Question 1

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

Accepted Answer

A)  leverage. 
B)  predation. 
C)  retail maintenance. 
D)  tying. 
A)  leverage. 
B)  predation. 
C)  retail maintenance. 
D)  tying.

Question 2

The more a firm knows about ________ the easier it is for the firm to ________.

Accepted Answer

A)  competitors; advertise 
B)  costs; sell its goods 
C)  supply; price discriminate 
D)  demand; price discriminate 
A)  competitors; advertise 
B)  costs; sell its goods 
C)  supply; price discriminate 
D)  demand; price discriminate

Question 3

Reference: Ref 14-5 (Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf.

Accepted Answer

A)  $50; $110 
B)  $110; $80 
C)  $50; $35 
D)  $80; $57.50 
A)  $50; $110 
B)  $110; $80 
C)  $50; $35 
D)  $80; $57.50

Question 4

a. If the firm decides to price discriminate, what price would it charge in each market? b. What is the profit-maximizing quantity in each market? c. How much profit would it make in each market?

Accepted Answer

The answer of   a. If the firm decides...

Question 5

Which of the following statements is TRUE regarding arbitrage?

Accepted Answer

A)  It is easier to prevent arbitrage for some products than for others. 
B)  The U.S. Constitution prevents the government from engaging in arbitrage prevention. 
C)  Arbitrage may increase the profits for firms, depending on the elasticity of demand in the market. 
D)  Firms will still be able to price discriminate across markets even when arbitrage is present. 
A)  It is easier to prevent arbitrage for some products than for others. 
B)  The U.S. Constitution prevents the government from engaging in arbitrage prevention. 
C)  Arbitrage may increase the profits for firms, depending on the elasticity of demand in the market. 
D)  Firms will still be able to price discriminate across markets even when arbitrage is present.

Question 6

Price discrimination is defined as selling:

Accepted Answer

A)  the same products at the same prices to the same customers. 
B)  different products at the different prices to the same customers. 
C)  the same product at different prices to different customers. 
D)  different products at the same prices to different customers. 
A)  the same products at the same prices to the same customers. 
B)  different products at the different prices to the same customers. 
C)  the same product at different prices to different customers. 
D)  different products at the same prices to different customers.

Question 7

Price discrimination is used when a seller faces different demand curves in different markets because:

Accepted Answer

A)  no other pricing methods are feasible. 
B)  the practice eliminated waste. 
C)  profits are greater than selling at a single price. 
D)  profits are less than when selling at monopoly prices. 
A)  no other pricing methods are feasible. 
B)  the practice eliminated waste. 
C)  profits are greater than selling at a single price. 
D)  profits are less than when selling at monopoly prices.

Question 8

Reference: Ref 14-4 (Figure: Perfect Price Discrimination) Refer to the figure. Which curve represents the Marginal Revenue (MR) curve for the monopolist who practices perfect price discrimination?

Accepted Answer

A)  the marginal cost curve 
B)  the demand curve 
C)  the average cost curve 
D)  a downward sloping line that lies beneath the demand curve. 
A)  the marginal cost curve 
B)  the demand curve 
C)  the average cost curve 
D)  a downward sloping line that lies beneath the demand curve.

Question 9

Price discrimination is bad if total surplus increases with a decrease in output.

Accepted Answer

A) True 
 B)False

Question 10

Price discrimination is considered bad when:

Accepted Answer

A)  total surplus increases. 
B)  total surplus decreases. 
C)  deadweight loss is diminisheC. 
D)  it is practiced by any firm. 
A)  total surplus increases. 
B)  total surplus decreases. 
C)  deadweight loss is diminisheC. 
D)  it is practiced by any firm.

Question 11

Tying is:

Accepted Answer

A)  the practice of a firm selling one product that requires the consumer to purchase another of the firm's products. 
B)  the practice of buying one unit at full price and the second unit at half off. 
C)  the same thing as buy one get one free. 
D)  the practice of a firm's paying the sales tax in exchange for a consumer's purchase of an extended warranty. 
A)  the practice of a firm selling one product that requires the consumer to purchase another of the firm's products. 
B)  the practice of buying one unit at full price and the second unit at half off. 
C)  the same thing as buy one get one free. 
D)  the practice of a firm's paying the sales tax in exchange for a consumer's purchase of an extended warranty.

Question 12

Which of the following is an example of price discrimination?

Accepted Answer

A)  You pay less for a movie ticket if you show your student ID. 
B)  Business travelers pay more for airline tickets. 
C)  Faculty members pay less for computers they order on Apple's Web site. 
D)  All of the answers are correct. 
A)  You pay less for a movie ticket if you show your student ID. 
B)  Business travelers pay more for airline tickets. 
C)  Faculty members pay less for computers they order on Apple's Web site. 
D)  All of the answers are correct.

