Exam 11: Pricing Strategies for Firms With Market Power

The following table contains different consumers' values for three software titles: PowerPoint,Excel,and Word.Suppose there are 100 consumers of each type.It costs Microsoft $5 to produce each piece of software.If Microsoft wants to devise a pricing strategy that is incentive compatible between consumer types and will maximize its profit,then it should: Consumer Types PowerPoint Excel Word Accountants \ 75 \ 100 \ 150 Marketing/Sales \ 125 \ 80 \ 135 Administrative Assistants \ 50 \ 175 \ 75

Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.The optimal commodity bundling strategy is:

Firms that use a price-matching strategy attempt to keep price at:

Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm can identify each consumer type and can price discriminate,what is the optimal price for a pair of pants?

Suppose a typical consumer's inverse demand function for bottled water at a resort area where one firm owns all the rights to a local spring is given by P = 15 - 3Q.The marginal cost for gathering and bottling the water is $3 per gallon.Find the optimal number of bottles to package together for sale and the profit-maximizing price to charge for the package.Show the solution graphically. Figure 11-2

Suppose that the inverse demand for a downstream firm is P = -82 − 2Q.Its upstream division produces a critical input with costs of C_U(Q_d)= 3(Q_d )².The downstream firm's cost is C_d(Q)= 2Q.When there is no external market for the downstream firm's critical input,the downstream firm should produce:

What price should a firm charge for a package of five ties given a marginal cost of $5 and an inverse demand function P = 10 − Q by the representative consumer?

Which of the following is true for perfect competition but not true for monopolistic competition and monopoly?

Which of the following pricing policies does NOT extract the entire consumer surplus from the market?

You are the manager of We Trust,the only bank in a small town.Your boss has been studying a report on transaction volume and has noticed a troubling trend: We Trust does not have enough tellers to handle the bank's maximum capacity,which occurs during the lunch hour.Your boss has asked for a short report that summarizes alternative plans for solving this problem,the pros and cons of each plan,and your recommended course of action.Provide this report.

When two or more divisions mark up prices in excess of marginal cost:

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 monopoly price is:

Suppose you compete in a Cournot oligopoly market consisting of six firms.The equilibrium market price and quantity are $5 and 10 units,respectively.The marginal cost for each firm is $3.Based on this information,we know the price elasticity of the market demand is:

If a monopolist claims his profit-maximizing markup factor is 3,what is the corresponding price elasticity of demand?

Suppose P = 60 − 3Q 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 widgets at a marginal cost of $10 per unit and zero fixed costs.It faces an inverse demand function given by P = 50 − Q.What are the profits of the monopoly in equilibrium?

Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm charges $75 for pants and $75 for a coat,the firm will sell a coat to:

A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of −2.5.Which price should it charge to optimize its profits?

To avoid the problem of double marginalization:

A monopoly produces X at a marginal cost of $80 per unit and charges a price of $100 per unit.Determine the elasticity of demand at the profit-maximizing price of $100.