Question 1

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 2

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 $7.What is the value of the consumer surplus enjoyed by her customers?

Accepted Answer

A)  $39 
B)  $28 
C)  $11 
D)  $0 
A)  $39 
B)  $28 
C)  $11 
D)  $0

Question 3

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.Suppose Plato Playhouse price discriminates.Which of the following statements is true?

Accepted Answer

A)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency. 
B)  By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity. 
D)  Plato Playhouse will earn higher profits if it charges a single price - an average of the two prices - instead of charging two different prices to the two different groups of customers. 
A)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby increasing economic efficiency. 
B)  By charging two different prices, the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C)  By charging two different prices, the theatre company has redistributed some profits from those who can pay higher prices to those who cannot, thereby improving equity. 
D)  Plato Playhouse will earn higher profits if it charges a single price - an average of the two prices - instead of charging two different prices to the two different groups of customers.

Question 4

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 5

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 $7.How many hours will be purchased and what is her total revenue?

Accepted Answer

A)  5 hours; total revenue = $35 
B)  4 hours; total revenue = $28 
C)  3 hours; total revenue = $21 
D)  2 hours; total revenue = $14 
A)  5 hours; total revenue = $35 
B)  4 hours; total revenue = $28 
C)  3 hours; total revenue = $21 
D)  2 hours; total revenue = $14

Question 6

Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

Accepted Answer

A)  The transaction has made Lou better off and Kyle worse off. 
B)  The transaction is economically inefficient. 
C)  The transaction has made Lou and Kyle better off. 
D)  It is not possible for Kyle to enjoy any consumer surplus from this transaction. 
A)  The transaction has made Lou better off and Kyle worse off. 
B)  The transaction is economically inefficient. 
C)  The transaction has made Lou and Kyle better off. 
D)  It is not possible for Kyle to enjoy any consumer surplus from this transaction.

Question 7

With an optimal two-part tariff

Accepted Answer

A)  consumer surplus equals producer surplus. 
B)  all consumer surplus is transformed into profit. 
C)  consumers maximize consumer surplus. 
D)  the firm earns zero profit. 
A)  consumer surplus equals producer surplus. 
B)  all consumer surplus is transformed into profit. 
C)  consumers maximize consumer surplus. 
D)  the firm earns zero profit.

Question 8

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website and in retail stores.Apple charges lower prices to college students and faculty members because

Accepted Answer

A)  college students and faculty members have a more elastic demand for computers than the general public. 
B)  Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C)  college students and faculty members have a more inelastic demand for computers than the general public. 
D)  college students and faculty members typically buy more supplies from Apple (print cartridges, paper, etc.,) than the general public. 
A)  college students and faculty members have a more elastic demand for computers than the general public. 
B)  Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members. 
C)  college students and faculty members have a more inelastic demand for computers than the general public. 
D)  college students and faculty members typically buy more supplies from Apple (print cartridges, paper, etc.,) than the general public.

Question 9

The price of admission to Walt Disney World

Accepted Answer

A)  can vary by your age and address. 
B)  is the same for everyone. 
C)  is kept low to attract customers, but Disney earns most of its profits by selling tickets to rides and attractions inside the park. 
D)  is kept low to attract customers, but prices of rides and attractions inside the park vary by your age, address and other factors. 
A)  can vary by your age and address. 
B)  is the same for everyone. 
C)  is kept low to attract customers, but Disney earns most of its profits by selling tickets to rides and attractions inside the park. 
D)  is kept low to attract customers, but prices of rides and attractions inside the park vary by your age, address and other factors.

Question 10

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

Accepted Answer

A)  price discovery. 
B)  empirical research. 
C)  yield management. 
D)  econometrics. 
A)  price discovery. 
B)  empirical research. 
C)  yield management. 
D)  econometrics.

Question 11

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 Julie's total revenue and how many hours of service will be purchased?

Accepted Answer

A)  4 hours and her total revenue = $39 
B)  4 hours and her total revenue = $28 
C)  1 hour and her total revenue = $7 
D)  5 hours and her total revenue = $35 
A)  4 hours and her total revenue = $39 
B)  4 hours and her total revenue = $28 
C)  1 hour and her total revenue = $7 
D)  5 hours and her total revenue = $35

Question 12

Which of the following is a necessary condition for successful price discrimination?

