Question 1

Which of the following describes two-part tariff pricing?

Accepted Answer

A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television, or a suite of furniture. 
A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television, or a suite of furniture.

Question 2

The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks, Disneyland and Disney World.Which of the following statements regarding Disney's pricing strategy is true?

Accepted Answer

A) At one time, admission fees were charged at both parks but all rides were free. Disney has since changed its pricing policy; it earns higher profits by charging for both admission and rides. 
B) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for admission but not for rides. 
C) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for rides but not for admission. 
D) At one time, fees for admission and rides at both parks were set at their profit-maximizing levels. Disney has since changed its pricing policy; it uses a cost-plus pricing strategy for admission and does not charge for rides. 
A) At one time, admission fees were charged at both parks but all rides were free. Disney has since changed its pricing policy; it earns higher profits by charging for both admission and rides. 
B) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for admission but not for rides. 
C) At one time, customers had to pay for admission and rides at Disneyland and Disney World. Disney has since changed its pricing policy; it earns higher profits by charging for rides but not for admission. 
D) At one time, fees for admission and rides at both parks were set at their profit-maximizing levels. Disney has since changed its pricing policy; it uses a cost-plus pricing strategy for admission and does not charge for rides.

Question 3

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

A) True 
 B)False

Question 4

Movie theaters often charge higher ticket prices for evening showings than for afternoon showings.Why is this the case?

Accepted Answer

A) Movie theaters hope to discourage customers from seeing movies during the afternoon to keep their labor costs down. 
B) The cost of showing movies is higher during the afternoon than in the evening. 
C) Movie theaters know that many people are willing to pay more to see a movie in the evening than during the afternoon. 
D) Movie theaters have more physical space to show movies during the afternoon than they do during the evening, so the excess supply of available theaters dictates that prices be lower. 
A) Movie theaters hope to discourage customers from seeing movies during the afternoon to keep their labor costs down. 
B) The cost of showing movies is higher during the afternoon than in the evening. 
C) Movie theaters know that many people are willing to pay more to see a movie in the evening than during the afternoon. 
D) Movie theaters have more physical space to show movies during the afternoon than they do during the evening, so the excess supply of available theaters dictates that prices be lower.

Question 5

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Accepted Answer

A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic. 
A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic.

Question 6

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.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7 per hour.What is her marginal revenue?

Accepted Answer

A) It is $7 for the first hour and starts declining thereafter. 
B) It is $7 for the first hour and starts increasing thereafter. 
C) It is constant at $7. 
D) It coincides with the figures in the table; $12 for the first hour, $10 for the second, $9 for the third, and $8 for the fourth. 
A) It is $7 for the first hour and starts declining thereafter. 
B) It is $7 for the first hour and starts increasing thereafter. 
C) It is constant at $7. 
D) It coincides with the figures in the table; $12 for the first hour, $10 for the second, $9 for the third, and $8 for the fourth.

Question 7

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

Accepted Answer

A) buys the consumer the right to make future purchases at Costco. 
B) is a resalable asset to the consumer. 
C) is a resalable asset to the producer. 
D) is used by Costco to cover its fixed costs of production. 
A) buys the consumer the right to make future purchases at Costco. 
B) is a resalable asset to the consumer. 
C) is a resalable asset to the producer. 
D) is used by Costco to cover its fixed costs of production.

Question 8

Consider the following pricing strategies:
A.perfect price discrimination
B.charging different prices to different groups of customers
C.optimal two-part tariff
D.single-price monopoly pricing
Which of the pricing strategies allows a producer to capture the entire consumer surplus that would have gone to consumers under perfect competitive pricing?

Accepted Answer

A) a, b, c, and d 
B) a, b, and c only 
C) a and b only 
D) a and c only 
A) a, b, c, and d 
B) a, b, and c only 
C) a and b only 
D) a and c only

Question 9

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 10

Entrepreneurs who earn arbitrage profits are able to do so by extracting the total consumer surplus from buyers.

Accepted Answer

A) True 
 B)False

Question 11

Today, Walt Disney World charges different customers different prices for admission, even though the differences in prices are not due to differences in costs.This pricing strategy is called

Accepted Answer

A) arbitrage. 
B) odd pricing. 
C) cost-price pricing. 
D) price discrimination. 
A) arbitrage. 
B) odd pricing. 
C) cost-price pricing. 
D) price discrimination.

Question 12

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Accepted Answer

A) $40. 
B) $50. 
C) $52. 
D) $65. 
A) $40. 
B) $50. 
C) $52. 
D) $65.

Question 13

"Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock.Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.Therefore, when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement; state whether it is true or false and explain your answer.

