Exam 16: Pricing Strategy

According to a New York Times article, shoppers from New York City have played a game of "retail arbitrage" by shopping at malls in Northern New Jersey, a state where there is no tax on clothing and shoes.Even after accounting for transactions costs, shoppers could still save money on their clothing and footwear purchases. Source: Ken Belson and Nate Schweber, "Sales Tax Cut in City May Dim Allure of Stores Across Hudson," New York Times, January 18, 2007. Is the term "arbitrage" correctly used here?

What three conditions must hold for a firm to successfully price discriminate?

Yield management is the practice of

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.If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?

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 16-6 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 the consumer surplus received by his customers?

In the real world

Cost-price pricing typically does not result in profit-maximization.As a result, economists have two views of cost-plus pricing.One of these views is

Consumers who ________ will be more likely to buy goods in outlet malls at a lower price, while consumers who ________ will be more willing to pay full price in regular stores.

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.What is the price charged in the two markets?

One reason why airlines charge business travelers and leisure travelers different prices is

Until the early 1980s, The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides.This pricing strategy is an example of

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.If Julie charges $10 per hour, how many hours of pet sitting services will be purchased and by whom?

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 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. Under which scheme are the Lounge customers best off?

Draw a graph that shows producer surplus, consumer surplus, and deadweight loss in a market where the seller practices perfect price discrimination.Be sure to identify the demand curve, the marginal revenue curve, the marginal cost curve, and the profit maximizing quantity on the graph.

Many firms use odd pricing - charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?

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

Which of the following is not a way by which price-discriminating firms can segment a market?

If a monopolist practices perfect price discrimination

One reason why McDonald's charges a single price for its products is that it is difficult and costly for the company to determine each individual consumer's willingness to pay.