Question 1

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Accepted Answer

A)  the Clayton Act. 
B)  the Federal Trade Commission Act. 
C)  the Robinson-Patman Act. 
D)  the Sherman Act. 
A)  the Clayton Act. 
B)  the Federal Trade Commission Act. 
C)  the Robinson-Patman Act. 
D)  the Sherman Act.

Question 2

Because each customer pays according to her willingness to pay,a consumer maximizes her consumer surplus under first-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 3

When colleges use yield management techniques,they increase financial aid offers to students likely to be more price sensitive and they reduce financial aid offers to students likely to be less price sensitive.

Accepted Answer

A) True 
 B)False

Question 4

In a perfectly competitive market,in the long run,arbitrage profits will be bid away.

Accepted Answer

A) True 
 B)False

Question 5

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 per-unit price it should charge,if any?

Accepted Answer

A)  It should not charge a price per unit; just a flat fee to consume as much of the product as desired. 
B)  It should charge a range of prices from $40 to $12. 
C)  $12 
D)  $16 
A)  It should not charge a price per unit; just a flat fee to consume as much of the product as desired. 
B)  It should charge a range of prices from $40 to $12. 
C)  $12 
D)  $16

Question 6

Which of the following is not a way by which price discriminating firms can segment a market?

Accepted Answer

A)  on the basis of time of purchase, for example long-distance calling 
B)  by requiring an advance purchase, for example air tickets 
C)  on basis of the buyer's location, for example requiring out-of-state students to pay higher tuition 
D)  on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options 
A)  on the basis of time of purchase, for example long-distance calling 
B)  by requiring an advance purchase, for example air tickets 
C)  on basis of the buyer's location, for example requiring out-of-state students to pay higher tuition 
D)  on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

Question 7

Why is price discrimination legal but not discrimination based on race or gender?

Accepted Answer

A)  because price discrimination increases profits and therefore tax revenues for the government, but discrimination based on race or gender reduces tax revenues 
B)  because price discrimination reduces deadweight loss, but discrimination based on race or gender increases deadweight loss 
C)  because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D)  because price discrimination enables firms to increase output and employment, but race or gender based discrimination reduces employment 
A)  because price discrimination increases profits and therefore tax revenues for the government, but discrimination based on race or gender reduces tax revenues 
B)  because price discrimination reduces deadweight loss, but discrimination based on race or gender increases deadweight loss 
C)  because price discrimination involves charging people different prices based on their willingness to pay rather than on the basis of arbitrary characteristics 
D)  because price discrimination enables firms to increase output and employment, but race or gender based discrimination reduces employment

Question 8

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 value of the consumer surplus from this pricing strategy?

Accepted Answer

A)  $2,560 
B)  $5,760 
C)  $7,870 
D)  0 
A)  $2,560 
B)  $5,760 
C)  $7,870 
D)  0

Question 9

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 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 10

The following table contains the actual prices charged by four Web sites for a DVD of the movie Captain America: The First Avenger in November 2011.
   Explain whether the information in this table contradicts the law of one price.

Accepted Answer

Unless there are big differenc

Question 11

Some firms practice odd pricing because

Accepted Answer

A)  they believe that customers will buy a larger quantity with an odd price. 
B)  it is a way to price discriminate. 
C)  it is too difficult for sellers to reeducate buyers into accepting even prices. 
D)  it lowers transactions costs. 
A)  they believe that customers will buy a larger quantity with an odd price. 
B)  it is a way to price discriminate. 
C)  it is too difficult for sellers to reeducate buyers into accepting even prices. 
D)  it lowers transactions costs.

Question 12

Toot Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffins.By 4 pm,the remaining muffins are marked down to $0.60 each.Which of the following statements is true?

Accepted Answer

A)  Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm. 
B)  Toot Sweets is trying to prevent the opportunity to make arbitrage profit. 
C)  Toot Sweets is trying to minimize its loss. 
D)  Toot Sweets has underestimated the demand for its muffins. 
A)  Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm. 
B)  Toot Sweets is trying to prevent the opportunity to make arbitrage profit. 
C)  Toot Sweets is trying to minimize its loss. 
D)  Toot Sweets has underestimated the demand for its muffins.

