Question 1

Which of the following does not arise from price discrimination?

Accepted Answer

A)  an increase in producer surplus 
B)  an increase in consumer surplus 
C)  an increase in quantity sold 
D)  an increase in profits 
A)  an increase in producer surplus 
B)  an increase in consumer surplus 
C)  an increase in quantity sold 
D)  an increase in profits

Question 2

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.With a two-part pricing scheme - a monopoly price for classes and a one-time membership fee - what is the amount of producer surplus Sensei will earn?

Accepted Answer

A)  an amount equal to the area A + B + C + D 
B)  an amount equal to the area E + F 
C)  an amount equal to the area A + C + H 
D)  an amount equal to the area A + B + C + D + H + G 
A)  an amount equal to the area A + B + C + D 
B)  an amount equal to the area E + F 
C)  an amount equal to the area A + C + H 
D)  an amount equal to the area A + B + C + D + H + G

Question 3

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.With this pricing scheme - a competitive price for the classes and a one-time membership fee - what amount of producer surplus will Sensei earn?

Accepted Answer

A)  the area A + B + C + D + E. 
B)  the area E + F. 
C)  the area H + G + F. 
D)  the area A + B + C + D + E + F + G + H 
A)  the area A + B + C + D + E. 
B)  the area E + F. 
C)  the area H + G + F. 
D)  the area A + B + C + D + E + F + G + H

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?

Accepted Answer

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 
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

Question 5

Figure 16-5  
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?

Accepted Answer

A)  320 units 
B)  480 units 
C)  560 units 
D)  640 units 
A)  320 units 
B)  480 units 
C)  560 units 
D)  640 units

Question 6

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

Accepted Answer

A) True 
 B)False

Question 7

Article Summary
Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription, and how using this method of first-degree price discrimination would generate higher profits. Shiller explains that the more information a company has about its customers, the better it is at being able to set prices to increase profits. As he stated in his paper, "Using all variables to tailor prices, one can yield variable proﬁts 1.39 percent higher than variable proﬁts obtained using non-tailored 2nd degree price-discrimination. Using demographics alone to tailor prices raises proﬁts by much less, yielding variable proﬁts only 0.14% higher than variable proﬁts attainable under 2nd degree [price discrimination]."
Source: Brian Fung, "How Netflix could use Big Data to make twice as much money off you," Washington Post, September 4, 2013.
-Refer to the Article Summary.The pricing method described in the article is referred to as first-degree price discrimination.First-degree price discrimination is also known as

Accepted Answer

A)  arbitrage. 
B)  perfect price discrimination. 
C)  odd pricing. 
D)  two-part tariff pricing. 
A)  arbitrage. 
B)  perfect price discrimination. 
C)  odd pricing. 
D)  two-part tariff pricing.

Question 8

Online companies gather personal information about the customers who shop on their Websites and some of those companies will use the data to estimate price elasticities of the customers.Doing this is a way that these companies might be able to charge a higher price for a product to those customers who have a ________ price elasticity of demand.

Accepted Answer

A)  high 
B)  low 
C)  negative 
D)  unitary 
A)  high 
B)  low 
C)  negative 
D)  unitary

Question 9

When firms price their products by adding a percentage markup to their average costs of production,this is called

Accepted Answer

A)  average cost pricing. 
B)  rounding up. 
C)  break-even pricing. 
D)  cost-plus pricing. 
A)  average cost pricing. 
B)  rounding up. 
C)  break-even pricing. 
D)  cost-plus pricing.

Question 10

If demand is taken into account,firms that use cost-plus pricing can adjust price by

Accepted Answer

A)  letting sales fall, but hold the markup constant if demand falls. 
B)  lowering markups on price-elastic goods and raising markups on price-inelastic goods. 
C)  raising markups on price-elastic goods and lowering markups on price-inelastic goods. 
D)  letting sales rise, but hold the markup constant if demand rises. 
A)  letting sales fall, but hold the markup constant if demand falls. 
B)  lowering markups on price-elastic goods and raising markups on price-inelastic goods. 
C)  raising markups on price-elastic goods and lowering markups on price-inelastic goods. 
D)  letting sales rise, but hold the markup constant if demand rises.

Question 11

Lou buys an Iron Man 2 poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

Accepted Answer

A)  Lou has earned some arbitrage profits, assuming that transaction costs are negligible. 
B)  The transaction has made Evan worse off because he undersold the poster. 
C)  Lou has probably incurred some costs in connection with this sale. 
D)  It is possible that Evan has earned some producer surplus from this transaction. 
A)  Lou has earned some arbitrage profits, assuming that transaction costs are negligible. 
B)  The transaction has made Evan worse off because he undersold the poster. 
C)  Lou has probably incurred some costs in connection with this sale. 
D)  It is possible that Evan has earned some producer surplus from this transaction.

