Question 1

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Accepted Answer

A) True 
 B)False

Question 2

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 3

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

Accepted Answer

A) the law of one price is not violated. 
B) transaction costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic. 
A) the law of one price is not violated. 
B) transaction costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic.

Question 4

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Accepted Answer

A) True 
 B)False

Question 5

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

Accepted Answer

A) $12.80 
B) $15.20 
C) $19.20 
D) $21.60 
A) $12.80 
B) $15.20 
C) $19.20 
D) $21.60

Question 6

Which of the following statements is true?

Accepted Answer

A) Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing. 
B) Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing. 
C) Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing. 
D) Of the three pricing schedules, single-price monopoly, an optimal two-part tariff and perfect price discrimination, profit is highest under single-price monopoly pricing. 
A) Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing. 
B) Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing. 
C) Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing. 
D) Of the three pricing schedules, single-price monopoly, an optimal two-part tariff and perfect price discrimination, profit is highest under single-price monopoly pricing.

Question 7

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.Which of the following statements is true?

Accepted Answer

A) Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and Daphne. 
B) Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss in economic surplus. 
C) Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximized. 
D) Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost. 
A) Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and Daphne. 
B) Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss in economic surplus. 
C) Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximized. 
D) Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost.

Question 8

Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a.Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain.
b.What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different price? What happens to consumer surplus in this situation?

Accepted Answer

a.This is an example of price discrimina

Question 9

Figure 16.4
  
-Refer to Figure 16.4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Accepted Answer

A) $6,720 
B) $7,680 
C) $10,240 
D) $13,440 
A) $6,720 
B) $7,680 
C) $10,240 
D) $13,440

Question 10

Cost-plus pricing is a reasonable way to determine the optimal price when

Accepted Answer

A) marginal cost and average cost are roughly equal. 
B) fixed cost and variable costs are roughly equal. 
C) fixed costs vary. 
D) fixed costs are high. 
A) marginal cost and average cost are roughly equal. 
B) fixed cost and variable costs are roughly equal. 
C) fixed costs vary. 
D) fixed costs are high.

Question 11

The Canadian National Exhibition in Toronto charges people to enter the fair grounds as well as for each ride they go on.This pricing strategy is an example of

Accepted Answer

A) perfect price discrimination. 
B) cost-plus pricing. 
C) a two-part tariff. 
D) monopoly pricing. 
A) perfect price discrimination. 
B) cost-plus pricing. 
C) a two-part tariff. 
D) monopoly pricing.

Question 12

Figure 16.1
  
-Refer to Figure 16.1.What is the economically efficient output level?

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 13

Figure 16.4
  
-Refer to Figure 16.4.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price.What is the revenue collected from the fixed fee portion of the price?

Accepted Answer

A) $10,240 
B) $7,870 
C) $2,560 
D) $1,440 
A) $10,240 
B) $7,870 
C) $2,560 
D) $1,440

Question 14

Figure 16.4
  
-Refer to Figure 16.4.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the value of the consumer surplus from this pricing strategy?

Accepted Answer

A) $2,560 
B) $5,760 
C) $7,870 
D) 0 
A) $2,560 
B) $5,760 
C) $7,870 
D) 0

Question 15

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 16

Yield management and price discrimination have enabled firms to increase profits and, at the same time,

Accepted Answer

A) reduce the cost of production. 
B) capture some consumer surplus. 
C) reduce transactions costs. 
D) transfer some producer surplus to consumers. 
A) reduce the cost of production. 
B) capture some consumer surplus. 
C) reduce transactions costs. 
D) transfer some producer surplus to consumers.

Question 17

The law of one price holds exactly only if

Accepted Answer

A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good. 
A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good.

Question 18

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Accepted Answer

A) True 
 B)False

Question 19

Some firms practice odd pricing because

Accepted Answer

A) they believe that customers will buy a larger quantity with an odd price. 
B) it is a way to price discriminate. 
C) it is too difficult for sellers to reeducate buyers into accepting even prices. 
D) it lowers transactions costs. 
A) they believe that customers will buy a larger quantity with an odd price. 
B) it is a way to price discriminate. 
C) it is too difficult for sellers to reeducate buyers into accepting even prices. 
D) it lowers transactions costs.

Question 20

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

Accepted Answer

A) This is an example of product differentiation but not price discrimination. 
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C) Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation. 
D) Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent. 
A) This is an example of product differentiation but not price discrimination. 
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C) Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation. 
D) Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent.

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Figure 16.1 -Refer to Figure 16.1.With perfect price discrimination, the firm will produce and sell

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

Which of the following statements is true?

Figure 16.4 -Refer to Figure 16.4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Cost-plus pricing is a reasonable way to determine the optimal price when

The Canadian National Exhibition in Toronto charges people to enter the fair grounds as well as for each ride they go on.This pricing strategy is an example of

Figure 16.1 -Refer to Figure 16.1.What is the economically efficient output level?

Figure 16.4 -Refer to Figure 16.4.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price.What is the revenue collected from the fixed fee portion of the price?

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?

Yield management and price discrimination have enabled firms to increase profits and, at the same time,

The law of one price holds exactly only if

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Some firms practice odd pricing because

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

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

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Firms, the Stock Market, and Corporate Governance

Filters

Exam 16: Pricing Strategy

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Figure 16.1 -Refer to Figure 16.1.With perfect price discrimination, the firm will produce and sell

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

Which of the following statements is true?

Figure 16.4 -Refer to Figure 16.4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Cost-plus pricing is a reasonable way to determine the optimal price when

The Canadian National Exhibition in Toronto charges people to enter the fair grounds as well as for each ride they go on.This pricing strategy is an example of

Figure 16.1 -Refer to Figure 16.1.What is the economically efficient output level?

Figure 16.4 -Refer to Figure 16.4.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price.What is the revenue collected from the fixed fee portion of the price?

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?

Yield management and price discrimination have enabled firms to increase profits and, at the same time,

The law of one price holds exactly only if

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Some firms practice odd pricing because

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

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

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Firms, the Stock Market, and Corporate Governance

Filters