Question 1

A successful strategy of price discrimination requires that a firm be a price taker.

Accepted Answer

A) True 
 B)False

Question 2

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Accepted Answer

Perfect price discrimination, also known

Question 3

Figure 16-3
   
Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical.
-Refer to Figure 16-3.Suppose Chantal charges all her customers a uniform price of $10 for a haircut.Which of the following statements is true?

Accepted Answer

A) Chantal is selling more than the profit-maximizing quantity of haircuts in market B. 
B) Chantal is selling less than the profit-maximizing quantity of haircuts in market B. 
C) Chantal is maximizing revenue in market B. 
D) Chantal will earn a greater profit through uniform pricing than if she practices price discriminates. 
A) Chantal is selling more than the profit-maximizing quantity of haircuts in market B. 
B) Chantal is selling less than the profit-maximizing quantity of haircuts in market B. 
C) Chantal is maximizing revenue in market B. 
D) Chantal will earn a greater profit through uniform pricing than if she practices price discriminates.

Question 4

What is meant by the "law of one price"?

Accepted Answer

A) Identical products should sell for the same price everywhere. 
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C) This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company)to charge the same price for the same good or service in different states. 
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries. 
A) Identical products should sell for the same price everywhere. 
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C) This is a section of the Sherman Act that forced trusts (for example, the Standard Oil Company)to charge the same price for the same good or service in different states. 
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.

Question 5

Arnold's Airport Transport provides passenger transportation to and from the local airport.Arnold charges a flat rate of $30 per person for round-trip service, and he gives a $5 discount to senior citizens.Assume Arnold's marginal cost is $3.00 per person.Draw two graphs, one showing demand and marginal cost for his $30 customers, of which he has 300 per month, and the other graph showing demand and marginal cost for his senior citizen customers, of which he has 100 per month.If Arnold charged all of his customers $30, he would have 325 customers per month.

Accepted Answer

The answer of Arnold's Airport Transport provides passenger transportation to...

Question 6

What is odd pricing? Why do some merchants use odd pricing?

Accepted Answer

Odd pricing is the practice of charging

Question 7

Book publishers often use a cost-plus pricing strategy.One reason for this is

Accepted Answer

A) most publishers do not hire economists who can determine the number of books they must sell to equate marginal cost and marginal revenue. 
B) publishers do not want to incur the expense of determining the profit-maximizing strategy. They prefer cost-plus pricing because of its lower cost. 
C) much of the cost of publishing textbooks is difficult to assign to any particular book. 
D) bookstores, not publishers, ultimately determine how many books will be produced. 
A) most publishers do not hire economists who can determine the number of books they must sell to equate marginal cost and marginal revenue. 
B) publishers do not want to incur the expense of determining the profit-maximizing strategy. They prefer cost-plus pricing because of its lower cost. 
C) much of the cost of publishing textbooks is difficult to assign to any particular book. 
D) bookstores, not publishers, ultimately determine how many books will be produced.

Question 8

To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following firms is not able to practice price discrimination?

Accepted Answer

A) movie theaters 
B) commercial airlines 
C) land-line telephone companies 
D) the largest wheat farmer in Nebraska 
A) movie theaters 
B) commercial airlines 
C) land-line telephone companies 
D) the largest wheat farmer in Nebraska

Question 10

Table 16-2
   
Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube.
-Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

Accepted Answer

A) Q = 2 units; P = $4.50 
B) Q = 3 units; P = $4 
C) Q = 4 units; P = $3.50 
D) Q = 5 units; P = $3 
A) Q = 2 units; P = $4.50 
B) Q = 3 units; P = $4 
C) Q = 4 units; P = $3.50 
D) Q = 5 units; P = $3

Question 11

Perfect price discrimination is also known as

Accepted Answer

A) monopoly. 
B) first-degree price discrimination. 
C) third-degree price discrimination. 
D) yield management. 
A) monopoly. 
B) first-degree price discrimination. 
C) third-degree price discrimination. 
D) yield management.

Question 12

Price discrimination

Accepted Answer

A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer. 
A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.