Accepted Answer

A)  The seller must possess market power. 
B)  The buyer must possess market power. 
C)  Transaction costs must be zero. 
D)  Buyers must have identical inelastic demands. 
A)  The seller must possess market power. 
B)  The buyer must possess market power. 
C)  Transaction costs must be zero. 
D)  Buyers must have identical inelastic demands.

Question 13

The Bay Area subway system,BART,offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Accepted Answer

A)  more income elastic 
B)  less income elastic 
C)  more price elastic 
D)  less price elastic 
A)  more income elastic 
B)  less income elastic 
C)  more price elastic 
D)  less price elastic

Question 14

Many firms use odd pricing - charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?

Accepted Answer

A)  The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense. 
B)  Although the results were not conclusive, there is some evidence that odd pricing makes economic sense. 
C)  The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive. 
D)  The survey results were inconclusive because most consumers gave unreliable responses to the survey questions. 
A)  The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense. 
B)  Although the results were not conclusive, there is some evidence that odd pricing makes economic sense. 
C)  The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive. 
D)  The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

Question 15

Clarissa Kessler operates a store that sells recorded music.Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost.Is this evidence of illegal price discrimination on the part of the discount store chain?

Accepted Answer

A)  Yes, it is clearly a violation of the Robinson-Patman Act. 
B)  No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa. 
C)  Yes, the discount store chain is engaging in predatory pricing. 
D)  No, even if the price discrimination is based on differences in cost, the law states that it is not illegal. 
A)  Yes, it is clearly a violation of the Robinson-Patman Act. 
B)  No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa. 
C)  Yes, the discount store chain is engaging in predatory pricing. 
D)  No, even if the price discrimination is based on differences in cost, the law states that it is not illegal.

Question 16

One reason why airlines charge business travelers and leisure travelers different prices is

Accepted Answer

A)  business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their tickets at the last minute. 
B)  business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they have a more inelastic demand for airline tickets than business travelers. 
C)  business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D)  business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure travelers. 
A)  business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their tickets at the last minute. 
B)  business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they have a more inelastic demand for airline tickets than business travelers. 
C)  business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D)  business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure travelers.

Question 17

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.Suppose Plato Playhouse charges a single price of Pd for each performance.Which of the following statements is true?

Accepted Answer

A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets. 
A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets.

Question 18

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 profit earned under this pricing scheme?

Accepted Answer

A)  $5,760 
B)  $6,400 
C)  $7,680 
D)  $7,870 
A)  $5,760 
B)  $6,400 
C)  $7,680 
D)  $7,870

Question 19

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Accepted Answer

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

Question 20

Table 16-2
   Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube.
-Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

Accepted Answer

A)  Q = 2 units; P = $4.50 
B)  Q = 3 units; P = $4 
C)  Q = 4 units; P = $3.50 
D)  Q = 5 units; P = $3 
A)  Q = 2 units; P = $4.50 
B)  Q = 3 units; P = $4 
C)  Q = 4 units; P = $3.50 
D)  Q = 5 units; P = $3

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

Some firms practice odd pricing because

Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

With an optimal two-part tariff

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website and in retail stores.Apple charges lower prices to college students and faculty members because

The price of admission to Walt Disney World

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

Which of the following is a necessary condition for successful price discrimination?

The Bay Area subway system,BART,offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

One reason why airlines charge business travelers and leisure travelers different prices is

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 profit earned under this pricing scheme?

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

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

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

Some firms practice odd pricing because

Lou buys an Iron Man 2 poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

With an optimal two-part tariff

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website and in retail stores.Apple charges lower prices to college students and faculty members because

The price of admission to Walt Disney World

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

Which of the following is a necessary condition for successful price discrimination?

The Bay Area subway system,BART,offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

One reason why airlines charge business travelers and leisure travelers different prices is

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 profit earned under this pricing scheme?

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2.How many tubes of toothpaste will Neem sell in West Fall and at what price?

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