Question 12

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Accepted Answer

Perfect price discrimination,also known

Question 13

Which of the following is a reason why a firm would not engage in price discrimination?

Accepted Answer

A)  Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination. 
B)  Some firms are not able to segment the market for the products they sell. 
C)  Some firms do not want to violate the law of one price. 
D)  The transactions costs associated with selling the product exceed the price of the product. 
A)  Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination. 
B)  Some firms are not able to segment the market for the products they sell. 
C)  Some firms do not want to violate the law of one price. 
D)  The transactions costs associated with selling the product exceed the price of the product.

Question 14

Article Summary
Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription, and how using this method of first-degree price discrimination would generate higher profits. Shiller explains that the more information a company has about its customers, the better it is at being able to set prices to increase profits. As he stated in his paper, "Using all variables to tailor prices, one can yield variable proﬁts 1.39 percent higher than variable proﬁts obtained using non-tailored 2nd degree price-discrimination. Using demographics alone to tailor prices raises proﬁts by much less, yielding variable proﬁts only 0.14% higher than variable proﬁts attainable under 2nd degree [price discrimination]."
Source: Brian Fung, "How Netflix could use Big Data to make twice as much money off you," Washington Post, September 4, 2013.
-Refer to the Article Summary.If Netflix chose to use Shiller's pricing method

Accepted Answer

A)  consumer surplus would be zero. 
B)  producer surplus would be zero. 
C)  deadweight loss would be maximized. 
D)  consumer surplus, producer surplus, and deadweight loss would all be equal. 
A)  consumer surplus would be zero. 
B)  producer surplus would be zero. 
C)  deadweight loss would be maximized. 
D)  consumer surplus, producer surplus, and deadweight loss would all be equal.

Question 15

A firm using a two-part tariff can produce the economically efficient outcome by

Accepted Answer

A)  making the fixed-fee portion of the price as low as possible. 
B)  setting the per-unit portion of the price equal to the marginal cost of production. 
C)  setting the per-unit portion of the price equal to the average cost of production. 
D)  setting the fixed-fee portion of the price at some proportion to the fixed cost of production. 
A)  making the fixed-fee portion of the price as low as possible. 
B)  setting the per-unit portion of the price equal to the marginal cost of production. 
C)  setting the per-unit portion of the price equal to the average cost of production. 
D)  setting the fixed-fee portion of the price at some proportion to the fixed cost of production.

Question 16

Which of the following is not an example of price discrimination?

Accepted Answer

A)  Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B)  Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C)  Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D)  Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities. 
A)  Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B)  Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C)  Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D)  Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.

Question 17

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.If the price is $800 per copy

Accepted Answer

A)  both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B)  only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C)  only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D)  neither Iris nor Daphne will commission the work. 
A)  both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B)  only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C)  only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D)  neither Iris nor Daphne will commission the work.

Question 18

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Accepted Answer

We should not expect a publishing compan

Question 19

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

Accepted Answer

A)  15 percent 
B)  20 percent 
C)  25 percent 
D)  40 percent 
A)  15 percent 
B)  20 percent 
C)  25 percent 
D)  40 percent

Question 20

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.This is an example of

Accepted Answer

A)  arbitrage. 
B)  two-part tariff pricing. 
C)  price discrimination. 
D)  odd pricing. 
A)  arbitrage. 
B)  two-part tariff pricing. 
C)  price discrimination. 
D)  odd pricing.

Which of the following does not arise from price discrimination?

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?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

When firms price their products by adding a percentage markup to their average costs of production,this is called

If demand is taken into account,firms that use cost-plus pricing can adjust price by

Lou buys an Iron Man 2 poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Which of the following is a reason why a firm would not engage in price discrimination?

A firm using a two-part tariff can produce the economically efficient outcome by

Which of the following is not an example of price discrimination?

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

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.This is an example of

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

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Exam 16: Pricing Strategy

Which of the following does not arise from price discrimination?

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?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

When firms price their products by adding a percentage markup to their average costs of production,this is called

If demand is taken into account,firms that use cost-plus pricing can adjust price by

Lou buys an Iron Man 2 poster from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?

What is perfect price discrimination and why do economists believe that no firm is able to practice perfect price discrimination?

Which of the following is a reason why a firm would not engage in price discrimination?

A firm using a two-part tariff can produce the economically efficient outcome by

Which of the following is not an example of price discrimination?

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

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.This is an example of

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