Exam 11: Pricing Strategies for Firms With Market Power

A firm has capacity limitations and charges $30 for its service during daily peak times.If the market demand elasticity drops from −3 during peak times to −5 at off-peak times,how much should the firm charge to earn the maximum profit during off-peak times?

Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services.Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 − 33Q and the marginal cost of providing wireless services to the area is $1 per minute.What is the optimal two-part price that you would suggest to Verizon?

A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs.It faces an inverse demand function given by P = 38 − Q.Suppose fixed costs rise to $200.What will happen in the market?

Which of the following statements is true regarding profit-maximizing markup for a Cournot oligopoly with N identical firms?

In most cities all lumber yards advertise that they have the lowest price in town.In addition,they often claim that they will match the prices of any other lumber yards.Is this Bertrand competition that brings about zero economic profits?

A new firm successfully enters a three-firm Cournot oligopoly without changing the demand and cost structures.The new price becomes:

Suppose you are the marketing manager for Fruit of the Loom.An individual's inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 − 3Q (in cents).If the cost to Fruit of the Loom to produce an item of women's underwear is C(Q)= 1 + 4Q (in cents),compute the price Fruit of the Loom should charge for a package of women's underwear.

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.What is the annual profit that the video store expects to make on an average customer if it engages in optimal two-part pricing?

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs.It faces an inverse demand function given by P = 50 − Q.The demand elasticity of a widget at the monopoly price and quantity is:

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 an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

Which of the following pricing strategies is NOT used in markets characterized by intense price competition?

Suppose you are an analyst for the Coca-Cola Company.An individual's inverse demand for Coca-Cola is estimated to be P = 98 − 4Q (in cents).If Coca-Cola is produced according to the cost function C(Q)= 1,000 + 2Q (in cents),compute the surplus consumers receive when Coca-Cola charges the optimal block price.

An industry produces 10,000 units of output at a price of $100.At the equilibrium price and quantity,the market elasticity of demand is -0.75.Does this industry consist of a profit-maximizing monopolist?

Three consumers who want to buy a new car have the following valuations for dealer options: Air Conditianer Power Brakes Consumer 1 \ 1,000 \ 500 Consurner 2 \ 800 \ 300 Consumer 3 \ 100 \ 800 Assuming costs are zero,how much would the dealer make if it priced power brakes at $800,priced air conditioners at $200,and sold the bundle for $1,300?

Which of the following pricing policies compensate customers if the firm fails to provide the best price in the market?

Which of the following is true regarding the relationship between the elasticity of demand for an individual firm and the elasticity of demand for the market in a Cournot oligopoly with five identical firms?

Which of the following is NOT a condition for a firm to engage in price discrimination?

The special demand structure that induces a firm to use a cross-subsidization strategy is:

Which of the following pricing strategies does NOT usually enhance the profits of firms with market power?

Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services.Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 − 33Q and the marginal cost of providing wireless services to the area is $1 per minute.Compute consumer surplus when Verizon Wireless charges an optimal two-part price.