Question 1

Even though it often does not result in profit maximization, some small firms use a cost-plus pricing strategy anyway because

Accepted Answer

A) it is easy to use. 
B) they do not understand what marginal revenue and marginal cost mean. 
C) it is expensive to hire an economist who can determine what the profit-maximizing price is. 
D) they sell several products, each of which sells for a different price. The time and expense involved in finding the profit-maximizing price for each product are not worth the effort. 
A) it is easy to use. 
B) they do not understand what marginal revenue and marginal cost mean. 
C) it is expensive to hire an economist who can determine what the profit-maximizing price is. 
D) they sell several products, each of which sells for a different price. The time and expense involved in finding the profit-maximizing price for each product are not worth the effort.

Question 2

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 quantity it should produce?

Accepted Answer

A) 240 units 
B) 320 units 
C) 480 units 
D) 560 units 
A) 240 units 
B) 320 units 
C) 480 units 
D) 560 units

Question 3

Which of the following statements about two-part tariffs is false?

Accepted Answer

A) Because each individual has a different individual demand curve, if there is just one entrance fee some consumers will be able to reap some consumer surplus. 
B) The producer cannot capture the entire consumer surplus because the entrance fee might discourage some potential consumers even though they would have been willing to pay a lesser entrance fee. 
C) Two-part tariff pricing allows a producer to capture the entire consumer surplus. 
D) For two-part tariff pricing to be successful, the producer must be able to identify two distinct customer groups. 
A) Because each individual has a different individual demand curve, if there is just one entrance fee some consumers will be able to reap some consumer surplus. 
B) The producer cannot capture the entire consumer surplus because the entrance fee might discourage some potential consumers even though they would have been willing to pay a lesser entrance fee. 
C) Two-part tariff pricing allows a producer to capture the entire consumer surplus. 
D) For two-part tariff pricing to be successful, the producer must be able to identify two distinct customer groups.

Question 4

Which of the following firms is most likely to use cost-plus pricing?

Accepted Answer

A) A firm that makes one product. 
B) A firm that sells one product and has a sizable research and development budget. 
C) A firm that makes several products and has a sizable research and development budget, the cost of which cannot be easily assigned to each product. 
D) A firm that makes many products but has a small research and development budget, the cost of which can be easily assigned to the different product lines. 
A) A firm that makes one product. 
B) A firm that sells one product and has a sizable research and development budget. 
C) A firm that makes several products and has a sizable research and development budget, the cost of which cannot be easily assigned to each product. 
D) A firm that makes many products but has a small research and development budget, the cost of which can be easily assigned to the different product lines.

Question 5

Which of the following firms is not able to practice price discrimination?

Accepted Answer

A) movie theaters 
B) commercial airlines 
C) land-line telephone companies 
D) the largest wheat farmer in Nebraska 
A) movie theaters 
B) commercial airlines 
C) land-line telephone companies 
D) the largest wheat farmer in Nebraska

Question 6

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 revenue collected from the fixed fee portion of the price?

Accepted Answer

A) $10,240 
B) $7,870 
C) $2,560 
D) $1,440 
A) $10,240 
B) $7,870 
C) $2,560 
D) $1,440

Question 7

What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?

Accepted Answer

When a firm uses cost-plus pricing to se

Question 8

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

Accepted Answer

A) the law of one price is not violated. 
B) transactions costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic. 
A) the law of one price is not violated. 
B) transactions costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic.

Question 9

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

Accepted Answer

A) because the markup on movie popcorn is very high and movie theatres do not want to forgo this source of revenue 
B) because the demand for popcorn is very high relative to the demand for movie admissions 
C) because it is easier to limit resale in movie admissions but not in popcorn 
D) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie 
A) because the markup on movie popcorn is very high and movie theatres do not want to forgo this source of revenue 
B) because the demand for popcorn is very high relative to the demand for movie admissions 
C) because it is easier to limit resale in movie admissions but not in popcorn 
D) because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie

Question 10

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on

Accepted Answer

A) the age of the customer. 
B) how close the customer's zip code was to competitors' stores. 
C) the gender of the customer. 
D) how many times the customer had looked up the product on its Website. 
A) the age of the customer. 
B) how close the customer's zip code was to competitors' stores. 
C) the gender of the customer. 
D) how many times the customer had looked up the product on its Website.

