Exam 12: Pricing Practices

A firm that produces milk and cheese has estimated the quantities of the two products it can produce with two levels of total expenditures as shown in the table below. Total Cost =80 Total cost =100 Milk Cheese Milk Cheese 80 0 100 0 70 35 85 40 50 60 65 75 25 80 35 100 0 90 0 120 If it sells each of these products for $1 per unit, what is the optimal combination of milk and cheese the firm should produce and what is the maximum profit it can achieve?

Multinational corporations are often accused that transfer pricing is used for

What is the firm's markup cost if the price it is charging is $50 and the fully allocated average cost is $40?

An example of joint production with fixed proportions is petroleum refining.

A firm produces two products (A and B) jointly. Every time a unit of A is produced, a unit of B is also produced as a byproduct. The demand functions for A and B are: $Q _ { A } = 400 - 4 P _ { A } \quad Q _ { B } = 100 - 2 P _ { B }$ Assuming that disposal is costless, determine the number of units of A and B that the firm should produce, the number of units of A and B that the firm should sell, and the price that should be charged for each of the products if the firm's marginal cost of producing a unit of joint output is: $\text { (i) } M C = 100 + Q$ $\text { (ii) } M C = 0.125 Q$

A firm manufactures a product that is sold on two different markets (A and B) that have the following demand functions: =400-2 =240-2 The firm has the following marginal cost function: $M C = 20 + 0.20 Q$ If the firm is engaging in price discrimination, what prices should be charged on each market and how many units should be sold on each market?

If two goods (A and B) produced by a single firm are substitutes in consumption, then the change in total revenue from the sale of B divided by the corresponding change in the quantity of A will be positive.

Which of the following is not an example of price discrimination?

Furniture manufacturer sells its product directly to consumers directly and to retailers of furniture. The demand functions of the two types of customers and the total cost function of the furniture company are given below. $\text { Direct consumers: } Q _ { 1 } = 110 - 10 P _ { 1 }$ $\text { Retailers: } Q _ { 2 } = 120 - 10 P _ { 2 }$ $T C = 20 + 10 Q$ What is the optimal level of output and how should the firm distribute its sales?

The occasional sale of a commodity at a lower price on foreign markets is referred to as sporadic dumping.

A multinational corporation has two semiautonomous divisions: production and marketing. The production division manufactures a product that is purchased and then resold by the marketing division. The marginal cost functions for the production division and for the value added by the marketing division are defined below. MC_P = 4Q MC_M = Q The demand function for the product is: QD = 210 - P Assume that there is no external market for the output of the production division. How many units should be produced and what transfer price should be paid to the production division by the marketing division?

Furniture manufacturer sells its product directly to consumers and also to retailers. The demand functions of the two types of customers and the total cost function of the furniture company are given below. $\text { Comsumers: } Q _ { 1 } = 200 - 5 P _ { 1 }$ $\text { Retailers: } Q _ { 2 } = 100 - 10 P _ { 2 }$ $T C = 10 + 5 Q$ What is the optimal level of output and how should the firm distribute its sales?

A firm that is selling a product at a lower price on foreign markets for the purpose of driving foreign producers out of business is engaging in persistent dumping.

A letter mailed to New York from Los Angeles costs less if it is sent first class than if it is sent by overnight mail, which proves that the U.S. Postal Service is engaging in price discrimination.

A firm produces a product at a fixed marginal cost of $10 and sells the product on two different markets (A and B) . The demand on market A is Q_A = 80 - 2P. The demand on market B is Q_B = 50 - P. What price should the firm charge on market B?

A multinational corporation has two semiautonomous divisions: production and marketing. The production division manufactures a product that is purchased and then resold by the marketing division. The marginal cost functions for the production division and for the value added by the marketing division are defined below. MC_P = 3Q MC_M = Q The demand function for the product is: QD = 90 - P Assume that the external market for the output of the production division is perfectly competitive and that the market price is $60. How many units should be produced by the production division, how many should be purchased by the marketing division, what transfer price should be paid to the production division by the marketing division, and what price should be charged for the product by the marketing division?

A firm that is engaging in third-degree price discrimination will charge a lower price to buyers with less elastic demand curves.

Products that are produced jointly in fixed proportions are substitutes in production.

Export subsidies are a form of dumping.

If two goods produced by a single firm are substitutes in consumption, then an increase in the price of one will cause a decrease in demand for the other.