market A = price in market B = $10

Exam 16: Pricing Strategy

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Assume that a monopolist practices perfect price discrimination. The firm will produce an output

Cost-price pricing typically does not result in profit-maximization. As a result, economists have two views of cost-plus pricing. One of these views is

According to the law of one price, identical products should sell for the same price everywhere if

In an optimal two-part tariff pricing schedule, consumer surplus is zero.

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores. Apple charges lower prices to college students and faculty members because

One method of setting price using the cost-plus method is to add

Yield management is the practice of

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

What three conditions must hold for a firm to successfully price discriminate?

Assume that a firm is able to use an optimal two-part tariff. a. Is the outcome economically efficient? Why or why not? b. What happens to consumer surplus? c. Does this represent perfect price discrimination? Why or why not?

Which of the following is not an example of price discrimination?

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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