Question 1

If the demand for a good is price-elastic,an increase in price will:

Accepted Answer

A) lead to a fall in quantity demanded but an increase in the firm's revenue. 
B) not affect the total revenue of the firm. 
C) lead to a fall in the firm's revenue but an increase in quantity demanded. 
D) lead to an increase in quantity demanded. 
E) decrease the firm's revenue by the same percentage as the increase in price. 
A) lead to a fall in quantity demanded but an increase in the firm's revenue. 
B) not affect the total revenue of the firm. 
C) lead to a fall in the firm's revenue but an increase in quantity demanded. 
D) lead to an increase in quantity demanded. 
E) decrease the firm's revenue by the same percentage as the increase in price. A

Question 2

Assume that the price and income elasticities of demand for luxury cars are EP = -0.52 and EY = 3.2 respectively.In the coming year,car prices are expected to rise by 2 percent and income by 8 percent.Based on this information,sales of cars are expected to _____.

Accepted Answer

A) fall by 0.52% 
B) increase by 24.56% 
C) increase by 5% 
D) fall by 3.04% 
E) fall by 32.84% 
A) fall by 0.52% 
B) increase by 24.56% 
C) increase by 5% 
D) fall by 3.04% 
E) fall by 32.84% B

Question 3

You are the marketing manager of a firm that produces titanium and sells this metal to two distinct kinds of customers: aircraft producers and golf club manufacturers.Demand for titanium by these two market segments is quite different,as described by the respective price equations: PA = 10 - QA/600 and PG = 12 - QG/100,where annual quantities [QA and QG] are in thousands of pounds and prices [PA and PG] are in dollars.Your firm estimates the marginal cost of titanium production at $4 per pound.
(a)For each segment,determine the firm's profit-maximizing price and output.Is the firm practicing price discrimination?

Accepted Answer

With total capacity limited to 1.5 million pounds,the total production of 2.2 million pounds (1,800 thousand pounds to aircraft producers + 400 thousand pounds to golf club manufacturers)is infeasible.Clearly,the firm should produce at full capacity (1.5 million pounds at a variable cost of $6 million)and divide sales between the two segments in order to maximize total revenue.Therefore,the revenue maximizing condition is: MR_A = MR_G,along with the constraint Q_A + Q_G = 1,500.Given that 10 - Q_A/300 = 12 - Q_G/50,and Q_A + Q_G = 1,500,solving these two equations simultaneously implies Q_A = 1,200 thousand pounds and Q_G = 300 thousand pounds.In turn,P_A = $8.00 per pound and P_G = $9.00.

Question 4

Carefully define price discrimination.What conditions must exist for it to be possible and profitable? Explain.

Accepted Answer

Price discrimination occurs when a firm

Question 5

If customer income increases over time, (while price is held constant),what is the most likely impact on unit sales of a firm? Explain.

Accepted Answer

An increase in buyers' income will gener

Question 6

For a good that has a price elasticity of demand of 1.5 and a marginal cost of $50 per unit,the profit-maximizing price should be approximately _____.

Accepted Answer

A) $200 
B) $168 
C) $150 
D) $50 
E) $134 
A) $200 
B) $168 
C) $150 
D) $50 
E) $134

Question 7

Which of the following correctly defines second-degree price discrimination?

Accepted Answer

A) The seller offers each individual customer a different price. 
B) The seller sells differentiated goods at different prices. 
C) The seller sets the price of the good equal to the marginal cost of production. 
D) The seller offers different prices and customers choose the one that best suits them. 
E) The seller sets different prices for different groups of consumers based on attributes like age,sex,and location. 
A) The seller offers each individual customer a different price. 
B) The seller sells differentiated goods at different prices. 
C) The seller sets the price of the good equal to the marginal cost of production. 
D) The seller offers different prices and customers choose the one that best suits them. 
E) The seller sets different prices for different groups of consumers based on attributes like age,sex,and location.

Question 8

The Juice Shop sells iced soft drinks.Management has found that demand is estimated by the equation: Q = 1,000 - 240P + 80PC,where Q denotes the number of drinks sold per day,P is the drink's price,and PC is the price of drinks at a nearby café.
(a)How many drinks will be sold if P = $1.50 and PC = $1.20?

Accepted Answer

The increase in P_Ccauses Juice

Question 9

Will a profit-maximizing firm typically sell a good at a price that is in the inelastic portion of a demand curve? Explain

Accepted Answer

No,selling at an inelastic price cannot

Question 10

Which of the following is true of an information good or service?

