Question 1

A successful strategy of price discrimination requires that a firm be a price taker.

Accepted Answer

A) True 
 B)False

Question 2

For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because

Accepted Answer

A) consumers are not sensitive to prices. 
B) arbitrage will quickly eliminate price differences. 
C) firms differentiate products in many ways, for example, higher-priced fast food restaurants may offer better service. 
D) their demand is perfectly inelastic. 
A) consumers are not sensitive to prices. 
B) arbitrage will quickly eliminate price differences. 
C) firms differentiate products in many ways, for example, higher-priced fast food restaurants may offer better service. 
D) their demand is perfectly inelastic.

Question 3

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 each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?

Accepted Answer

A) Julie is worse off because the demand for her services is reduced. 
B) Julie has converted the consumer surplus (from a uniform price)into economic profit. 
C) Julie's customers are better off because their consumer surplus has increased. 
D) Julie's has converted the producer surplus (from a uniform price)into consumer surplus. 
A) Julie is worse off because the demand for her services is reduced. 
B) Julie has converted the consumer surplus (from a uniform price)into economic profit. 
C) Julie's customers are better off because their consumer surplus has increased. 
D) Julie's has converted the producer surplus (from a uniform price)into consumer surplus.

Question 4

Publishers practice price discrimination when they sell books at high prices to

Accepted Answer

A) early adopters. 
B) local bookstores. 
C) large chain bookstores. 
D) online book sellers. 
A) early adopters. 
B) local bookstores. 
C) large chain bookstores. 
D) online book sellers.

Question 5

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Accepted Answer

A) The total revenue received under the two pricing schedules is the same. 
B) The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C) The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D) The total revenue received under an optimal two-part tariff could be greater than, less than, or equal to that received under perfect price discrimination, depending on the fixed-fee portion of the two-part tariff. 
A) The total revenue received under the two pricing schedules is the same. 
B) The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C) The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D) The total revenue received under an optimal two-part tariff could be greater than, less than, or equal to that received under perfect price discrimination, depending on the fixed-fee portion of the two-part tariff.

Question 6

If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Accepted Answer

A) True 
 B)False

Question 7

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Accepted Answer

We should not expect a publishing compan

Question 8

Delaware and North Dakota have identical state gasoline taxes of 23.0 cents per gallon.When added to the federal gasoline tax of 18.4 cents per gallon, the total tax on one gallon of gasoline in these two states is 41.4 cents.On November 8, 2015, the average price of one gallon of regular gasoline was $2.17 in Delaware and $2.28 in North Dakota.Briefly explain whether this is an example of price discrimination.Assume that the gasoline being sold is identical in both states.
Sources: gaspricewatch.com and taxfoundation.org

Accepted Answer

This appears to be a case of p

Question 9

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

Accepted Answer

A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic. 
A) it results in a price that causes quantity sold to be where marginal revenue equals marginal cost. 
B) a firm has no difficulty estimating its demand curve. 
C) consumers value the product beyond its marginal cost. 
D) the demand for the firm's product is unit elastic.

Question 10

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

Accepted Answer

A) odd pricing. 
B) cost-plus pricing. 
C) price discrimination. 
D) markup pricing. 
A) odd pricing. 
B) cost-plus pricing. 
C) price discrimination. 
D) markup pricing.

Question 11

If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would consider this an example of

Accepted Answer

A) price gouging. 
B) rational ignorance. 
C) arbitrage. 
D) price discrimination. 
A) price gouging. 
B) rational ignorance. 
C) arbitrage. 
D) price discrimination.

Question 12

Which of the following products allows the seller to identify different groups of consumers (segment the market)and practice price discrimination?

Accepted Answer

A) clothing items sold through Macy's Department Store 
B) a hamburger sold at Burger King 
C) a cafe latte sold at Starbucks 
D) tickets to matinee shows at a movie theatre 
A) clothing items sold through Macy's Department Store 
B) a hamburger sold at Burger King 
C) a cafe latte sold at Starbucks 
D) tickets to matinee shows at a movie theatre

Question 13

Figure 16-1
  
-Refer to Figure 16-1.What is the economically efficient output level?

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 14

The Walt Disney Company is in a position to use a two-part tariff policy in setting prices for admission and rides at Disney World.If this strategy resulted in maximum profit, Disney would convert all consumer surplus into profit.Which of the following explains why Disney does not maximize its profits from admission and rides?

