Exam 16: Pricing Strategy

What is meant by the "law of one price"? In discussing the law of demand, Hubbard and O'Brien claim there has been no evidence of an exception to the law (that is, no evidence of an upward-sloping demand curve).Are there exceptions to the law of one price?

In an optimal two-part tariff pricing schedule, consumer surplus is zero.

Price discrimination is the practice of

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 competitive price.(This is also called an optimal two-part tariff.)What is the total revenue it can expect to collect from the fixed fee portion of the price?

Which of the following products allows the seller to identify different groups of consumers (segment the market)at virtually no cost?

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Which of the following statements is true?

Which of the following is a necessary condition for successful price discrimination?

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

Consider the following pricing strategies: A.perfect price discrimination B.charging different prices to different groups of customers C.optimal two-part tariff D.single-price monopoly pricing Which of the pricing strategies leads to the economically efficient output level?

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel The Girl on the Train by Paula Hawkins at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

Today, Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

If a firm could practice perfect price discrimination, it would

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 above.The pricing method described in the article is referred to as first-degree price discrimination.First-degree price discrimination is also known as

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?

Consider three pricing strategies that the firm can pursue: A.optimal two-part tariff pricing B.perfect price discrimination C.single-price monopoly pricing. Of these three strategies, which is least likely to benefit society as a whole?

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 quantity sold to each group of customers and what is the total quantity sold?

A firm using a two-part tariff faces a tradeoff because

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 decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers?