Exam 16: Pricing Strategy

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.With this pricing scheme-a competitive price for the classes and a one-time membership fee-what amount of producer surplus will Sensei earn?

With perfect price discrimination there is

Which of the following are necessary conditions for successful price discrimination? A.zero transactions costs B.a perfectly competitive market structure C.an imperfectly competitive market structure D.at least two different markets with different price elasticities of demand E.at least two different markets with different price elasticities of supply

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.What is the value of the consumer surplus enjoyed by her customers?

Are sellers who practice arbitrage taking advantage of buyers?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit-maximizing quantity produced and what is the price charged?

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 price of cocktails equals the monopoly price. B.A single price scheme where the cocktail price equals the competitive price. C.A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X. D.A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z. Which scheme will earn the largest profit?

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

Erin and Deidre, two residents of 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.Which of the following statements is true?

Firms engage in odd pricing when they charge prices that appear to be less than they really are; for example, charging a price of $4.95 instead of $5.00 and $.99 instead of $1.00.How have researchers tried to determine whether odd pricing is successful in convincing consumers that odd prices are less than they really are?

The following table contains the actual prices charged by four Web sites for the 5-disc set of Finding Nemo in October 2017. Explain whether the information in this table contradicts the law of one price.

The law of one price

Price discrimination is the practice of

Under what circumstances will the law of one price hold, and when might it not hold?

If a monopolist practices perfect price discrimination,

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called

Article Summary Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription, and how using this method of first-degree price discrimination would generate higher profits. Shiller explains that the more information a company has about its customers, the better it is at being able to set prices to increase profits. As he stated in his paper, "Using all variables to tailor prices, one can yield variable profits 1.39 percent higher than variable profits obtained using non-tailored 2nd degree price-discrimination. Using demographics alone to tailor prices raises profits by much less, yielding variable profits only 0.14% higher than variable profits attainable under 2nd degree [price discrimination]." Source: Brian Fung, "How Netflix could use Big Data to make twice as much money off you," Washington Post, September 4, 2013. -Refer to the Article Summary.The pricing method described in the article is referred to as first-degree price discrimination.First-degree price discrimination is also known as

A firm using a two-part tariff can produce the economically efficient outcome by

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit-maximizing price.