Question 13

Which of the following is TRUE about price discrimination in monopolistic markets? I. Price discrimination may be good if it leads to higher output. II. Price discrimination may help to offset high fixed costs, but leads to less research and innovation. III. Single-pricing tends to increase prices for at least a subset of the market.

Accepted Answer

A)  I only 
B)  II and III only 
C)  I and III only 
D)  I and II only 
A)  I only 
B)  II and III only 
C)  I and III only 
D)  I and II only

Question 14

In order to price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following does not practice price discrimination on a regular basis?

Accepted Answer

A)  universities 
B)  farmers 
C)  movie theaters 
D)  airline companies 
A)  universities 
B)  farmers 
C)  movie theaters 
D)  airline companies

Question 16

A subtle form of price discrimination is for firms to offer:

Accepted Answer

A)  the same version of a product for the purpose of separating customers into different markets. 
B)  the same version of a product for the purpose of separating customers into the same market. 
C)  different versions of a product for the purpose of separating customers into different markets. 
D)  different versions of a product for the purpose of separating customers into the same market. 
A)  the same version of a product for the purpose of separating customers into different markets. 
B)  the same version of a product for the purpose of separating customers into the same market. 
C)  different versions of a product for the purpose of separating customers into different markets. 
D)  different versions of a product for the purpose of separating customers into the same market.

Question 17

Which of the following is NOT a principle of price discrimination?

Accepted Answer

A)  It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. 
B)  To maximize profit the firm should set a higher price in markets with more elastic demand. 
C)  To maximize profit the firm should set a higher price in markets with more inelastic demand. 
D)  Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination. 
A)  It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. 
B)  To maximize profit the firm should set a higher price in markets with more elastic demand. 
C)  To maximize profit the firm should set a higher price in markets with more inelastic demand. 
D)  Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.

Question 18

Which of the following is an example of price discrimination?

Accepted Answer

A)  value meals at fast-food restaurants 
B)  senior citizen discounts 
C)  tax-exempt status for non-profit organizations 
D)  holiday sales at retail stores 
A)  value meals at fast-food restaurants 
B)  senior citizen discounts 
C)  tax-exempt status for non-profit organizations 
D)  holiday sales at retail stores

Question 19

Perfect price discrimination results in:

Accepted Answer

A)  marginal revenue being in excess of the price charged for the good. 
B)  zero dollars of consumer surplus. 
C)  maximization of consumer surplus. 
D)  marginal revenue becoming equal to the marginal cost of the product for every unit sold. 
A)  marginal revenue being in excess of the price charged for the good. 
B)  zero dollars of consumer surplus. 
C)  maximization of consumer surplus. 
D)  marginal revenue becoming equal to the marginal cost of the product for every unit sold.

Question 20

To maximize profit using the practice of price discrimination, firms set different prices according to the characteristics that are correlated with buyers':

Accepted Answer

A)  age. 
B)  purpose of consumption. 
C)  income. 
D)  willingness to pay. 
A)  age. 
B)  purpose of consumption. 
C)  income. 
D)  willingness to pay.

Exam 14: Price Discrimination and Pricing Strategy

Hewlett Packard's pricing scheme is to sell printers at relatively low price and ink cartridges at relatively high price. This practice is known as:

The more a firm knows about ________ the easier it is for the firm to ________.

Reference: Ref 14-5 (Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf.

a. If the firm decides to price discriminate, what price would it charge in each market? b. What is the profit-maximizing quantity in each market? c. How much profit would it make in each market?

Which of the following statements is TRUE regarding arbitrage?

Price discrimination is defined as selling:

Price discrimination is used when a seller faces different demand curves in different markets because:

Reference: Ref 14-4 (Figure: Perfect Price Discrimination) Refer to the figure. Which curve represents the Marginal Revenue (MR) curve for the monopolist who practices perfect price discrimination?

Price discrimination is bad if total surplus increases with a decrease in output.

Price discrimination is considered bad when:

Tying is:

Which of the following is an example of price discrimination?

In order to price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

Which of the following does not practice price discrimination on a regular basis?

A subtle form of price discrimination is for firms to offer:

Which of the following is NOT a principle of price discrimination?

Which of the following is an example of price discrimination?

Perfect price discrimination results in:

To maximize profit using the practice of price discrimination, firms set different prices according to the characteristics that are correlated with buyers':

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

The more a firm knows about the easier it is for the firm to .

Reference: Ref 14-5 (Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge for one night's stay and for one round of golf.