Question 13

All of the following are disadvantages of cost-plus pricing except

Accepted Answer

A)  It ignores the price elasticity of demand: for example, it may be possible to increase profits by raising or lowering price. 
B)  If the industry comprises identical firms (with identical costs), markups could be consistent among firms leading to no one firm having a competitive edge in terms of price. 
C)  Allocating and apportioning business overheads to individual products could be somewhat arbitrary. 
D)  The business has less incentive to cut or control costs: if costs increase, then selling prices increase. Consequently, this might further erode a firm's competitiveness. 
A)  It ignores the price elasticity of demand: for example, it may be possible to increase profits by raising or lowering price. 
B)  If the industry comprises identical firms (with identical costs), markups could be consistent among firms leading to no one firm having a competitive edge in terms of price. 
C)  Allocating and apportioning business overheads to individual products could be somewhat arbitrary. 
D)  The business has less incentive to cut or control costs: if costs increase, then selling prices increase. Consequently, this might further erode a firm's competitiveness.

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.Which of the following statements is true?

Accepted Answer

A)  Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and Daphne. 
B)  Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss in economic surplus. 
C)  Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximized. 
D)  Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost. 
A)  Joss should charge each customer $600; that way he will earn his opportunity cost and it will be fair to both Iris and Daphne. 
B)  Joss should charge Iris $500 and Daphne no more than $700; that way he earns his opportunity cost and there is no loss in economic surplus. 
C)  Joss should charge Iris $500 and Daphne $800; that way economic surplus is maximized. 
D)  Joss should charge Iris $500 but charging Daphne $800 is unfair because it allows Joss to earn more than his opportunity cost.

Question 15

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 16

When colleges use yield management techniques,they

Accepted Answer

A)  rank students on the basis of academic merit and award higher financial aid offers to those at the top of the ranking. 
B)  increase financial aid offers to students whose demand for college education is likely to be more price elastic and reduce financial aid offers to students whose demand for college education is likely to be less price elastic. 
C)  rank students on the basis of academic merit and award higher financial aid offers to those at the bottom of the ranking. 
D)  increase financial aid offers to students whose demand for college education is likely to be more price inelastic and reduce financial aid offers to students whose demand for college education is likely to be less price inelastic. 
A)  rank students on the basis of academic merit and award higher financial aid offers to those at the top of the ranking. 
B)  increase financial aid offers to students whose demand for college education is likely to be more price elastic and reduce financial aid offers to students whose demand for college education is likely to be less price elastic. 
C)  rank students on the basis of academic merit and award higher financial aid offers to those at the bottom of the ranking. 
D)  increase financial aid offers to students whose demand for college education is likely to be more price inelastic and reduce financial aid offers to students whose demand for college education is likely to be less price inelastic.

Question 17

Assuming zero transaction cost,if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price,then the grocer's revenue minus costs is known as

Accepted Answer

A)  arbitrage profits. 
B)  transactions profits. 
C)  pure profits. 
D)  excess profits. 
A)  arbitrage profits. 
B)  transactions profits. 
C)  pure profits. 
D)  excess profits.

Question 18

Differentiating products to suit customers' tastes is a form of price discrimination.

Accepted Answer

A) True 
 B)False

Question 19

Until the early 1980s,The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides.This pricing strategy is an example of

Accepted Answer

A)  perfect price discrimination. 
B)  cost-plus pricing. 
C)  a two-part tariff. 
D)  monopoly pricing. 
A)  perfect price discrimination. 
B)  cost-plus pricing. 
C)  a two-part tariff. 
D)  monopoly pricing.

Question 20

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

Exam 16: Pricing Strategy

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Because each customer pays according to her willingness to pay,a consumer maximizes her consumer surplus under first-degree price discrimination.

When colleges use yield management techniques,they increase financial aid offers to students likely to be more price sensitive and they reduce financial aid offers to students likely to be less price sensitive.

In a perfectly competitive market,in the long run,arbitrage profits will be bid away.

Which of the following is not a way by which price discriminating firms can segment a market?

Why is price discrimination legal but not discrimination based on race or gender?

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 quantity it should produce?

The following table contains the actual prices charged by four Web sites for a DVD of the movie Captain America: The First Avenger in November 2011. Explain whether the information in this table contradicts the law of one price.

Some firms practice odd pricing because

Toot Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffins.By 4 pm,the remaining muffins are marked down to $0.60 each.Which of the following statements is true?

All of the following are disadvantages of cost-plus pricing except

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

When colleges use yield management techniques,they

Assuming zero transaction cost,if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price,then the grocer's revenue minus costs is known as

Differentiating products to suit customers' tastes is a form of price discrimination.

Until the early 1980s,The Walt Disney Company used a pricing strategy in which visitors to its theme parks paid a low admission fee and also paid for rides.This pricing strategy is an example of

Figure 16-1 -Refer to Figure 16-1.What is the consumer surplus received under 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

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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