Question 1

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 2

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Accepted Answer

A) True 
 B)False

Question 3

According to a New York Times article, shoppers from New York City have played a game of "retail arbitrage" by shopping at malls in Northern New Jersey, a state where there is no tax on clothing and shoes.Even after accounting for transactions costs, shoppers could still save money on their clothing and footwear purchases.
Source: Ken Belson and Nate Schweber, "Sales Tax Cut in City May Dim Allure of Stores Across Hudson," New York Times, January 18, 2007.
Is the term "arbitrage" correctly used here?

Accepted Answer

A) Yes, because shoppers were able to purchase items at lower prices even after deducting their transactions costs. 
B) No, "arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here. 
C) Yes, arbitrage applies even if no resale takes place; in this case the profits are pocketed by the customers themselves. 
D) No, "arbitrage" does not apply to markets that are not in the same geographic area. 
A) Yes, because shoppers were able to purchase items at lower prices even after deducting their transactions costs. 
B) No, "arbitrage" means buying at a low price and reselling at a higher price but no resale takes place here. 
C) Yes, arbitrage applies even if no resale takes place; in this case the profits are pocketed by the customers themselves. 
D) No, "arbitrage" does not apply to markets that are not in the same geographic area.

Question 4

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

Accepted Answer

A) subject to a retail profits tax. 
B) not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items. 
C) the result of arbitrage. 
D) accounting profits but not economic profits. 
A) subject to a retail profits tax. 
B) not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items. 
C) the result of arbitrage. 
D) accounting profits but not economic profits.

Question 5

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 6

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

Accepted Answer

A price taker has no market power and th

Question 7

Firms price discriminate

Accepted Answer

A) to reduce the quantity sold so as to reduce production costs. 
B) to increase profits. 
C) to take advantage of customers. 
D) to increase total economic surplus. 
A) to reduce the quantity sold so as to reduce production costs. 
B) to increase profits. 
C) to take advantage of customers. 
D) to increase total economic surplus.

Question 8

Which of the following is not an advantage of cost-plus pricing?

Accepted Answer

A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase. 
A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase.

Question 9

Table 16-3
   
Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results.
-Refer to Table 16-3.If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?

Accepted Answer

A) $2 
B) $10 
C) $12 
D) $22 
A) $2 
B) $10 
C) $12 
D) $22

Question 10

Figure 16-6
   
Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price.What is the competitive price and what is the quantity demanded at this price?

Accepted Answer

A) P₀, Q₁ 
B) P₀, Q₀ 
C) P₁, Q₀ 
D) P₁, Q₁ 
A) P₀, Q₁ 
B) P₀, Q₀ 
C) P₁, Q₀ 
D) P₁, Q₁

Question 11

Assuming zero transactions costs, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as

Accepted Answer

A) arbitrage profits. 
B) transactions profits. 
C) pure profits. 
D) excess profits. 
A) arbitrage profits. 
B) transactions profits. 
C) pure profits. 
D) excess profits.

Question 12

A firm that can effectively price discriminate will charge a higher price to

Accepted Answer

A) customers who have the more elastic demand for the product. 
B) customers who have the more inelastic demand for the product. 
C) buyers who belong to the largest market segment. 
D) buyers who are members of the smallest market segment. 
A) customers who have the more elastic demand for the product. 
B) customers who have the more inelastic demand for the product. 
C) buyers who belong to the largest market segment. 
D) buyers who are members of the smallest market segment.

Question 13

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand, the price in the market segment with more-elastic customer demand will be

Accepted Answer

A) greater than $34. 
B) less than $34. 
C) less than marginal revenue in that market segment. 
D) equal to marginal revenue in that market segment. 
A) greater than $34. 
B) less than $34. 
C) less than marginal revenue in that market segment. 
D) equal to marginal revenue in that market segment.

Question 14

The term "early adopters" refers to

Accepted Answer

A) firms that are the first to implement a new technology that is used to produce new goods or services. 
B) book clubs that are first to recommend best-selling books to their members. 
C) consumers who respond quickly to fads, seasonal changes, etc. 
D) consumers who are willing to pay high prices to be among the first to own new products. 
A) firms that are the first to implement a new technology that is used to produce new goods or services. 
B) book clubs that are first to recommend best-selling books to their members. 
C) consumers who respond quickly to fads, seasonal changes, etc. 
D) consumers who are willing to pay high prices to be among the first to own new products.

Question 15

Figure 16-5
  
-Refer to Figure 16-5.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.(This is also called a two-part tariff.)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 16

Erin and Deidre, two residents in Ithaca, New York, are planning a trip to Boston.Erin, the sales manager for a large retailer, has to attend a business meeting.Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives.Whose demand curve for air travel is likely to be more elastic?

Accepted Answer

A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information. 
A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.

Question 17

Figure 16-5
  
-Refer to Figure 16-5.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.(This is also called a two-part tariff.)What is the profit earned under this pricing scheme?

Accepted Answer

A) $5,760 
B) $6,400 
C) $7,680 
D) $7,870 
A) $5,760 
B) $6,400 
C) $7,680 
D) $7,870

Question 18

What is yield management? How is yield management being used in the airline industry?

Accepted Answer

Yield management is the use of sophistic

Question 19

One reason why airlines charge business travelers and leisure travelers different prices is

Accepted Answer

A) business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their tickets at the last minute. 
B) business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they have a more inelastic demand for airline tickets than business travelers. 
C) business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D) business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure travelers. 
A) business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their tickets at the last minute. 
B) business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they have a more inelastic demand for airline tickets than business travelers. 
C) business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D) business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure travelers.

Question 20

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

Accepted Answer

A) because the markup on movie popcorn is very high and movie theatres do not want to forgo this source of revenue 
B) because the demand for popcorn is very high relative to the demand for movie admissions 
C) because it is easier to limit resale in movie admissions but not in popcorn 
D) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie 
A) because the markup on movie popcorn is very high and movie theatres do not want to forgo this source of revenue 
B) because the demand for popcorn is very high relative to the demand for movie admissions 
C) because it is easier to limit resale in movie admissions but not in popcorn 
D) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie

Yield management is the practice of

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

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

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

Firms price discriminate

Which of the following is not an advantage of cost-plus pricing?

Assuming zero transactions costs, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as

A firm that can effectively price discriminate will charge a higher price to

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand, the price in the market segment with more-elastic customer demand will be

The term "early adopters" refers to

Figure 16-5 -Refer to Figure 16-5.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.(This is also called a two-part tariff.)What is the profit earned under this pricing scheme?

What is yield management? How is yield management being used in the airline industry?

One reason why airlines charge business travelers and leisure travelers different prices is

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

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

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

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Exam 16: Pricing Strategy

Yield management is the practice of

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

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

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

Firms price discriminate

Which of the following is not an advantage of cost-plus pricing?

Assuming zero transactions costs, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as

A firm that can effectively price discriminate will charge a higher price to

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand, the price in the market segment with more-elastic customer demand will be

The term "early adopters" refers to

Figure 16-5 -Refer to Figure 16-5.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.(This is also called a two-part tariff.)What is the profit earned under this pricing scheme?

What is yield management? How is yield management being used in the airline industry?

One reason why airlines charge business travelers and leisure travelers different prices is

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

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

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

Filters