Question 1

The difference between tying and bundling is that:

Accepted Answer

A)  bundled goods are sold one to many, while tied goods are sold one to one. 
B)  bundled goods are sold one to one, while tied goods are sold one to many. 
C)  bundling is more restrictive than tying. 
D)  tying is more restrictive than bundling. 
A)  bundled goods are sold one to many, while tied goods are sold one to one. 
B)  bundled goods are sold one to one, while tied goods are sold one to many. 
C)  bundling is more restrictive than tying. 
D)  tying is more restrictive than bundling.

Question 2

In order for a firm to successfully use tying:

Accepted Answer

A)  the firm must sell the base good for 50 percent more than the second good. 
B)  the firm must sell the base good at a lower price than the second good. 
C)  the firm must charge the same price for the base good and the second good. 
D)  it must be difficult for other firms to sell the second good. 
A)  the firm must sell the base good for 50 percent more than the second good. 
B)  the firm must sell the base good at a lower price than the second good. 
C)  the firm must charge the same price for the base good and the second good. 
D)  it must be difficult for other firms to sell the second good.

Question 3

Why is student financial aid a profit-maximizing decision for universities?

Accepted Answer

A)  because universities only give financial aid to a very small number of students 
B)  because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit 
C)  because the university is able to charge no more than a dollar over the marginal cost of attending classes 
D)  because the university gains goodwill by providing financial aid 
A)  because universities only give financial aid to a very small number of students 
B)  because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit 
C)  because the university is able to charge no more than a dollar over the marginal cost of attending classes 
D)  because the university gains goodwill by providing financial aid

Question 4

Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to:

Accepted Answer

A)  sell sports and music channels in one bundle to both types of viewers. 
B)  sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. 
C)  use ―à la carte‖ pricing. 
D)  use fixed-cost pricing. 
A)  sell sports and music channels in one bundle to both types of viewers. 
B)  sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. 
C)  use ―à la carte‖ pricing. 
D)  use fixed-cost pricing.

Question 5

Using a strategy of price discrimination, a firm can increase its profits by offering lower prices to its customers who are willing to pay above the firm's:

Accepted Answer

A)  average costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  total costs. 
A)  average costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  total costs.

Question 6

A perfectly price discriminating monopolist charges consumers the average of their maximum willingness to pay.

Accepted Answer

A) True 
 B)False

Question 7

Williams College used ________ as a means to ________.

Accepted Answer

A)  student financial aid; price discriminate 
B)  payroll deductions; lower tuition 
C)  its nonexempt tax status; raise tuition 
D)  government subsidies; increase profits 
A)  student financial aid; price discriminate 
B)  payroll deductions; lower tuition 
C)  its nonexempt tax status; raise tuition 
D)  government subsidies; increase profits

Question 8

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market A?

Accepted Answer

A)  $5 
B)  $10 
C)  $7 
D)  any price higher than $10. 
A)  $5 
B)  $10 
C)  $7 
D)  any price higher than $10.

Question 9

Price discrimination is considered bad when ________, but good when ________.

Accepted Answer

A)  it increases output; it decreases output 
B)  it decreases output; it increases output 
C)  it increases deadweight loss; it decreases deadweight loss 
D)  it increases prices; it decreases prices 
A)  it increases output; it decreases output 
B)  it decreases output; it increases output 
C)  it increases deadweight loss; it decreases deadweight loss 
D)  it increases prices; it decreases prices

Question 10

Bundling can increase efficiency when fixed costs are high because the fixed costs are:

Accepted Answer

A)  offset by increasing marginal costs. 
B)  offset by increasing variable costs. 
C)  lower when goods are bought in a package. 
D)  spread across more consumers. 
A)  offset by increasing marginal costs. 
B)  offset by increasing variable costs. 
C)  lower when goods are bought in a package. 
D)  spread across more consumers.

Question 11

Which of the following is NOT a case of bundling?

Accepted Answer

A)  Disneyland selling many attractions for a single entrance fee 
B)  the buffet at China Garden 
C)  cable TV offering multiple channels to its customers. 
D)  HP selling printers and ink cartridges 
A)  Disneyland selling many attractions for a single entrance fee 
B)  the buffet at China Garden 
C)  cable TV offering multiple channels to its customers. 
D)  HP selling printers and ink cartridges

Question 12

(Figure: Market for Lithotripters) Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y.

