Question 1

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. If Sensei acts as a monopolist and charges the profit-maximizing price, what is the consumer surplus received by his customers?

Accepted Answer

A)  the area A + B + C + D 
B)  the area A + B + C + D + E 
C)  the area A + B 
D)  the area A + C + H

Question 2

Many people sell goods through eBay at prices that are higher than the prices they paid for these goods. Economists consider these transactions as

Accepted Answer

A)  examples of zero sum games, since the value of the goods sold is exactly equal to the prices paid for them. 
B)  unproductive since the goods sold have been produced in the past. 
C)  examples of exploitation of buyers of the goods by the sellers. 
D)  examples of arbitrage.

Question 3

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 4

Dell Computers allows potential consumers to customize personal computers to their desires. Dell's strategy is successful because offering bundles that more exactly meets a consumer's preference allows Dell to extract more consumer surplus.

Accepted Answer

A) True 
 B)False

Question 5

Consumers who will pay high prices to be among the first to own certain new products are called

Accepted Answer

A)  savvy consumers. 
B)  naive consumers. 
C)  gullible. 
D)  early adopters.

Question 6

The law of one price

Accepted Answer

A)  states that consumers can only buy one good or service at a time. 
B)  is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time. 
C)  states that consumers will pay any price for a product that has a perfectly inelastic demand curve. 
D)  states that identical products should sell for the same price everywhere.

Question 7

Which of the following pricing strategies allows a firm to earn economic profit?

Accepted Answer

A)  price discrimination 
B)  charging a price equal to marginal cost 
C)  charging a price equal to the average total cost of production 
D)  charging a price equal to the average variable cost of production

Question 8

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Early adopters are consumers who will pay a high price to be among the first to own new products.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

The answer of What is perfect price discrimination and why...

Question 12

If a firm could practice perfect price discrimination, it would

Accepted Answer

A)  allow resale of its product. 
B)  charge every buyer a different price. 
C)  charge a price based on the quantity of a product bought. 
D)  use odd pricing.

Question 13

Colleges offer merit awards to students who ordinarily would not qualify for financial help. Some have criticized this on grounds that merit awards disproportionately benefit students from wealthier communities with better school systems, siphoning resources away from lower-income students with greater financial need. A college's decision to grant merit awards is motivated by economic efficiency.

Accepted Answer

A) True 
 B)False

Question 14

If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would consider this an example of

Accepted Answer

A)  price gouging. 
B)  rational ignorance. 
C)  arbitrage. 
D)  price discrimination.

Question 15

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers. From this we can conclude that

Accepted Answer

A)  Apple will charge college students and faculty members higher prices than it charges the general public. 
B)  Apple will charge college students and faculty members lower prices than it charges the general public. 
C)  the general public will earn arbitrage profits by buying iMac desktop computers from Apple and reselling them to college students and faculty members. 
D)  Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.

Question 16

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage. Which of the following statements is true?

Accepted Answer

A)  This is an example of product differentiation but not price discrimination. 
B)  The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C)  Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation. 
D)  Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent.

Question 17

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 18

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.

Question 19

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

Question 20

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?

Accepted Answer

A)  The Marriott is practicing first-degree price discrimination by charging what the market will bear. 
B)  This is evidence of third-degree price discrimination because hotel accommodation on a particular day is not a product that can be resold later. 
C)  There is no evidence of price discrimination; the Marriott is responding to increased demand for hotel rooms in the face of constant supply. 
D)  The Marriott has adopted this pricing strategy to capitalize on arbitrage profits.

Exam 16: Pricing Strategy

Many people sell goods through eBay at prices that are higher than the prices they paid for these goods. Economists consider these transactions as

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

Dell Computers allows potential consumers to customize personal computers to their desires. Dell's strategy is successful because offering bundles that more exactly meets a consumer's preference allows Dell to extract more consumer surplus.

Consumers who will pay high prices to be among the first to own certain new products are called

The law of one price

Which of the following pricing strategies allows a firm to earn economic profit?

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

With perfect price discrimination there is

Early adopters are consumers who will pay a high price to be among the first to own new products.

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

If a firm could practice perfect price discrimination, it would

If Mort's House of Flowers sells one dozen roses to different customers at different prices, economists would consider this an example of

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers. From this we can conclude that

The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage. Which of the following statements is true?

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?

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