Accepted Answer

A) In order to maximize profits,firms should set a high price because information goods are expensive to produce. 
B) The profit-maximizing price should be equal to the average fixed cost of producing the information good. 
C) Information goods are provided for free because the production cost of an information good is zero. 
D) The smaller the number of consumers using an information good,the higher the value obtained by other consumers. 
E) Information goods or services are characterized by high fixed costs but low or negligible marginal costs. 
A) In order to maximize profits,firms should set a high price because information goods are expensive to produce. 
B) The profit-maximizing price should be equal to the average fixed cost of producing the information good. 
C) Information goods are provided for free because the production cost of an information good is zero. 
D) The smaller the number of consumers using an information good,the higher the value obtained by other consumers. 
E) Information goods or services are characterized by high fixed costs but low or negligible marginal costs.

Question 11

Assume that Insite Corporation produces advanced analytic software for computer simulations called Model-It.Based on an analysis of product sales over a two-year period,Insite's marketing department estimates the demand for Model-It to be QM = 1,200 - 8PM + 4PS,where QM denotes units sold of Model-It software,PM denotes Model-It's price,and PS denotes the price of a best-selling statistical software package (with both prices in dollars).
(a)Currently,PM = $200 and PS = $300.What is the predicted demand for Model-It software?

Accepted Answer

With MC = 0,the objective is t

Question 12

Which of the following firms faces a pure selling problem in pricing?

Accepted Answer

A) A firm that faces a very high fixed cost or production 
B) A firm that incurs a small or negligible variable cost of production 
C) A firm that faces a highly elastic demand curve 
D) A firm that is undercut by competitors and priced out of the market 
E) A firm that has a negligible share in the market 
A) A firm that faces a very high fixed cost or production 
B) A firm that incurs a small or negligible variable cost of production 
C) A firm that faces a highly elastic demand curve 
D) A firm that is undercut by competitors and priced out of the market 
E) A firm that has a negligible share in the market

Question 13

For a parking garage of fixed capacity,the owner sets different parking rates for cars that are parked for less than 24 hours (short-term)and for those that are parked for more than 24 hours (long-term).To maximize revenue,the operator should set prices and target the number of places for each segment such that:

Accepted Answer

A) the marginal revenues from the segments are equal. 
B) the total revenues from each of the segments are equal. 
C) the short-term consumers pay a higher hourly price. 
D) the long-term consumers pay a higher hourly price. 
E) the price paid by both short-term and long-term consumers is equal. 
A) the marginal revenues from the segments are equal. 
B) the total revenues from each of the segments are equal. 
C) the short-term consumers pay a higher hourly price. 
D) the long-term consumers pay a higher hourly price. 
E) the price paid by both short-term and long-term consumers is equal.

Question 14

What would happen to a firm's price elasticity of demand if additional competitors enter the market and achieve significant market shares? Explain briefly.

Accepted Answer

Increased competition provides more nume

Question 15

The cross-price elasticity between two products is estimated to be 2.If the price of the first product is increased by 8%,demand for the second product will _____.

Accepted Answer

A) increase by 8% 
B) decrease by 4% 
C) increase by 4% 
D) increase by 16% 
E) decrease by 8% 
A) increase by 8% 
B) decrease by 4% 
C) increase by 4% 
D) increase by 16% 
E) decrease by 8%

Question 16

Assume that a profit-maximizing firm practices price discrimination in two different market segments.If the marginal cost of producing the good is the same,the price:

Accepted Answer

A) will be lower in the segment with lower cross price elasticity of demand. 
B) will be higher in the segment with higher income elasticity of demand. 
C) will be lower in the segment with lower fixed costs. 
D) will be higher in the segment with lower price elasticity of demand. 
E) will be higher in the segment with higher marginal revenue. 
A) will be lower in the segment with lower cross price elasticity of demand. 
B) will be higher in the segment with higher income elasticity of demand. 
C) will be lower in the segment with lower fixed costs. 
D) will be higher in the segment with lower price elasticity of demand. 
E) will be higher in the segment with higher marginal revenue.

Question 17

Demand for DVD rentals at a video store is described by the equation: Q = 4,000 - 500P,where Q denotes the number of DVDs rented per week and P is the rental price in dollars.
(a)Determine the point price elasticity of demand at P = $3.

Accepted Answer

Q = 4,000 - (500)(4.5)= 1,750,and E_P = (-

Question 18

Derek is the co-owner of a small gift shop.His colleague,Ron wants the shop to hold a sale and reduce most prices by 10% to 20%.His parents owned a convenience store,and they said that they could always count on increased traffic when they cut prices.If a 10% price cut didn't bring enough purchases,then cut by 20%,and the cash flow would cover all their needs.Is Ron's suggestion economically viable? Why or why not?

Accepted Answer

A price cut will always lead to some inc

Question 19

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced.Given that the firm sells 40 units of the good at $55 each,what is the firm's contribution?