Question 13

Amazon is now such a dominant online presence, the company has no need to analyze big data to assist with pricing strategies.

Accepted Answer

A) True 
 B)False

Question 14

Arnold Marion, a first-year economics student at Fazer College, was given an assignment to find an example of price discrimination and present it to his class.When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week.We paid $25 each for our seats in left field.My aunt and uncle paid $50 each for their tickets; they sat five rows behind the first base dugout.This is an example of price discrimination since we paid different prices for the same product, and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?

Accepted Answer

A) He would agree with Arnold that he had found an example of price discrimination, but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B) He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C) He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D) He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets. 
A) He would agree with Arnold that he had found an example of price discrimination, but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B) He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C) He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D) He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets.

Question 15

Which of the following is a reason why a firm would not engage in price discrimination?

Accepted Answer

A) Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination. 
B) Some firms are not able to segment the market for the products they sell. 
C) Some firms do not want to violate the law of one price. 
D) The transactions costs associated with selling the product exceed the price of the product. 
A) Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination. 
B) Some firms are not able to segment the market for the products they sell. 
C) Some firms do not want to violate the law of one price. 
D) The transactions costs associated with selling the product exceed the price of the product.

Question 16

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.Sensei's friend, Marcel, suggests that he charge a one-time membership fee to use the martial arts school, in addition to a per-class charge.Suppose Sensei charges the monopoly price for each class and also imposes a one-time membership fee.What is the maximum amount of revenue from the membership fee he can collect from all his customers?

Accepted Answer

A) an amount equal to the area A + B 
B) an amount equal to the area E + F 
C) an amount equal to the area H + G 
D) an amount equal to the area A + C + H 
A) an amount equal to the area A + B 
B) an amount equal to the area E + F 
C) an amount equal to the area H + G 
D) an amount equal to the area A + C + H

Question 17

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.If Sensei acts as a single-price monopolist, his profit-maximizing price is ________ and the number of classes sold is ________.

Accepted Answer

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

Question 18

Big data is often used to establish pricing strategies for automobile insurance companies.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which of the following firms is most likely to use cost-plus pricing?

Accepted Answer

A) A firm that makes one product. 
B) A firm that sells one product and has a sizable research and development budget. 
C) A firm that makes several products and has a sizable research and development budget, the cost of which cannot be easily assigned to each product. 
D) A firm that makes many products but has a small research and development budget, the cost of which can be easily assigned to the different product lines. 
A) A firm that makes one product. 
B) A firm that sells one product and has a sizable research and development budget. 
C) A firm that makes several products and has a sizable research and development budget, the cost of which cannot be easily assigned to each product. 
D) A firm that makes many products but has a small research and development budget, the cost of which can be easily assigned to the different product lines.

A successful strategy of price discrimination requires that a firm be a price taker.

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

What is meant by the "law of one price"?

What is odd pricing? Why do some merchants use odd pricing?

Book publishers often use a cost-plus pricing strategy.One reason for this is

To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage.

Which of the following firms is not able to practice price discrimination?

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

Perfect price discrimination is also known as

Price discrimination

Amazon is now such a dominant online presence, the company has no need to analyze big data to assist with pricing strategies.

Which of the following is a reason why a firm would not engage in price discrimination?

Big data is often used to establish pricing strategies for automobile insurance companies.

Which of the following statements is true?

Which of the following firms is most likely to use cost-plus pricing?

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

A successful strategy of price discrimination requires that a firm be a price taker.

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

What is meant by the "law of one price"?

What is odd pricing? Why do some merchants use odd pricing?

Book publishers often use a cost-plus pricing strategy.One reason for this is

To successfully price discriminate, a firm must ensure that there are no opportunities for arbitrage.

Which of the following firms is not able to practice price discrimination?

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

Perfect price discrimination is also known as

Price discrimination

Amazon is now such a dominant online presence, the company has no need to analyze big data to assist with pricing strategies.

Which of the following is a reason why a firm would not engage in price discrimination?

Big data is often used to establish pricing strategies for automobile insurance companies.

Which of the following statements is true?

Which of the following firms is most likely to use cost-plus pricing?

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