Question 11

Harry attended a baseball card show in New York City where he bought a number of rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s.Harry then sold the cards in Pittsburgh, Harry's hometown, where he knew the cards sold for higher prices.The profits Harry earned from these transactions are called

Accepted Answer

A) arbitrage profits. 
B) normal profits. 
C) accounting profits. 
D) implicit profits. 
A) arbitrage profits. 
B) normal profits. 
C) accounting profits. 
D) implicit profits.

Question 12

Many clothing manufacturers are able to practice price discrimination by selling products in department stores and also in outlet stores.

Accepted Answer

A) True 
 B)False

Question 13

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

Accepted Answer

A) $125. 
B) $150. 
C) $165. 
D) $180. 
A) $125. 
B) $150. 
C) $165. 
D) $180.

Question 14

Figure 16-1
  
-Refer to Figure 16-1.What is the consumer surplus received under perfect price discrimination?

Accepted Answer

A) the area under the demand curve above P₁ 
B) the area under the demand curve above P₃ 
C) the area under the demand curve above P₄ 
D) zero 
A) the area under the demand curve above P₁ 
B) the area under the demand curve above P₃ 
C) the area under the demand curve above P₄ 
D) zero

Question 15

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?

Accepted Answer

A) No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women. 
B) Yes, because the costs of selling insurance to men and women are the same. 
C) Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men. 
D) No, because there are too many insurance companies for any one company to have market power. A firm must possess market power in order to practice price discrimination. 
A) No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women. 
B) Yes, because the costs of selling insurance to men and women are the same. 
C) Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men. 
D) No, because there are too many insurance companies for any one company to have market power. A firm must possess market power in order to practice price discrimination.

Question 16

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.Which group of customers is likely to have a more elastic demand curve (more sensitive to price)?

Accepted Answer

A) the other residents of the neighborhood - market B 
B) There is no difference in the elasticity of demand between the two groups. 
C) the customers from "The Chateau" - market A 
D) There is insufficient information to answer this question. 
A) the other residents of the neighborhood - market B 
B) There is no difference in the elasticity of demand between the two groups. 
C) the customers from "The Chateau" - market A 
D) There is insufficient information to answer this question.

Question 17

The following table contains the actual prices charged by four Web sites for the PlayStation 4 game Call of Duty; Black Ops III in November 2015.
   
Explain whether the information in this table contradicts the law of one price.

Accepted Answer

The data in the table does not

Question 18

Which of the following describes two-part tariff pricing?

Accepted Answer

A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television, or a suite of furniture. 
A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television, or a suite of furniture.

Question 19

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

Accepted Answer

A) The transaction has made Lou better off and Kyle worse off. 
B) The transaction is economically inefficient. 
C) The transaction has made Lou and Kyle better off. 
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction. 
A) The transaction has made Lou better off and Kyle worse off. 
B) The transaction is economically inefficient. 
C) The transaction has made Lou and Kyle better off. 
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction.

Question 20

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Accepted Answer

Perfect price discrimination, also known

Even though it often does not result in profit maximization, some small firms use a cost-plus pricing strategy anyway because

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 quantity it should produce?

Which of the following statements about two-part tariffs is false?

Which of the following firms is most likely to use cost-plus pricing?

Which of the following firms is not able to practice price discrimination?

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 revenue collected from the fixed fee portion of the price?

What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on

Many clothing manufacturers are able to practice price discrimination by selling products in department stores and also in outlet stores.

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

Figure 16-1 -Refer to Figure 16-1.What is the consumer surplus received under perfect price discrimination?

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?

The following table contains the actual prices charged by four Web sites for the PlayStation 4 game Call of Duty; Black Ops III in November 2015. Explain whether the information in this table contradicts the law of one price.

Which of the following describes two-part tariff pricing?

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

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

Even though it often does not result in profit maximization, some small firms use a cost-plus pricing strategy anyway because

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 quantity it should produce?

Which of the following statements about two-part tariffs is false?

Which of the following firms is most likely to use cost-plus pricing?

Which of the following firms is not able to practice price discrimination?

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 revenue collected from the fixed fee portion of the price?

What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn.Which of the following is a reason for this?

Reporters from the Wall Street Journal found that the office supply store Staples charged different prices for the same product to different online customers based primarily on

Many clothing manufacturers are able to practice price discrimination by selling products in department stores and also in outlet stores.

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

Figure 16-1 -Refer to Figure 16-1.What is the consumer surplus received under perfect price discrimination?

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?

The following table contains the actual prices charged by four Web sites for the PlayStation 4 game Call of Duty; Black Ops III in November 2015. Explain whether the information in this table contradicts the law of one price.

Which of the following describes two-part tariff pricing?

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

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