Accepted Answer

A) $2,200 
B) $200 
C) $1,200 
D) $1,000 
E) $2,100 
A) $2,200 
B) $200 
C) $1,200 
D) $1,000 
E) $2,100

Question 20

The initial price for an item is $5.00,and the quantity demanded is 350 units.When the price is raised to $5.25,the quantity demanded falls to 300 units.The absolute value of the point elasticity of demand is _____.

Accepted Answer

A) 2.25 
B) 2.86 
C) 3.5 
D) 4.05 
E) 5.75 
A) 2.25 
B) 2.86 
C) 3.5 
D) 4.05 
E) 5.75

If the demand for a good is price-elastic,an increase in price will:

Assume that the price and income elasticities of demand for luxury cars are EP = -0.52 and EY = 3.2 respectively.In the coming year,car prices are expected to rise by 2 percent and income by 8 percent.Based on this information,sales of cars are expected to _____.

Carefully define price discrimination.What conditions must exist for it to be possible and profitable? Explain.

If customer income increases over time, (while price is held constant),what is the most likely impact on unit sales of a firm? Explain.

For a good that has a price elasticity of demand of 1.5 and a marginal cost of $50 per unit,the profit-maximizing price should be approximately _____.

Which of the following correctly defines second-degree price discrimination?

Will a profit-maximizing firm typically sell a good at a price that is in the inelastic portion of a demand curve? Explain

Which of the following is true of an information good or service?

Which of the following firms faces a pure selling problem in pricing?

What would happen to a firm's price elasticity of demand if additional competitors enter the market and achieve significant market shares? Explain briefly.

The cross-price elasticity between two products is estimated to be 2.If the price of the first product is increased by 8%,demand for the second product will _____.

Assume that a profit-maximizing firm practices price discrimination in two different market segments.If the marginal cost of producing the good is the same,the price:

Demand for DVD rentals at a video store is described by the equation: Q = 4,000 - 500P,where Q denotes the number of DVDs rented per week and P is the rental price in dollars. (a)Determine the point price elasticity of demand at P = $3.

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced.Given that the firm sells 40 units of the good at $55 each,what is the firm's contribution?

The initial price for an item is $5.00,and the quantity demanded is 350 units.When the price is raised to $5.25,the quantity demanded falls to 300 units.The absolute value of the point elasticity of demand is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters

Exam 3: Demand Analysis and Optimal Pricing

If the demand for a good is price-elastic,an increase in price will:

Assume that the price and income elasticities of demand for luxury cars are EP = -0.52 and EY = 3.2 respectively.In the coming year,car prices are expected to rise by 2 percent and income by 8 percent.Based on this information,sales of cars are expected to _____.

Carefully define price discrimination.What conditions must exist for it to be possible and profitable? Explain.

If customer income increases over time, (while price is held constant),what is the most likely impact on unit sales of a firm? Explain.

For a good that has a price elasticity of demand of 1.5 and a marginal cost of $50 per unit,the profit-maximizing price should be approximately _____.

Which of the following correctly defines second-degree price discrimination?

Will a profit-maximizing firm typically sell a good at a price that is in the inelastic portion of a demand curve? Explain

Which of the following is true of an information good or service?

Which of the following firms faces a pure selling problem in pricing?

What would happen to a firm's price elasticity of demand if additional competitors enter the market and achieve significant market shares? Explain briefly.

The cross-price elasticity between two products is estimated to be 2.If the price of the first product is increased by 8%,demand for the second product will _____.

Assume that a profit-maximizing firm practices price discrimination in two different market segments.If the marginal cost of producing the good is the same,the price:

Demand for DVD rentals at a video store is described by the equation: Q = 4,000 - 500P,where Q denotes the number of DVDs rented per week and P is the rental price in dollars. (a)Determine the point price elasticity of demand at P = $3.

A profit-maximizing firm's total cost is given by C = 50 + 25Q where Q is the quantity produced.Given that the firm sells 40 units of the good at $55 each,what is the firm's contribution?

The initial price for an item is $5.00,and the quantity demanded is 350 units.When the price is raised to $5.25,the quantity demanded falls to 300 units.The absolute value of the point elasticity of demand is _____.

Introduction to Economic Decision Making

Optimal Decisions Using Marginal Analysis

Estimating and Forecasting Demand

Production

Cost Analysis

Perfect Competition

Monopoly

Oligopoly

Game Theory and Competitive Strategy

Regulation, Public Goods, and Benefit-Cost Analysis

Decision Making Under Uncertainty

The Value of Information

Asymmetric Information and Organizational Design

Bargaining and Negotiation

Auctions and Competitive Bidding

Linear Programming

Filters