Question 1

Mark- up pricing is when a firm calculates prices by adding a percentage to its average costs.

Accepted Answer

A) True 
 B)False  TRUE

Question 2

What is imperfect competition?

Accepted Answer

Most firms are neither monopolists nor perfectly competitive. They compete imperfectly with other firms in their industry. Economists usually distinguish two useful sub- divisions of imperfect competition - monopolistic competition and oligopoly. Monopolistic competitors have many rivals but their product is differentiated or branded, allowing them control over price. Oligopolists have a few competitors and have to watch them very closely. The firms all have some degree of market power, meaning that they can engage in price- setting behaviour.

Question 3

Which of the following is not an advantage of practising price discrimination?

Accepted Answer

A)  Higher total revenue 
B)  Helps to drive competitors out of business 
C)  Less advertising 
D)  Price discrimination is only advantageous 
A)  Higher total revenue 
B)  Helps to drive competitors out of business 
C)  Less advertising 
D)  Price discrimination is only advantageous C

Question 4

What is the most common form of inter- related production?

Accepted Answer

A)  Full- range products 
B)  Joint products 
C)  By- products 
D)  Distinct products 
A)  Full- range products 
B)  Joint products 
C)  By- products 
D)  Distinct products

Question 5

What is a two part- tariff?

Accepted Answer

A)  Being charged a different price depending on who you are (e.g. age of customer) 
B)  An access and a separate usage price 
C)  Being charged a high price for the first few units and a lower price for additional units 
D)  Charging for products in two (or more) installments 
A)  Being charged a different price depending on who you are (e.g. age of customer) 
B)  An access and a separate usage price 
C)  Being charged a high price for the first few units and a lower price for additional units 
D)  Charging for products in two (or more) installments

Question 6

The situation where the best strategy for a firm depends on the choice of strategy by other firms is called

Accepted Answer

A)  oligopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  monopoly. 
A)  oligopoly. 
B)  monopolistic competition. 
C)  perfect competition. 
D)  monopoly.

Question 7

There is no consumer surplus if a monopolist practises perfect price discrimination.

Accepted Answer

A) True 
 B)False

Question 8

What is predatory pricing?

Accepted Answer

This occurs when aggressive price compet

Question 9

Explain the idea of limit pricing. Why might a firm choose to adopt it as a pricing policy?

Accepted Answer

Limit pricing is when prices are kept lo

Question 10

What must a firm know before it can set its output and profit mark- up levels to avoid shortages and surpluses?

Accepted Answer

A)  Its marginal cost curve 
B)  Its marginal revenue curve 
C)  Its demand curve 
D)  Its supply curve 
E)  Its average costs 
A)  Its marginal cost curve 
B)  Its marginal revenue curve 
C)  Its demand curve 
D)  Its supply curve 
E)  Its average costs

Question 11

Average cost pricing is the term used to describe the situation when a firm

Accepted Answer

A)  follows the prices of the average firm in the industry. 
B)  adds a percentage mark- up to the average cost of production. 
C)  follows the prices of the dominant firm in the industry. 
D)  charges customers according to average cost rather than marginal cost. 
A)  follows the prices of the average firm in the industry. 
B)  adds a percentage mark- up to the average cost of production. 
C)  follows the prices of the dominant firm in the industry. 
D)  charges customers according to average cost rather than marginal cost.

Question 12

If a firm is using a mark- up pricing policy, price will equal

Accepted Answer

A)  AVC + profit mark- up 
B)  AFC + AVC + profit mark- up 
C)  AFC + MVC + profit mark- up 
D)  MFC + MVC + profit mark- up 
A)  AVC + profit mark- up 
B)  AFC + AVC + profit mark- up 
C)  AFC + MVC + profit mark- up 
D)  MFC + MVC + profit mark- up

Question 13

For a firm that uses mark- up pricing and aims to achieve a particular level of total profit, its supply curve will be

Accepted Answer

A)  parallel to its average (total) cost curve. 
B)  impossible to determine as long as the firm has market power. 
C)  parallel to its demand curve. 
D)  above its average (total) cost curve, but getting closer to it as output increases. 
E)  parallel to its average variable cost curve. 
A)  parallel to its average (total) cost curve. 
B)  impossible to determine as long as the firm has market power. 
C)  parallel to its demand curve. 
D)  above its average (total) cost curve, but getting closer to it as output increases. 
E)  parallel to its average variable cost curve.

