Question 1

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Accepted Answer

A) True 
 B)False

Question 2

Erin and Deidre, two residents of Ithaca, New York, are planning a trip to Boston.Erin, the sales manager for a large retailer, has to attend a business meeting.Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives.Which of the following statements is true?

Accepted Answer

A) An airline that price discriminates will charge Erin a higher price. 
B) An airline that price discriminates will charge Deidre a higher price. 
C) Since there is no difference in the cost of producing air travel, airlines will not charge different prices to Erin and Deidre. 
D) An airline cannot price discriminate because buyers can resell their tickets through the Internet. 
A) An airline that price discriminates will charge Erin a higher price. 
B) An airline that price discriminates will charge Deidre a higher price. 
C) Since there is no difference in the cost of producing air travel, airlines will not charge different prices to Erin and Deidre. 
D) An airline cannot price discriminate because buyers can resell their tickets through the Internet.

Question 3

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 4

If marginal cost is zero, with an optimal two-part tariff

Accepted Answer

A) total revenue is maximized. 
B) consumers maximize their surplus 
C) the firm does not have to charge a fixed-fee portion. 
D) firms may not maximize profit. 
A) total revenue is maximized. 
B) consumers maximize their surplus 
C) the firm does not have to charge a fixed-fee portion. 
D) firms may not maximize profit.

Question 5

For a firm that can effectively price discriminate, who will be charged a lower price?

Accepted Answer

A) customers who have an elastic demand for the product 
B) customers who have an inelastic demand for the product 
C) buyers that are members of the largest market segment 
D) buyers that are members of the smallest market segment 
A) customers who have an elastic demand for the product 
B) customers who have an inelastic demand for the product 
C) buyers that are members of the largest market segment 
D) buyers that are members of the smallest market segment

Question 6

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 7

By selling products in both retail stores and outlet stores, firms can increase their profits by charging ________ prices to consumers with a low price elasticity of demand and ________ prices to consumers with a higher price elasticity of demand.

Accepted Answer

A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower 
A) higher; higher 
B) higher; lower 
C) lower; higher 
D) lower; lower

Question 8

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Accepted Answer

A) marginal utility. 
B) big data. 
C) mega processing. 
D) the Internet of Things. 
A) marginal utility. 
B) big data. 
C) mega processing. 
D) the Internet of Things.

Question 9

Which of the following is not an example of price discrimination?

Accepted Answer

A) Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B) Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C) Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D) Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities. 
A) Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B) Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C) Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D) Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.

Question 10

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

Accepted Answer

A) price discovery. 
B) empirical research. 
C) yield management. 
D) econometrics. 
A) price discovery. 
B) empirical research. 
C) yield management. 
D) econometrics.

Question 11

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Accepted Answer

A) more income elastic 
B) less income elastic 
C) more price elastic 
D) less price elastic 
A) more income elastic 
B) less income elastic 
C) more price elastic 
D) less price elastic

Question 12

The law of one price holds exactly only if

Accepted Answer

A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good. 
A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good.

Question 13

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.If Netflix chose to use Shiller's pricing method

Accepted Answer

A) consumer surplus would be zero. 
B) producer surplus would be zero. 
C) deadweight loss would be maximized. 
D) consumer surplus, producer surplus, and deadweight loss would all be equal. 
A) consumer surplus would be zero. 
B) producer surplus would be zero. 
C) deadweight loss would be maximized. 
D) consumer surplus, producer surplus, and deadweight loss would all be equal.

Question 14

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 $800 per copy

Accepted Answer

A) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D) neither Iris nor Daphne will commission the work. 
A) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D) neither Iris nor Daphne will commission the work.

Question 15

Lou buys a Star Wars: The Force Awakens poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

Accepted Answer

A) Lou has earned some arbitrage profits, assuming that transactions costs are negligible. 
B) The transaction has made Evan worse off because he undersold the poster. 
C) Lou has probably incurred some costs in connection with this sale. 
D) It is possible that Evan has earned some producer surplus from this transaction. 
A) Lou has earned some arbitrage profits, assuming that transactions costs are negligible. 
B) The transaction has made Evan worse off because he undersold the poster. 
C) Lou has probably incurred some costs in connection with this sale. 
D) It is possible that Evan has earned some producer surplus from this transaction.

Question 16

Figure 16-1
  
-Refer to Figure 16-1.With perfect price discrimination, the firm will produce and sell

Accepted Answer

A) Q₁ units. 
B) Q₂ units. 
C) Q₃ units. 
D) Q₄ units. 
A) Q₁ units. 
B) Q₂ units. 
C) Q₃ units. 
D) Q₄ units.

Question 17

Consumers who will pay high prices to be among the first to own certain new products are called

Accepted Answer

A) savvy consumers. 
B) naive consumers. 
C) gullible. 
D) early adopters. 
A) savvy consumers. 
B) naive consumers. 
C) gullible. 
D) early adopters.

Question 18

Figure 16-5
  
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Accepted Answer

A) $6,720 
B) $7,680 
C) $10,240 
D) $13,440 
A) $6,720 
B) $7,680 
C) $10,240 
D) $13,440

Question 19

Consider the following actions undertaken by a firm:
A.charging a higher price for products of higher quality
B.charging different prices to different consumers for the same product when the variation cannot be explained by cost differences
C.charging different prices for products of different qualities
D.charging a lower price to match a competitor's price
Which of the above will be considered price discrimination?

Accepted Answer

A) a, b, c, and d 
B) a, b, and d only 
C) b and d only 
D) b only 
A) a, b, c, and d 
B) a, b, and d only 
C) b and d only 
D) b only

Question 20

Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a.Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain.
b.What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different price? What happens to consumer surplus in this situation?

Accepted Answer

a.This is an example of price discrimina

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

If marginal cost is zero, with an optimal two-part tariff

For a firm that can effectively price discriminate, who will be charged a lower price?

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

By selling products in both retail stores and outlet stores, firms can increase their profits by charging prices to consumers with a low price elasticity of demand and prices to consumers with a higher price elasticity of demand.

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Which of the following is not an example of price discrimination?

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

The law of one price holds exactly only if

Lou buys a Star Wars: The Force Awakens poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

Figure 16-1 -Refer to Figure 16-1.With perfect price discrimination, the firm will produce and sell

Consumers who will pay high prices to be among the first to own certain new products are called

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

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

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

If marginal cost is zero, with an optimal two-part tariff

For a firm that can effectively price discriminate, who will be charged a lower price?

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

By selling products in both retail stores and outlet stores, firms can increase their profits by charging ________ prices to consumers with a low price elasticity of demand and ________ prices to consumers with a higher price elasticity of demand.

The collection and analysis of massive amounts of data, with the goal of measuring aspects of people's behavior is referred to as

Which of the following is not an example of price discrimination?

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

The law of one price holds exactly only if

Lou buys a Star Wars: The Force Awakens poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

Figure 16-1 -Refer to Figure 16-1.With perfect price discrimination, the firm will produce and sell

Consumers who will pay high prices to be among the first to own certain new products are called

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

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

By selling products in both retail stores and outlet stores, firms can increase their profits by charging prices to consumers with a low price elasticity of demand and prices to consumers with a higher price elasticity of demand.