Question 1

What three conditions must hold for a firm to successfully price discriminate?

Accepted Answer

The answer of What three conditions must hold for a...

Question 2

Under what circumstances will the law of one price hold, and when might it not hold?

Accepted Answer

The answer of Under what circumstances will the law of...

Question 3

When 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.

Question 4

Figure 16.1
 
-Refer to Figure 16.1.What is the price charged under perfect price discrimination?

Accepted Answer

A) P₃ 
B) P₄ 
C) a range of prices corresponding to the demand curve from P₃ and above 
D) a range of prices corresponding to the demand curve from P₄ and above

Question 5

Table 16.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity Demanded } \
\text { in Middle Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} & \begin{array}{c}
\text { Quantity Demanded in } \
\text { West Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} \
\hline 1 & \$ 8 & 1 & \$ 5.00 \
\hline 2 & 7 & 2 & 4.50 \
\hline 3 & 6 & 3 & 4.00 \
\hline 4 & 5 & 4 & 3.50 \
\hline 5 & 4 & 5 & 3.00 \
\hline
\end{array}$ 
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.What is the total revenue received from both markets combined?

Accepted Answer

A) $30 
B) $34 
C) $68 
D) $70

Question 6

Price discrimination

Accepted Answer

A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.

Question 7

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Accepted Answer

A) True 
 B)False

Question 8

For many products, such as fast foods, a variety of prices can be found, but sellers with higher prices can expect to sell their products because

Accepted Answer

A)  consumers are not sensitive to prices. 
B) arbitrage will quickly eliminate price differences. 
C) firms differentiate products in many ways, for example, higher priced fast food restaurants may offer better service. 
D) their demand is perfectly inelastic.

Question 9

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

Accepted Answer

The answer of Why is it necessary for a firm...

Question 10

Table 16.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity Demanded } \
\text { in Middle Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} & \begin{array}{c}
\text { Quantity Demanded in } \
\text { West Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} \
\hline 1 & \$ 8 & 1 & \$ 5.00 \
\hline 2 & 7 & 2 & 4.50 \
\hline 3 & 6 & 3 & 4.00 \
\hline 4 & 5 & 4 & 3.50 \
\hline 5 & 4 & 5 & 3.00 \
\hline
\end{array}$ 
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 Middle Fall and at what price?

Accepted Answer

A)  Q = 2 units; P = $7 
B)  Q = 3 units; P = $6 
C)  Q = 4 units; P = $5 
D) Q = 5 units; P = $4

Question 11

Table 16.2
 $\begin{array}{|c|c|c|c|}
\hline \begin{array}{c}
\text { Quantity Demanded } \
\text { in Middle Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} & \begin{array}{c}
\text { Quantity Demanded in } \
\text { West Fall } \
\text { (tubes per week) }
\end{array} & \begin{array}{c}
\text { Price per } \
\text { Tube }
\end{array} \
\hline 1 & \$ 8 & 1 & \$ 5.00 \
\hline 2 & 7 & 2 & 4.50 \
\hline 3 & 6 & 3 & 4.00 \
\hline 4 & 5 & 4 & 3.50 \
\hline 5 & 4 & 5 & 3.00 \
\hline
\end{array}$ 
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

Question 12

Most supermarkets charge the same price for the majority of goods sold.This suggest that

Accepted Answer

A) the government regulates prices of most products sold in supermarkets. 
B) supermarkets have colluded to fix prices on most of the goods sold. 
C) mark-ups reflect the degree of competition in the supermarket industry. 
D) the large supermarket chains are price leaders and smaller grocers take these prices as given.

Question 13

Which of the following is a reason why airline yield management is an effective method to increase revenue?

Accepted Answer

A) because airlines have invested heavily in developing computer models that identify optimal pricing strategies in the various market segments 
B) because airlines have successfully induced customers to reveal their resources and preferences by offering them different versions of the product such as business class and coach plane tickets 
C) because a ticket is a contract to transport a specific person, and is not transferable 
D) because airlines have a monopoly in long-distance carriage

Question 14

Which of the following is not a way by which price discriminating firms can segment a market?

Accepted Answer

A) on the basis of time of purchase, for example matinee theatre tickets 
B) by requiring an advance purchase, for example air travel tickets 
C) on basis of the buyer's location, for example requiring international students to pay higher tuition 
D) on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

Question 15

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

Accepted Answer

A) movie theaters 
B) commercial airlines 
C) cell phone companies 
D) the largest wheat farmer in Saskatchewan

Question 16

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Accepted Answer

A) $40. 
B) $50. 
C) $52. 
D) $65.

Question 17

With perfect price discrimination there is

Accepted Answer

A) no deadweight loss. 
B) no producer surplus. 
C) one single price. 
D) an increase in consumer surplus.

Question 18

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 method gives the firm the highest profit?

Accepted Answer

A) optimal two-part tariff pricing 
B) perfect price discrimination 
C) single-price monopoly pricing 
D) The profit is the same under optimal two-part tariff pricing and perfect price discrimination and the profit is higher than under single-price monopoly pricing.

Question 19

Booking a flight at the last minute is often much more expensive than booking months in advance.Why is this the case?

Accepted Answer

A) Airlines hope to discourage customers from flying last minute to keep their labour costs down. 
B) The cost of adding a passenger at the last minute is significantly highly than adding one to a flight months ahead of time. 
C) People wanting to book flights at the last minute generally have few alternatives and are therefore willing to pay a lot more than those booking months ahead. 
D) Increasingly, business travel is being replaced with tele-presence (Skye, Facetime, etc.), thereby reducing demand for business travel. To make up for this fall in demand, airlines charge higher rates.

Question 20

Figure 16.4
 
-Refer to Figure 16.4.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 quantity it should produce?

Accepted Answer

A) 240 units 
B) 320 units 
C) 480 units 
D) 560 units

Exam 16: Pricing Strategy