Exam 10: Pricing Strategies for the Firm

Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.

Promotional pricing is designed to take advantage of differences in the price elasticity of demand among customers. As such, it is an application of first-degree price discrimination.

Assume the price elasticity of demand for a good is -3. In this case, a decrease in price would result in marginal revenue of 2/3)P.

The markups restaurants apply to various items are heavily influenced by the price elasticity of the demand for each item.

Assume the inverse demand function for a good can be written as: P = 30 - 2Q. Assuming P = $10, the resulting consumer surplus would be equal to:

Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm. All else constant, this would cause the firm's ability to markup price above average cost to:

Assume a firm sells two complementary products. Bundling is more likely to be a successful price discrimination strategy when one group of customers is willing to pay a higher price for one of the items in the bundle and another group is willing to pay a higher price for the other item.

An analysis of the behavior of several large corporations over the past 50 years strongly suggests that reliance on "administered" prices is an effective profit-maximizing strategy over time.

Third-degree price discrimination refers to situation in which:

The situation in which a firm charges different prices for different blocks of output is referred to as:

In the case of a perfectly competitive firm, the optimal markup over marginal cost is 0 percent.

Which of the following statements is correct?

Promotional pricing would best be categorized as a form of:

Effective price discrimination will enable a perfectly competitive firm to earn positive economic profits in both the short run and the long run.

Which of the following is an example of price discrimination?

Which of the following is not an example of a two-part pricing scheme in the context of price discrimination?

If a firm is successful in its efforts to reduce the price elasticity of demand for its product, all else constant, the optimal markup that can be used in setting price will increase.

All else constant, as the price elasticity of demand decreases, so does the marginal revenue resulting from a decrease in price.

By and large, the price of each item on a restaurant menu is:

BOGOs, i.e., buy-one, get-one-free offers, are an example of third-degree price discrimination.