Question 14

Which of the following defines a loss leader?

Accepted Answer

A)  A firm that aims to minimise costs as opposed to maximising profits. 
B)  A product whose price is cut by the business in order to attract customers 
C)  When goods are assessed collectively when pricing them, rather than individually 
D)  A firm that specialises in the production of by- products 
A)  A firm that aims to minimise costs as opposed to maximising profits. 
B)  A product whose price is cut by the business in order to attract customers 
C)  When goods are assessed collectively when pricing them, rather than individually 
D)  A firm that specialises in the production of by- products

Question 15

In which stage of the product life cycle is competition most likely to be intense?

Accepted Answer

A)  Maturity 
B)  Growth 
C)  Decline 
D)  Launch 
A)  Maturity 
B)  Growth 
C)  Decline 
D)  Launch

Question 16

When a firm charges each customer the most they are willing to pay, this is called third degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 17

When a firm sets its prices below average cost in order to drive out competitors, this is called second degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a necessary condition for a firm to be able to price discriminate?

Accepted Answer

A)  Unit costs are not constant. 
B)  There is the ability to segment markets. 
C)  The firm is a price- maker. 
D)  The firm has market power. 
A)  Unit costs are not constant. 
B)  There is the ability to segment markets. 
C)  The firm is a price- maker. 
D)  The firm has market power.

Question 19

During the growth stage of a product life cycle, new firms are likely to enter the industry.

Accepted Answer

A) True 
 B)False

Question 20

What is a loss leader?

Accepted Answer

A product whose pric

Exam 17: Pricing Strategy

Mark- up pricing is when a firm calculates prices by adding a percentage to its average costs.

What is imperfect competition?

Which of the following is not an advantage of practising price discrimination?

What is the most common form of inter- related production?

What is a two part- tariff?

The situation where the best strategy for a firm depends on the choice of strategy by other firms is called

There is no consumer surplus if a monopolist practises perfect price discrimination.

What is predatory pricing?

Explain the idea of limit pricing. Why might a firm choose to adopt it as a pricing policy?

What must a firm know before it can set its output and profit mark- up levels to avoid shortages and surpluses?

Average cost pricing is the term used to describe the situation when a firm

If a firm is using a mark- up pricing policy, price will equal

For a firm that uses mark- up pricing and aims to achieve a particular level of total profit, its supply curve will be

Which of the following defines a loss leader?

In which stage of the product life cycle is competition most likely to be intense?

When a firm charges each customer the most they are willing to pay, this is called third degree price discrimination.

When a firm sets its prices below average cost in order to drive out competitors, this is called second degree price discrimination.

Which of the following is not a necessary condition for a firm to be able to price discriminate?

During the growth stage of a product life cycle, new firms are likely to enter the industry.

What is a loss leader?

The Business Environment and Business Economics

Economics and the World of Business

Business Organisations

The Working of Competitive Markets

Business in a Market Environment

Demand and the Consumer

Demand and the Firm

Products, Marketing and Advertising

Costs of Production

Revenue and Profit

Profit Maximisation Under Perfect Competition and Monopoly

Profit Maximisation Under Imperfect Competition

An Introduction to Business Strategy

Alternative Theories of the Firm

Growth Strategy

The Small-Firm Sector

Labour Markets, Wages and Industrial Relations

Investment and the Employment of Capital

Reasons for Government Intervention in the Market

Government and the Firm

Government and the Market

Globalisation and Multinational Business

International Trade

Trading Blocs

The Macroeconomic Environment of Business

The Balance of Payments and Exchange Rates

Banking, Money and Interest Rates

Business Activity, Employment and Inflation

Demand-Side Policy

Supply-Side Policy

International Economic Policy

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