Question 1

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?

Accepted Answer

A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down. 
B) The cost of making long-distance connections is higher during the day than in the evenings. 
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours. 
D) Increasingly, businesses who must call suppliers or customers during business hours resort to the internet, thereby reducing demand for long-distance calls. To make up for this fall in demand, telephone companies charge higher rates. 
A) Telephone companies hope to discourage customers from calling long distance during the day to keep their labor costs down. 
B) The cost of making long-distance connections is higher during the day than in the evenings. 
C) Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours. 
D) Increasingly, businesses who must call suppliers or customers during business hours resort to the internet, thereby reducing demand for long-distance calls. To make up for this fall in demand, telephone companies charge higher rates.

Question 2

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 3

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400, what is the firm's markup?

Accepted Answer

A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 40 percent 
A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 40 percent

Question 4

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 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 5

Assume a firm is able to use an optimal two-part tariff.
a.Is the outcome economically efficient? Why or why not?
b.What happens to consumer surplus?
c.Does this represent perfect price discrimination? Why or why not?

Accepted Answer

a.If a firm uses an optimal two-part tar

Question 6

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 practices price discrimination.Which of the following statements is true?

Accepted Answer

A) Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B) By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C) By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D) By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit. 
A) Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B) By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C) By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D) By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit.

Question 7

Successful price discrimination cannot take place if

Accepted Answer

A) the market is perfectly competitive. 
B) the market can be segmented into different buyer groups. 
C) customers are not able to resell the product. 
D) the demand curve facing the firm is downward sloping. 
A) the market is perfectly competitive. 
B) the market can be segmented into different buyer groups. 
C) customers are not able to resell the product. 
D) the demand curve facing the firm is downward sloping.

Question 8

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 Joss charges the same price per copy of the report to both Iris and Daphne

Accepted Answer

A) the report will not get written. 
B) only Daphne will commission the job and the report will be written. 
C) both Iris and Daphne will commission the job and the report will be written. 
D) no conclusion can be drawn without information on the price. 
A) the report will not get written. 
B) only Daphne will commission the job and the report will be written. 
C) both Iris and Daphne will commission the job and the report will be written. 
D) no conclusion can be drawn without information on the price.

Question 9

One method of setting price using the cost-plus method is to add

Accepted Answer

A) a given percentage of marginal cost to marginal cost of production. 
B) a given percentage of fixed cost to total fixed cost. 
C) a given percentage of average total cost to average total cost. 
D) a given percentage of average variable cost to average total cost. 
A) a given percentage of marginal cost to marginal cost of production. 
B) a given percentage of fixed cost to total fixed cost. 
C) a given percentage of average total cost to average total cost. 
D) a given percentage of average variable cost to average total cost.

Question 10

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.How many hours will be purchased and what is her total revenue?

Accepted Answer

A) 5 hours; total revenue = $35 
B) 4 hours; total revenue = $28 
C) 3 hours; total revenue = $21 
D) 2 hours; total revenue = $14 
A) 5 hours; total revenue = $35 
B) 4 hours; total revenue = $28 
C) 3 hours; total revenue = $21 
D) 2 hours; total revenue = $14

Question 11

Why might an amusement park switch from charging admission to the park and charging for the rides to charging for admission but not charging for the rides?

Accepted Answer

An amusement park would switch pricing s

Question 12

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 13

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

Accepted Answer

A) arbitrage. 
B) two-part tariff pricing. 
C) price discrimination. 
D) odd pricing. 
A) arbitrage. 
B) two-part tariff pricing. 
C) price discrimination. 
D) odd pricing.

Question 14

In which market structure is it not possible to practice price discrimination?

Accepted Answer

A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly 
A) perfect competition 
B) monopolistic competition 
C) oligopoly 
D) monopoly

Question 15

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Accepted Answer

A) True 
 B)False

Question 16

With perfect price discrimination, the marginal revenue curve

Accepted Answer

A)  is below the demand curve. 
B) is above the demand curve. 
C) is equal to the demand curve. 
D) is horizontal. 
A)  is below the demand curve. 
B) is above the demand curve. 
C) is equal to the demand curve. 
D) is horizontal.

Question 17

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient level of output.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) It is easy to calculate. 
B) It requires little information. 
C) If a firm is selling multiple products, it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D) It ensures that the firm will maximize its profits. 
A) It is easy to calculate. 
B) It requires little information. 
C) If a firm is selling multiple products, it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D) It ensures that the firm will maximize its profits.

Question 19

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 20

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

Accepted Answer

A) the firm must set different prices for different regions where the product is sold. 
B) the firm must be willing to offer price discounts for senior citizens and children. 
C) the firm must be able to divide the market in a way that makes arbitrage impossible. 
D) the firm must choose a marketing strategy that appeals to different segments of the economy. 
A) the firm must set different prices for different regions where the product is sold. 
B) the firm must be willing to offer price discounts for senior citizens and children. 
C) the firm must be able to divide the market in a way that makes arbitrage impossible. 
D) the firm must choose a marketing strategy that appeals to different segments of the economy.

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400, what is the firm's markup?

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 profit earned under this pricing scheme?

Assume a firm is able to use an optimal two-part tariff. a.Is the outcome economically efficient? Why or why not? b.What happens to consumer surplus? c.Does this represent perfect price discrimination? Why or why not?

Successful price discrimination cannot take place if

One method of setting price using the cost-plus method is to add

Why might an amusement park switch from charging admission to the park and charging for the rides to charging for admission but not charging for the rides?

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

In which market structure is it not possible to practice price discrimination?

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

With perfect price discrimination, the marginal revenue curve

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient level of output.

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

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

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

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

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Exam 16: Pricing Strategy

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours.Why is this the case?

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400, what is the firm's markup?

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 profit earned under this pricing scheme?

Assume a firm is able to use an optimal two-part tariff. a.Is the outcome economically efficient? Why or why not? b.What happens to consumer surplus? c.Does this represent perfect price discrimination? Why or why not?

Successful price discrimination cannot take place if

One method of setting price using the cost-plus method is to add

Why might an amusement park switch from charging admission to the park and charging for the rides to charging for admission but not charging for the rides?

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

In which market structure is it not possible to practice price discrimination?

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

With perfect price discrimination, the marginal revenue curve

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient level of output.

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

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

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

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

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