Question 1

Refer to the figure below.During low-peak times,what price-quantity combination should the firm charge to maximize profit?

Accepted Answer

A)  P1 and Q1 
B)  P3 and Q1 
C)  P1 and Q2 
D)  P2 and Q1

Question 2

If the profit-maximizing markup factor in a six-firm Cournot oligopoly is 3,what is the corresponding market elasticity of demand?

Accepted Answer

A)  −0.25 
B)  −1.25 
C)  0.08 
D)  None of the answers are correct.

Question 3

Which group of policies aims at discouraging rivals from starting a price war?

Accepted Answer

A)  Price matching and randomized pricing 
B)  Price matching, brand loyalty, and commodity bundling 
C)  Randomized pricing, price discrimination, and cross-subsidization 
D)  Peak-peak pricing, two-part pricing, and price matching

Question 4

A monopoly produces widgets at a marginal cost of $20 per unit and zero fixed costs.It faces an inverse demand function given by P = 100 − 4Q.What are the profits of the monopoly in equilibrium?

Accepted Answer

A)  $800 
B)  $600 
C)  $400 
D)  $200

Question 5

The average consumer at a firm with market power has an inverse demand function of P = 10 − Q.The firm's cost function is C = 2Q.If the firm engages in two-part pricing,what is the optimal price to charge a consumer for each unit purchased?

Accepted Answer

A)  $0 
B)  $1 
C)  $4 
D)  None of the answers are correct.

Question 6

Which group of policies aims at extracting all consumer surplus?

Accepted Answer

A)  Price discrimination and peak load pricing. 
B)  Cross-subsidization and brand loyalty. 
C)  Price matching and randomized pricing. 
D)  Two-part pricing and commodity bundling.

Question 7

A monopolist claims his profit-maximizing markup factor is 10.What is the price elasticity of demand for the firm's product?

Accepted Answer

A)  −1.5 
B)  −2.0 
C)  −2.5 
D)  None of the answers are correct.

Question 8

An auto dealer in Chicago recently told his mother that he makes no money on the sales of his cars but the markup on accessories is 200 percent.Can this possibly be a profit-maximizing strategy?

Accepted Answer

The answer of An auto dealer in Chicago recently told...

Question 9

Suppose P = 20 − 2Q is the market demand function for a local monopoly.The marginal cost is 2Q.The local monopoly tries to maximize its profits by equating MC = MR and charging a uniform price.What will be the equilibrium price and output?

Accepted Answer

A)  $6.33, 3.33 units 
B)  $6.33, 5 units 
C)  $13.33, 3.33 units 
D)  $10, 5 units

Question 10

The average consumer at a firm with market power has an inverse demand function of P = 10 − Q.The firm's cost function is C = 2Q.If the firm engages in optimal two-part pricing,it will earn profits of:

Accepted Answer

A)  $2. 
B)  $32. 
C)  $64. 
D)  None of the answers are correct.

Question 11

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs.It faces an inverse demand function given by P = 50 − Q.Which of the following is the marginal revenue function for the firm?

Accepted Answer

A)  MR = 60 − 2Q 
B)  MR = 50 − Q 
C)  MR = 100 − Q 
D)  MR = 50 − 2Q

Question 12

You are the CEO of Comchip,a monopoly that sells specialized computers.Each of the firm's computers contains a unique chip that is produced at Comchip's West Coast plant at a cost of C_w(Q_c)= Q_c².Once produced,the chips are shipped exclusively to the firm's East Coast plant.There,the computers are assembled,boxed,and shipped to the market at a cost of C_e(Q)= 200Q.An economic consultant recently estimated the demand for Comchip's computers and found it to be P = 5,000 - Q.Determine Comchip's optimal output and price for computers,and explain how it can induce plant managers to produce the required number of chips and computers.

Accepted Answer

The answer of You are the CEO of Comchip,a monopoly...

Question 13

If a product is perceived by consumers as homogeneous,which of the following strategies will work to induce brand loyalty?

Accepted Answer

A)  Intensive advertising campaign 
B)  Price wars with competitors 
C)  Frequent buyer rebate programs 
D)  None of the answers are correct.

Question 14

A monopolist is profit maximizing where the elasticity of demand is -2 and price is $4.What is the monopolist's marginal cost?

Accepted Answer

The answer of A monopolist is profit maximizing where the...

Question 15

Which of the following statements is true?

Accepted Answer

A)  The more elastic the demand, the higher the profit-maximizing markup. 
B)  The more elastic the demand, the lower the profit-maximizing markup. 
C)  The higher the marginal cost, the lower the profit-maximizing price. 
D)  The higher the average cost, the lower the profit-maximizing price.

Question 16

A local video store estimates its average customer's demand per year is Q = 20 − 4P,and it knows the marginal cost of each rental is $1.00.How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal two-part pricing strategy?

Accepted Answer

A)  $20 
B)  $32 
C)  $40 
D)  $64

Question 17

Consider a Cournot oligopoly consisting of five identical firms producing good X.If the firms produce good X at a marginal cost of $7 per unit and the market elasticity of demand is −3,determine the profit-maximizing price.

Accepted Answer

A)  $7.50 per unit 
B)  $5.25 per unit 
C)  $7 per unit 
D)  $4.20 per unit

Question 18

You are the manager of a gas station in a small town,and your goal is to maximize profits.Based on your experience,the elasticity of demand of Texans for a car wash is -2,while that of non-Texans is -1.5.Your marginal cost is $6.
a.Are the conditions necessary for price discrimination to be an effective means of enhancing profits being met?
 
b.What is the profit-maximizing price to charge a Texan for a car wash?
c.What is the profit-maximizing price to charge a Californian for a car wash?

Accepted Answer

The answer of You are the manager of a gas...

Question 19

Suppose a manager is interested in implementing third-degree price discrimination.The manager knows that the price elasticity of demand for Group 1 is −2 and the price elasticity of demand for Group 2 is −1.2.Based on this information alone we can conclude that the price charged to Group 2 will be:

Accepted Answer

A)  the same as the price charged to Group 1. 
B)  lower than the price charged to Group 1. 
C)  higher than the price charged to Group 1. 
D)  There is insufficient information to determine whether Group 2 will have a higher, lower, or the same price as Group 1.

Question 20

Suppose you are the marketing manager for Fruit of the Loom.An individual's inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 − 3Q (in cents).If the cost to Fruit of the Loom to produce an item of women's underwear is C(Q)= 1 + 4Q (in cents),compute the profit Fruit of the Loom will earn by charging the optimal block price.

Accepted Answer

A)  $0.74 
B)  $1.37 
C)  $108.50 
D)  $136.50

Exam 11: Pricing Strategies for Firms With Market Power