Exam 16: Pricing Strategy

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal,customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.

Suppose Dublin Electronics charges regular customers $90 for a Blu-ray player but allows senior citizens to purchase the same item for $75.Is this likely to be a successful price discriminating strategy?

"Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock.Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.Therefore,when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement; state whether it is true or false and explain your answer.

Which of the following will prevent firms from engaging in price discrimination?

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.

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 decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers?

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?

Which of the following products allows the seller to identify different groups of consumers (segment the market)at virtually no cost?

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

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.What prices are charged in the two markets?

An article on how prices in South Bend,Indiana rise during Notre Dame home football games noted: "For the Sept.16 game against the University of Michigan,the South Bend Marriott is charging $649 a night for a double room....The Marriott's regular weekend price is $149 a night." Source: Ilan Brat,"Notre Dame Football Introduces Its Fans To Inflationary Spiral," Wall Street Journal,September 7,2006,p.A1. Which of the following statements is true?

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 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?

A firm that engages in price discrimination must be able to identify the preferences of every customer it serves.

Successful price discrimination cannot take place if

Erin and Deidre,two residents in 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.Whose demand curve for air travel is likely to be more elastic?

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

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

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.

The following table contains the actual prices charged by four Websites for the PlayStation 3 game The Last of Us in October 2013. Explain whether the information in this table contradicts the law of one price.

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?