Question 1

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. A

Question 2

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Accepted Answer

A) True 
 B)False  True

Question 3

Book publishers often use price discrimination across time to increase profits.Toni Morrison's book,A Mercy,was published as a hardcover edition in November 2008 at a price of $23.95.In August 2009,the paperback version was published at a price of $15.00.Assume that 100,000 hardcover books were sold to hard-core Toni Morrison fans in November 2008,and 400,000 paperback books were sold to casual readers in August 2009.Illustrate each of these situations graphically.Assume that the marginal cost of the hardcover version is $2.00 and the marginal cost of the paperback version is $0.75.

Accepted Answer

The answer of Book publishers often use price discrimination across...

Question 4

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?
A) a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price
B) perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not
C) Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer.
D) single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller) that are not exploited

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 5

If a firm could practice perfect price discrimination,it would

Accepted Answer

A)  allow resale of its product. 
B)  charge every buyer a different price. 
C)  charge a price based on the quantity of a product bought. 
D)  use odd pricing. 
A)  allow resale of its product. 
B)  charge every buyer a different price. 
C)  charge a price based on the quantity of a product bought. 
D)  use odd pricing.

Question 6

Figure 16-4  
-Refer to Figure 16-4.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?

Accepted Answer

A)  $2,560 
B)  $5,760 
C)  $7,870 
D)  $10,240 
A)  $2,560 
B)  $5,760 
C)  $7,870 
D)  $10,240

Question 7

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 allows a producer to capture the entire consumer surplus that would have gone to consumers under perfect competitive pricing?
A) a, b, c, and d
B) a, b, and c only
C) a and b only
D) a and c only

Accepted Answer

The answer of Consider the following pricing strategies: a.perfect price...

Question 8

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

Accepted Answer

Successful price discrimination has thre

Question 9

In the real world,

Accepted Answer

A)  all sellers charge one price equal to the marginal cost of production. 
B)  profitable sellers will set one price based on the average elasticity of demand of buyers. 
C)  many firms charge different prices based on consumers' willingness to pay. 
D)  all sellers charge one price set by the government. 
A)  all sellers charge one price equal to the marginal cost of production. 
B)  profitable sellers will set one price based on the average elasticity of demand of buyers. 
C)  many firms charge different prices based on consumers' willingness to pay. 
D)  all sellers charge one price set by the government.

Question 10

Buying at a low price in one market and reselling at a higher price in another market will

Accepted Answer

A)  not generate any profit because of transportation costs. 
B)  not generate any profit because of transactions costs. 
C)  eventually eliminate all of the price differences. 
D)  eventually eliminate most, but not necessarily all, of the price differences. 
A)  not generate any profit because of transportation costs. 
B)  not generate any profit because of transactions costs. 
C)  eventually eliminate all of the price differences. 
D)  eventually eliminate most, but not necessarily all, of the price differences.

Question 11

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 customer and what is the total quantity sold?

Accepted Answer

A)  quantity sold to students=Qb; quantity sold to non-students=Qb; total sales=Qa 
B)  quantity sold to students=Qc; quantity sold to non-students=Qb; total sales=Qb+Qc 
C)  quantity sold to students=Qc; quantity sold to non-students=Qe; total sales=Qe+Qc 
D)  quantity sold to students=Qc; quantity sold to non-students=Qd; total sales=Qd+Qc 
A)  quantity sold to students=Qb; quantity sold to non-students=Qb; total sales=Qa 
B)  quantity sold to students=Qc; quantity sold to non-students=Qb; total sales=Qb+Qc 
C)  quantity sold to students=Qc; quantity sold to non-students=Qe; total sales=Qe+Qc 
D)  quantity sold to students=Qc; quantity sold to non-students=Qd; total sales=Qd+Qc

Question 12

Figure 16-4  
-Refer to Figure 16-4.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 13

Table 16-1
  
 Table 16-1 shows the price for the novel, Harry Potter and The Deathly Hallows at four online bookstores.
-Refer to Table 16-1.Which of the following can one conclude from the data above?

Accepted Answer

A)  The data provides clear evidence of price discrimination in online bookstore market. 
B)  Amazon.com is able to charge a lower price for the item because it is more cost efficient than the other three companies. 
C)  The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences. 
D)  BarnesandNoble.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business. 
A)  The data provides clear evidence of price discrimination in online bookstore market. 
B)  Amazon.com is able to charge a lower price for the item because it is more cost efficient than the other three companies. 
C)  The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences. 
D)  BarnesandNoble.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business.

Question 14

From an economic perspective,price discrimination is desirable because

Accepted Answer

A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms. 
A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 method gives the firm the highest profit?
A) optimal two-part tariff pricing
B) perfect price discrimination
C) single-price monopoly pricing
D) The profit is the same under optimal two-part tariff pricing and perfect price discrimination and the profit is higher than under single-price monopoly pricing.

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 18

Are sellers who practice arbitrage taking advantage of buyers?

Accepted Answer

No,because the seller cannot charge a bu

Question 19

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150,what is the firm's markup?

Accepted Answer

A)  75 percent 
B)  33.33 percent 
C)  25 percent 
D)  impossible to determine with the information given 
A)  75 percent 
B)  33.33 percent 
C)  25 percent 
D)  impossible to determine with the information given

Question 20

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.

Exam 16: Pricing Strategy

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

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

If a firm could practice perfect price discrimination,it would

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

In the real world,

Buying at a low price in one market and reselling at a higher price in another market will

Figure 16-4 -Refer to Figure 16-4.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?

Table 16-1 Table 16-1 shows the price for the novel, Harry Potter and The Deathly Hallows at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

From an economic perspective,price discrimination is desirable because

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.

Which of the following describes two-part tariff pricing?

Are sellers who practice arbitrage taking advantage of buyers?

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150,what is the firm's markup?

The law of one price holds exactly only if

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

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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