Accepted Answer

A) To maximize its profits, Disney would have to know the demand curves of each of its customers. Since this is not possible, Disney is not able to convert all consumer surplus into profit. 
B) Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers. 
C) Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food, lodging, and other related services. 
D) Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents. 
A) To maximize its profits, Disney would have to know the demand curves of each of its customers. Since this is not possible, Disney is not able to convert all consumer surplus into profit. 
B) Disney purposely charges less than the profit-maximizing price for admission to Disney World because it does not want to risk alienating its customers. 
C) Disney purposely charges less than the profit-maximizing price for admission to Disney World in order to earn more profit from sales of food, lodging, and other related services. 
D) Disney does not charge the profit-maximizing price for admission because it wants to keep admission affordable for children who will be more likely to visit Disney World when they become parents.

Question 15

A firm using a two-part tariff can produce the economically efficient outcome by

Accepted Answer

A) making the fixed-fee portion of the price as low as possible. 
B) setting the per-unit portion of the price equal to the marginal cost of production. 
C) setting the per-unit portion of the price equal to the average cost of production. 
D) setting the fixed-fee portion of the price at some proportion to the fixed cost of production. 
A) making the fixed-fee portion of the price as low as possible. 
B) setting the per-unit portion of the price equal to the marginal cost of production. 
C) setting the per-unit portion of the price equal to the average cost of production. 
D) setting the fixed-fee portion of the price at some proportion to the fixed cost of production.

Question 16

Which of the following pricing strategies allows a firm to earn economic profit?

Accepted Answer

A) price discrimination 
B) charging a price equal to marginal cost 
C) charging a price equal to the average total cost of production 
D) charging a price equal to the average variable cost of production 
A) price discrimination 
B) charging a price equal to marginal cost 
C) charging a price equal to the average total cost of production 
D) charging a price equal to the average variable cost of production

Question 17

Which of the following undermines a firm's ability to engage in price discrimination?

Accepted Answer

A) the seller's market power 
B) the inability to prevent resale of the product from one market segment to another 
C) buyers having different elasticities of demand for the product 
D) the seller's ability to segment the total market 
A) the seller's market power 
B) the inability to prevent resale of the product from one market segment to another 
C) buyers having different elasticities of demand for the product 
D) the seller's ability to segment the total market

Question 18

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

Accepted Answer

A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase. 
A) It leads to profit maximization. 
B) It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C) It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D) It is easy to justify price increases when total costs of production increase.

Question 19

Which of the following is not a requirement for a successful price discrimination strategy?

Accepted Answer

A) A firm must have market power. 
B) The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price. 
C) Managers must practice yield management. 
D) Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay. 
A) A firm must have market power. 
B) The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price. 
C) Managers must practice yield management. 
D) Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.

Question 20

Are sellers who practice arbitrage taking advantage of buyers?

Accepted Answer

No, because the seller cannot charge a b

A successful strategy of price discrimination requires that a firm be a price taker.

For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because

Publishers practice price discrimination when they sell books at high prices to

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would consider this an example of

Which of the following products allows the seller to identify different groups of consumers (segment the market)and practice price discrimination?

Figure 16-1 -Refer to Figure 16-1.What is the economically efficient output level?

A firm using a two-part tariff can produce the economically efficient outcome by

Which of the following pricing strategies allows a firm to earn economic profit?

Which of the following undermines a firm's ability to engage in price discrimination?

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

Which of the following is not a requirement for a successful price discrimination strategy?

Are sellers who practice arbitrage taking advantage of buyers?

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

A successful strategy of price discrimination requires that a firm be a price taker.

For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because

Publishers practice price discrimination when they sell books at high prices to

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Cost-plus pricing would be consistent with selecting the profit-maximizing price when

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would consider this an example of

Which of the following products allows the seller to identify different groups of consumers (segment the market)and practice price discrimination?

Figure 16-1 -Refer to Figure 16-1.What is the economically efficient output level?

A firm using a two-part tariff can produce the economically efficient outcome by

Which of the following pricing strategies allows a firm to earn economic profit?

Which of the following undermines a firm's ability to engage in price discrimination?

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

Which of the following is not a requirement for a successful price discrimination strategy?

Are sellers who practice arbitrage taking advantage of buyers?

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