Question 1

Which of the following is necessary in order for a firm to successfully practice price discrimination?

Accepted Answer

A)  The firm must practice product differentiation. 
B)  The demand for the firm's product is inelastic. 
C)  The firm must be able to segment the market for the product. 
D)  The firm's transactions costs must be zero. 
A)  The firm must practice product differentiation. 
B)  The demand for the firm's product is inelastic. 
C)  The firm must be able to segment the market for the product. 
D)  The firm's transactions costs must be zero.

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

The term "early adopters" refers to

Accepted Answer

A)  firms that are the first to implement a new technology that is used to produce new goods or services. 
B)  book clubs that are first to recommend best-selling books to their members. 
C)  consumers who respond quickly to fads, seasonal changes, etc. 
D)  consumers who are willing to pay high prices to be among the first to own new products. 
A)  firms that are the first to implement a new technology that is used to produce new goods or services. 
B)  book clubs that are first to recommend best-selling books to their members. 
C)  consumers who respond quickly to fads, seasonal changes, etc. 
D)  consumers who are willing to pay high prices to be among the first to own new products.

Question 4

Movie theaters often charge different people different prices for admission.Why don't theaters charge different prices for popcorn and other food items?

Accepted Answer

A)  Although the elasticity of demand for admission differs among customers, most people have the same the elasticity of demand for food items. 
B)  Concession stand personnel are too busy to ensure that different people pay different prices for food items. 
C)  Once people are in the theater, concession stands have monopoly power and can charge everyone the same high prices for food. 
D)  It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand. 
A)  Although the elasticity of demand for admission differs among customers, most people have the same the elasticity of demand for food items. 
B)  Concession stand personnel are too busy to ensure that different people pay different prices for food items. 
C)  Once people are in the theater, concession stands have monopoly power and can charge everyone the same high prices for food. 
D)  It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand.

Question 5

With a monopolist engages in perfect price discrimination,the quantity produced and sold

Accepted Answer

A)  is lower than the quantity produced and sold if it adopted a single price. 
B)  is larger than the quantity produced and sold if it adopted a single price. 
C)  is the same level as that produced and sold if it adopted a single price. 
D)  could be lower, higher or the same as that produced and sold if it adopted a single price. 
A)  is lower than the quantity produced and sold if it adopted a single price. 
B)  is larger than the quantity produced and sold if it adopted a single price. 
C)  is the same level as that produced and sold if it adopted a single price. 
D)  could be lower, higher or the same as that produced and sold if it adopted a single price.

Question 6

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.If Julie charges $10 per hour,how many hours of pet sitting services will be purchased and by whom?

Accepted Answer

A)  2 hours (1 hour by Cara and 1 hour by Dawn) 
B)  1 hour by Cara only 
C)  1 hour by Dawn only 
D)  3 hours (1 hour each by Arun, Bernice and Cara) 
A)  2 hours (1 hour by Cara and 1 hour by Dawn) 
B)  1 hour by Cara only 
C)  1 hour by Dawn only 
D)  3 hours (1 hour each by Arun, Bernice and Cara)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

Arbitrage

Accepted Answer

A)  is the act of buying an item at a low price and reselling the item at a higher price. 
B)  is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. 
C)  is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price. 
D)  is any act of buying and selling that results in the seller earning an above normal profit. 
A)  is the act of buying an item at a low price and reselling the item at a higher price. 
B)  is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. 
C)  is the act of buying an item at a low price, bundling it with another and selling the new package at a much higher price. 
D)  is any act of buying and selling that results in the seller earning an above normal profit.

Question 11

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 12

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.If Sensei acts as a monopolist and charges the profit-maximizing price,what is his producer surplus?

Accepted Answer

A)  the area B + D + G 
B)  the area A + B + C + D + H + G 
C)  the area C + D + H + G 
D)  the area A + C + H 
A)  the area B + D + G 
B)  the area A + B + C + D + H + G 
C)  the area C + D + H + G 
D)  the area A + C + H

Question 13

Assume that a monopolist practices perfect price discrimination.The firm's marginal revenue curve will

Accepted Answer

A)  be perfectly elastic. 
B)  be equal to its demand curve. 
C)  will be perfectly inelastic. 
D)  will lie below its demand curve. 
A)  be perfectly elastic. 
B)  be equal to its demand curve. 
C)  will be perfectly inelastic. 
D)  will lie below its demand curve.

Question 14

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 15

Table 16-1
   Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown 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 and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two 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)  Walmart.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 and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two 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)  Walmart.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business.

Question 16

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

Question 17

Entrepreneurs who earn arbitrage profit are able to do so by extracting the total consumer surplus from buyers.

Accepted Answer

A) True 
 B)False

Question 18

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Arnold Marion,a first-year economics student at Fazer College,was given an assignment to find an example of price discrimination and present it to his class.When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week.We paid $25 each for our seats in left field.My aunt and uncle paid $50 each for their tickets; they sat five rows behind the first base dugout.This is an example of price discrimination since we paid different prices for the same product,and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?

Accepted Answer

A)  He would agree with Arnold that he had found an example of price discrimination, but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B)  He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C)  He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D)  He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets. 
A)  He would agree with Arnold that he had found an example of price discrimination, but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid. 
B)  He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products. 
C)  He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle. 
D)  He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets.

Which of the following is necessary in order for a firm to successfully practice price discrimination?

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?

The term "early adopters" refers to

Movie theaters often charge different people different prices for admission.Why don't theaters charge different prices for popcorn and other food items?

With a monopolist engages in perfect price discrimination,the quantity produced and sold

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

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?

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

Arbitrage

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

Assume that a monopolist practices perfect price discrimination.The firm's marginal revenue curve will

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

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

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.

Entrepreneurs who earn arbitrage profit are able to do so by extracting the total consumer surplus from buyers.

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Which of the following describes two-part tariff pricing?

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

Which of the following is necessary in order for a firm to successfully practice price discrimination?

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?

The term "early adopters" refers to

Movie theaters often charge different people different prices for admission.Why don't theaters charge different prices for popcorn and other food items?

With a monopolist engages in perfect price discrimination,the quantity produced and sold

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

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?

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

Arbitrage

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

Assume that a monopolist practices perfect price discrimination.The firm's marginal revenue curve will

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

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?

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.

Entrepreneurs who earn arbitrage profit are able to do so by extracting the total consumer surplus from buyers.

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Which of the following describes two-part tariff pricing?

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