Accepted Answer

The statement is false.Buying and sellin

Question 14

Most supermarkets charge the same price for the majority of goods sold.This suggest that

Accepted Answer

A) the government regulates prices of most products sold in supermarkets. 
B) supermarkets have colluded to fix prices on most of the goods sold. 
C) mark-ups reflect the degree of competition in the supermarket industry. 
D) the large supermarket chains are price leaders and smaller grocers take these prices as given. 
A) the government regulates prices of most products sold in supermarkets. 
B) supermarkets have colluded to fix prices on most of the goods sold. 
C) mark-ups reflect the degree of competition in the supermarket industry. 
D) the large supermarket chains are price leaders and smaller grocers take these prices as given.

Question 15

Cost-plus pricing may be a reasonable way to determine price when

Accepted Answer

A) marginal cost and average fixed cost are roughly equal. 
B) marginal cost and average cost are about the same. 
C) marginal cost differs significantly from average cost. 
D) marginal cost is very low. 
A) marginal cost and average fixed cost are roughly equal. 
B) marginal cost and average cost are about the same. 
C) marginal cost differs significantly from average cost. 
D) marginal cost is very low.

Question 16

Figure 16-7
   
The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7.The owners of the Lizard Lounge are considering the following four pricing options:
A.A single price scheme where the cocktail price equals the monopoly price.
B.A single price scheme where the cocktail price equals the competitive price.
C.A two-part tariff: a monopoly cocktail price and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s)achieve the economically efficient outcome?

Accepted Answer

A) schemes a and c 
B) scheme b 
C) schemes b and d 
D) scheme d only 
A) schemes a and c 
B) scheme b 
C) schemes b and d 
D) scheme d only

Question 17

Figure 16-2
   
Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers:
students and the non-student population.
Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.Suppose Plato Playhouse charges a single price of Pd for each performance.Which of the following statements is true?

Accepted Answer

A) The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B) The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C) The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D) The company is selling less than the profit-maximizing quantity in both markets. 
A) The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B) The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C) The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D) The company is selling less than the profit-maximizing quantity in both markets.

Question 18

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Accepted Answer

A) True 
 B)False

Question 19

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Accepted Answer

A) marginal utility. 
B) big data. 
C) mega processing. 
D) the Internet of Things. 
A) marginal utility. 
B) big data. 
C) mega processing. 
D) the Internet of Things.

Question 20

Table 16-1
   
Table 16-1 shows the price for the hardcover version of the novel Into the Water by Paula Hawkins at four online bookstores.
-Refer to Table 16-1.Which of the following can one conclude from the data above?

Accepted Answer

A) The data provides clear evidence of price discrimination in the online bookstore market. 
B) Amazon.com and BarnesandNoble.com are able to charge a lower price for the item because they are more cost efficient than the other two companies. 
C) The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences. 
D) BarnesandNoble.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business. 
A) The data provides clear evidence of price discrimination in the online bookstore market. 
B) Amazon.com and BarnesandNoble.com are able to charge a lower price for the item because they are more cost efficient than the other two companies. 
C) The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences. 
D) BarnesandNoble.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business.

Which of the following describes two-part tariff pricing?

The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks, Disneyland and Disney World.Which of the following statements regarding Disney's pricing strategy is true?

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Movie theaters often charge higher ticket prices for evening showings than for afternoon showings.Why is this the case?

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

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

Entrepreneurs who earn arbitrage profits are able to do so by extracting the total consumer surplus from buyers.

Today, Walt Disney World charges different customers different prices for admission, even though the differences in prices are not due to differences in costs.This pricing strategy is called

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Most supermarkets charge the same price for the majority of goods sold.This suggest that

Cost-plus pricing may be a reasonable way to determine price when

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Into the Water by Paula Hawkins at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

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

Exam 16: Pricing Strategy

Which of the following describes two-part tariff pricing?

The Walt Disney Company is in a position to use a two-part tariff by charging for admission and also charging for rides inside its two theme parks, Disneyland and Disney World.Which of the following statements regarding Disney's pricing strategy is true?

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Movie theaters often charge higher ticket prices for evening showings than for afternoon showings.Why is this the case?

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

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

Entrepreneurs who earn arbitrage profits are able to do so by extracting the total consumer surplus from buyers.

Today, Walt Disney World charges different customers different prices for admission, even though the differences in prices are not due to differences in costs.This pricing strategy is called

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Most supermarkets charge the same price for the majority of goods sold.This suggest that

Cost-plus pricing may be a reasonable way to determine price when

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Into the Water by Paula Hawkins at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

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