Exam 11: Pricing Strategies for Firms With Market Power

Many restaurants have found that it is advantageous to offer free appetizers with a two-drink minimum during a limited number of hours.Is this profit-maximizing behavior? Why or why not?

You are the only pharmacist in a small town; the next closest drugstore is 50 miles away.The population in your town consists of young farmers and older retired families.You have noticed that the young farmers are less sensitive to price changes than the retired population.Specifically,you have found that the working population has an own price elasticity of demand of −2 and the retired farmers have an own price elasticity of −4.How can you use this information to your advantage?

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost,but the high equipment rental fee keeps generating big profits.Which pricing strategy is the management using?

A local video store estimates its average customer's demand per year is Q = 7 − 2P,and it knows the marginal cost of each rental is $0.5.How much should the store charge for each rental if it engages in optimal two-part pricing?

If the profit-maximizing markup factor in a three-firm Cournot oligopoly is 2,what is the corresponding market elasticity of demand?

The special cost structure that is necessary for a firm to adopt a peak-load pricing policy is:

Which of the following strategies will most likely NOT enhance profits in a Bertrand oligopoly?

The purpose of randomized pricing is to reduce:

To engage in first-degree price discrimination,a firm must:

Which of the following is a correct statement?

Which of the following pricing policies enhances profits by creating brand-loyal consumers?

A Broadway theater sells weekday show tickets at a lower price than for a weekend show.This is an example of:

Suppose P = 20 − 2Q is the market demand function for a local monopoly.The marginal cost is 2Q.If fixed costs are zero and the firm engages in two-part pricing,the most profits the firm will earn is:

A monopoly produces X at a marginal cost of $20 per unit and charges a price of $50 per unit.Determine the elasticity of demand at the profit-maximizing price of $50.

Suppose that the inverse demand for a downstream firm is P = 150 − Q.Its upstream division produces a critical input with costs of C_U(Q_d)= 5(Q_d )².The downstream firm's cost is C_d(Q)= 10Q.When there is no external market for the downstream firm's critical input,the downstream firm should produce:

Suppose that the demand for a monopolist's product is estimated to be Q^d = 100 − 2P and its total costs are C(Q)= 10Q.Under first-degree price discrimination,the optimal price(s),number of total units exchanged,profit,and consumer surplus are:

Most wholesalers post a "suggested retail price" on packages,which in turn are sold by retailers.Is there an economic basis for the suggested retail price? As the manager of a retailing outlet,what factors will determine whether you should charge the suggested retail price or some higher or lower price?

In 1990,Chrysler offered rebates on almost all of its cars.In May of that year it announced that the rebate program would end on June 30.It also announced that no further rebates would be offered for the rest of the year.Chrysler guaranteed this by promising that if it did offer any rebates larger than those offered between May 1 and June 30,all customers who purchased cars before the new rebate would get the full rebate.How should this announcement have affected the pricing behavior of other car manufacturers?

What price should a firm charge for a package of two shirts given a marginal cost of $2 and an inverse demand function P = 6 − 2Q by the representative consumer?

The idea of charging two different groups of consumers two different prices is practiced in: