Question 1

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries.Explain.

Accepted Answer

Some consumers in some markets are willi

Question 2

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.Which of the following statements is true about the two markets?

Accepted Answer

A) The demand in Middle Fall is more price elastic than the demand in West Fall. 
B) The demand in Middle Fall is less price elastic than the demand in West Fall. 
C) The demand in Middle Fall is more income elastic than the demand in West Fall. 
D) The demand in Middle Fall is less income elastic than the demand in West Fall. 
A) The demand in Middle Fall is more price elastic than the demand in West Fall. 
B) The demand in Middle Fall is less price elastic than the demand in West Fall. 
C) The demand in Middle Fall is more income elastic than the demand in West Fall. 
D) The demand in Middle Fall is less income elastic than the demand in West Fall.

Question 3

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 4

With perfect price discrimination there is

Accepted Answer

A) no deadweight loss. 
B) no producer surplus. 
C) one single price. 
D) an increase in consumer surplus. 
A) no deadweight loss. 
B) no producer surplus. 
C) one single price. 
D) an increase in consumer surplus.

Question 5

Arbitrage

Accepted Answer

A) is the act of buying an item at a low price and reselling the item at a higher price. 
B) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. 
C) is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price. 
D) is any act of buying and selling that results in the seller earning an above normal profit. 
A) is the act of buying an item at a low price and reselling the item at a higher price. 
B) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. 
C) is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price. 
D) is any act of buying and selling that results in the seller earning an above normal profit.

Question 6

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 7

According to the law of one price, identical products should sell for the same price everywhere if

Accepted Answer

A) consumers have knowledge of the prices charged for products in different markets. 
B) transactions costs are zero. 
C) firms can prevent consumers from engaging in arbitrage. 
D) there are no tariffs or other restrictions on imports or exports. 
A) consumers have knowledge of the prices charged for products in different markets. 
B) transactions costs are zero. 
C) firms can prevent consumers from engaging in arbitrage. 
D) there are no tariffs or other restrictions on imports or exports.

Question 8

Why is price discrimination legal but not discrimination based on race or gender?

Accepted Answer

A) because price discrimination increases profits and therefore tax revenues for the government, but discrimination based on race or gender reduces tax revenues 
B) because price discrimination reduces deadweight loss, but discrimination based on race or gender increases deadweight loss 
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D) because price discrimination enables firms to increase output and employment, but race- or gender-based discrimination reduces employment 
A) because price discrimination increases profits and therefore tax revenues for the government, but discrimination based on race or gender reduces tax revenues 
B) because price discrimination reduces deadweight loss, but discrimination based on race or gender increases deadweight loss 
C) because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D) because price discrimination enables firms to increase output and employment, but race- or gender-based discrimination reduces employment

Question 9

Buying at a low price in one market and reselling at a higher price in another market will

Accepted Answer

A) not generate any profit because of transportation costs. 
B) not generate any profit because of transactions costs. 
C) eventually eliminate all of the price differences. 
D) eventually eliminate most, but not necessarily all, of the price differences. 
A) not generate any profit because of transportation costs. 
B) not generate any profit because of transactions costs. 
C) eventually eliminate all of the price differences. 
D) eventually eliminate most, but not necessarily all, of the price differences.

Question 10

A price-discriminating firm charges the highest price to

Accepted Answer

A) the group with the largest demand. 
B) the group with the most elastic demand. 
C) the group with the least elastic demand. 
D) the group with demand that is unit elastic. 
A) the group with the largest demand. 
B) the group with the most elastic demand. 
C) the group with the least elastic demand. 
D) the group with demand that is unit elastic.

Question 11

When a monopolist engages in perfect price discrimination, the quantity produced and sold

Accepted Answer

A) is lower than the quantity produced and sold if it adopted a single price. 
B) is larger than the quantity produced and sold if it adopted a single price. 
C) is the same level as that produced and sold if it adopted a single price. 
D) could be lower, higher, or the same as that produced and sold if it adopted a single price. 
A) is lower than the quantity produced and sold if it adopted a single price. 
B) is larger than the quantity produced and sold if it adopted a single price. 
C) is the same level as that produced and sold if it adopted a single price. 
D) could be lower, higher, or the same as that produced and sold if it adopted a single price.