Accepted Answer

A)  d; z 
B)  b; d 
C)  b; z 
D)  a; d 
A)  d; z 
B)  b; d 
C)  b; z 
D)  a; d

Question 13

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?

Accepted Answer

A)  arbitrage 
B)  perfect price discrimination 
C)  price gouging 
D)  marginal-price geography 
A)  arbitrage 
B)  perfect price discrimination 
C)  price gouging 
D)  marginal-price geography

Question 14

In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to HP ink cartridges, and:

Accepted Answer

A)  no firm can enter the market for HP ink. 
B)  no firm can enter the market for HP printers. 
C)  HP must sell its printers at relatively high price. 
D)  HP must always sells its printers and ink cartridges in a package. 
A)  no firm can enter the market for HP ink. 
B)  no firm can enter the market for HP printers. 
C)  HP must sell its printers at relatively high price. 
D)  HP must always sells its printers and ink cartridges in a package.

Question 15

Tying is a form of price discrimination in which one good, called the base good, is tied to a second good called the variable good.

Accepted Answer

A) True 
 B)False

Question 16

Price discrimination can be defined as:

Accepted Answer

A)  selling different products to the same consumers in the same market. 
B)  selling the same product in two different markets. 
C)  selling the same product at two different prices in two different markets. 
D)  exporting goods to foreign countries. 
A)  selling different products to the same consumers in the same market. 
B)  selling the same product in two different markets. 
C)  selling the same product at two different prices in two different markets. 
D)  exporting goods to foreign countries.

Question 17

A firm practices price discrimination by selling at a high price in its larger market, Market A, and a lower price in its smaller market, Market B. If this firm is forced to sell at a single-price in both markets and opts for the original price in Market A, the new single-pricing strategy makes:

Accepted Answer

A)  consumers in both Market A and Market B worse off. 
B)  consumers in Market A no worse off, but consumers in Market B worse off. 
C)  consumers in Market B no worse off, but consumers in Market A worse off. 
D)  consumers in both markets better off, as single pricing is always better for consumers than price discrimination. 
A)  consumers in both Market A and Market B worse off. 
B)  consumers in Market A no worse off, but consumers in Market B worse off. 
C)  consumers in Market B no worse off, but consumers in Market A worse off. 
D)  consumers in both markets better off, as single pricing is always better for consumers than price discrimination.

Question 18

Which of the following is the fundamental condition that would allow a firm to practice price discrimination?

Accepted Answer

A)  All customers possess identical willingness to pay for the product. 
B)  The good can be purchased at one market and resold at another market. 
C)  There are two or more different demand curves for the good. 
D)  Demand for the good is high. 
A)  All customers possess identical willingness to pay for the product. 
B)  The good can be purchased at one market and resold at another market. 
C)  There are two or more different demand curves for the good. 
D)  Demand for the good is high.

Question 19

To maximize profit, a monopolist should charge a lower price in the market with the steeper demand curve.

Accepted Answer

A) True 
 B)False

Question 20

If a firm can practice perfect price discrimination, its profits will always rise.

Accepted Answer

A) True 
 B)False

Exam 14: Price Discrimination and Pricing Strategy

The difference between tying and bundling is that:

In order for a firm to successfully use tying:

Why is student financial aid a profit-maximizing decision for universities?

Using a strategy of price discrimination, a firm can increase its profits by offering lower prices to its customers who are willing to pay above the firm's:

A perfectly price discriminating monopolist charges consumers the average of their maximum willingness to pay.

Williams College used ________ as a means to ________.

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market A?

Price discrimination is considered bad when ________, but good when ________.

Bundling can increase efficiency when fixed costs are high because the fixed costs are:

Which of the following is NOT a case of bundling?

(Figure: Market for Lithotripters) Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y.

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?

In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to HP ink cartridges, and:

Tying is a form of price discrimination in which one good, called the base good, is tied to a second good called the variable good.

Price discrimination can be defined as:

A firm practices price discrimination by selling at a high price in its larger market, Market A, and a lower price in its smaller market, Market B. If this firm is forced to sell at a single-price in both markets and opts for the original price in Market A, the new single-pricing strategy makes:

Which of the following is the fundamental condition that would allow a firm to practice price discrimination?

To maximize profit, a monopolist should charge a lower price in the market with the steeper demand curve.

If a firm can practice perfect price discrimination, its profits will always rise.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters

Williams College used as a means to .

Price discrimination is considered bad when , but good when .

(Figure: Market for Lithotripters) Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of in Country X and in Country Y.