Question 12

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.If the price of the report is $500 per copy

Accepted Answer

A) only Iris will purchase Joss's services and Joss will undertake the job for her. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
D) both Iris and Daphne will want to purchase Joss's services but Joss will not be willing to undertake the job. 
A) only Iris will purchase Joss's services and Joss will undertake the job for her. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
D) both Iris and Daphne will want to purchase Joss's services but Joss will not be willing to undertake the job.

Question 13

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

Accepted Answer

A) yield management. 
B) elasticity management. 
C) brand management. 
D) marketing. 
A) yield management. 
B) elasticity management. 
C) brand management. 
D) marketing.

Question 14

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 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 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.What is the per-unit price?

Accepted Answer

A) $28 
B) $24 
C) $12 
D) $8 
A) $28 
B) $24 
C) $12 
D) $8

Question 16

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 17

Some consumer electronics products such as plasma TVs, DVD players, and digital cameras, are introduced at very high prices but over time, their prices start falling (beyond what could be attributed to falling costs as companies take advantage of economies of scale and cheaper technologies).Which of the following is the best explanation for this observation?

Accepted Answer

A) More firms are likely to enter the consumer electronics market over time, forcing market prices down. 
B) Early adopters of these new products typically have a higher demand and higher income compared to those who are willing to wait. 
C) Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods. 
D) After satisfying the demand for early adopters, firms lower price to attract the more price-sensitive consumers. 
A) More firms are likely to enter the consumer electronics market over time, forcing market prices down. 
B) Early adopters of these new products typically have a higher demand and higher income compared to those who are willing to wait. 
C) Early adopters are more quality conscious and are willing to pay higher prices for the initial production of these goods. 
D) After satisfying the demand for early adopters, firms lower price to attract the more price-sensitive consumers.

Question 18

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 monopolist and charges the profit-maximizing price, what is his producer surplus?

Accepted Answer

A) the area B + D + G 
B) the area A + B + C + D + H + G 
C) the area C + D + H + G 
D) the area A + C + H 
A) the area B + D + G 
B) the area A + B + C + D + H + G 
C) the area C + D + H + G 
D) the area A + C + H

Question 19

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.What are the total profits from both markets combined?

Accepted Answer

A) $50 
B) $48 
C) $18 
D) $15 
A) $50 
B) $48 
C) $18 
D) $15

Question 20

Which of the following is not a requirement for a successful price discrimination strategy?

Accepted Answer

A) A firm must have the ability to charge a price greater than marginal cost. 
B) Some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay. 
C) The firm must be able to prevent arbitrage. 
D) Transactions costs must be the same for all consumers. 
A) A firm must have the ability to charge a price greater than marginal cost. 
B) Some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay. 
C) The firm must be able to prevent arbitrage. 
D) Transactions costs must be the same for all consumers.

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries.Explain.

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.Which of the following statements is true about the two markets?

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?

With perfect price discrimination there is

Arbitrage

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

According to the law of one price, identical products should sell for the same price everywhere if

Why is price discrimination legal but not discrimination based on race or gender?

Buying at a low price in one market and reselling at a higher price in another market will

A price-discriminating firm charges the highest price to

When a monopolist engages in perfect price discrimination, the quantity produced and sold

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

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.What is the per-unit price?

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?

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.What are the total profits from both markets combined?

Which of the following is not a requirement for a successful price discrimination strategy?

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 More Realistic Setting

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

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries.Explain.

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.Which of the following statements is true about the two markets?

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?

With perfect price discrimination there is

Arbitrage

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

According to the law of one price, identical products should sell for the same price everywhere if

Why is price discrimination legal but not discrimination based on race or gender?

Buying at a low price in one market and reselling at a higher price in another market will

A price-discriminating firm charges the highest price to

When a monopolist engages in perfect price discrimination, the quantity produced and sold

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

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.What is the per-unit price?

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?

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.What are the total profits from both markets combined?

Which of the following is not a requirement for a successful price discrimination strategy?

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 More Realistic Setting

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