Question 1

In the Airline Pricing Strategies case discussed in the text,a product with fewer rules and restrictions can command a higher price.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A) an accurate reflection of the item's marginal cost. 
B) based strictly on consumer demand. 
C) a function of cost and the price elasticity of demand for the item. 
D) a fixed multiple of the item's total cost. 
A) an accurate reflection of the item's marginal cost. 
B) based strictly on consumer demand. 
C) a function of cost and the price elasticity of demand for the item. 
D) a fixed multiple of the item's total cost. C

Question 3

Certain hotels offer promotional strategies in which kids under 12 eat free at the hotel's restaurant.This is an example of second-degree price discrimination.

Accepted Answer

A) True 
 B)False  False

Question 4

The goal of "personalized pricing" is to determine how much each individual customer is willing to pay for a product.As such,it is an application of first-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 5

Certain vendors that market their goods via mail order have been known to send out catalogues to different regions of the country with items priced differently across regions.Assuming prices are matched to regions on a random basis,this practice would be considered an example of group pricing,or third-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) A customer pays full price for the first 10 copies of a software program and then receives a 10 percent discount on each additional copy it buys. 
B) A firm, e.g., Sam's Club or Costco, charges a membership fee that is separate from the price paid for items purchased from the firm. 
C) A customer pays a $10 cover charge to enter a bar and then pays $5 for each beverage. 
D) An amusement park charges an admission fee and then charges a per unit price for each of the rides offered by the park. 
A) A customer pays full price for the first 10 copies of a software program and then receives a 10 percent discount on each additional copy it buys. 
B) A firm, e.g., Sam's Club or Costco, charges a membership fee that is separate from the price paid for items purchased from the firm. 
C) A customer pays a $10 cover charge to enter a bar and then pays $5 for each beverage. 
D) An amusement park charges an admission fee and then charges a per unit price for each of the rides offered by the park.

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

When demand is elastic,the marginal revenue resulting from a decrease in price is:

Accepted Answer

A) positive. 
B) zero. 
C) negative. 
D) cannot be determined without more information. 
A) positive. 
B) zero. 
C) negative. 
D) cannot be determined without more information.

Question 9

Which of the following is considered a necessary condition for successful price discrimination?

Accepted Answer

A) A firm's customers must all have the same price elasticity of demand. 
B) Firms are able to prevent resale among different groups of customers. 
C) Firms must be able to determine each customer's maximum willingness to pay for the product in question. 
D) Firms must operate in a perfectly competitive market. 
A) A firm's customers must all have the same price elasticity of demand. 
B) Firms are able to prevent resale among different groups of customers. 
C) Firms must be able to determine each customer's maximum willingness to pay for the product in question. 
D) Firms must operate in a perfectly competitive market.

Question 10

"Personalized pricing" and "group pricing" are examples of:

Accepted Answer

A) first-degree and second-degree price discrimination, respectively. 
B) second-degree and third-degree price discrimination, respectively. 
C) first-degree price discrimination. 
D) first-degree and third-degree price discrimination, respectively. 
A) first-degree and second-degree price discrimination, respectively. 
B) second-degree and third-degree price discrimination, respectively. 
C) first-degree price discrimination. 
D) first-degree and third-degree price discrimination, respectively.

Question 11

Assume the price elasticity of demand for a product is -4.In this case,the firm's optimal markup is (approximately):

Accepted Answer

A) 400 percent. 
B) 100 percent. 
C) 33 percent. 
D) 25 percent. 
A) 400 percent. 
B) 100 percent. 
C) 33 percent. 
D) 25 percent.

Question 12

Automobile manufacturers often use incentive programs,including special financing rates and cash rebates,to increase sales.However,a customer is usually restricted to choosing either the low financing rate or the rebate,but not both.Is this an example of price discrimination? If so,what type? Explain your reasoning.

Accepted Answer

Yes,this is a form of price discriminati

Question 13

It is frequently observed that when a city is located next to a major highway,gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of:

Accepted Answer

A) first-degree price discrimination. 
B) second-degree price discrimination. 
C) third-degree price discrimination. 
D) illegal price discrimination. 
A) first-degree price discrimination. 
B) second-degree price discrimination. 
C) third-degree price discrimination. 
D) illegal price discrimination.

Question 14

Assume you have been hired to advise two different firms,A and B,regarding the price each firm should charge for its product,focusing on the amount each firm should mark up price over marginal cost.While both firms are price setters,the product produced by firm A is extremely unique and enjoys widespread appeal.In contrast,firm B sells a fairly standard product for which there are are several good,but not perfect,substitutes.How would your advice to each firm differ? How does the price elasticity of demand influence your recommendations?

Accepted Answer

The profit-maximizing price-setting firm

Question 15

A firm's profits will be greatest when it practices:

Accepted Answer

A) first-degree price discrimination. 
B) second-degree price discrimination. 
C) third-degree price discrimination. 
D) no price discrimination. 
A) first-degree price discrimination. 
B) second-degree price discrimination. 
C) third-degree price discrimination. 
D) no price discrimination.

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

When the macroeconomy is doing poorly (as it was in 2009),profits of existing firms decrease,creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

Accepted Answer

A) True 
 B)False

Question 18

The difference between the total willingness to pay for a good and the amount actually spent measures:

Accepted Answer

A) the total benefits from consuming the good. 
B) the net gain from the production and consumption of the good. 
C) the amount by which producers are better off, i.e., producers' surplus. 
D) the amount by which consumers are better off, i.e., consumers' surplus. 
A) the total benefits from consuming the good. 
B) the net gain from the production and consumption of the good. 
C) the amount by which producers are better off, i.e., producers' surplus. 
D) the amount by which consumers are better off, i.e., consumers' surplus.

Question 19

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:

Accepted Answer

A) $50. 
B) $100. 
C) $200. 
D) $225. 
A) $50. 
B) $100. 
C) $200. 
D) $225.

Question 20

Which of the following would not be categorized as a form of third-degree price discrimination?

Accepted Answer

A) Group pricing. 
B) Promotional pricing. 
C) Versioning. 
D) Personalized pricing. 
A) Group pricing. 
B) Promotional pricing. 
C) Versioning. 
D) Personalized pricing.

In the Airline Pricing Strategies case discussed in the text,a product with fewer rules and restrictions can command a higher price.

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

Certain hotels offer promotional strategies in which kids under 12 eat free at the hotel's restaurant.This is an example of second-degree price discrimination.

The goal of "personalized pricing" is to determine how much each individual customer is willing to pay for a product.As such,it is an application of first-degree price discrimination.

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

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.

When demand is elastic,the marginal revenue resulting from a decrease in price is:

Which of the following is considered a necessary condition for successful price discrimination?

"Personalized pricing" and "group pricing" are examples of:

Assume the price elasticity of demand for a product is -4.In this case,the firm's optimal markup is (approximately):

It is frequently observed that when a city is located next to a major highway,gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of:

A firm's profits will be greatest when it practices:

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.

When the macroeconomy is doing poorly (as it was in 2009),profits of existing firms decrease,creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

The difference between the total willingness to pay for a good and the amount actually spent measures:

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:

Which of the following would not be categorized as a form of third-degree price discrimination?

Managers and Economics

Demand, supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 10: Pricing Strategies for the Firm

In the Airline Pricing Strategies case discussed in the text,a product with fewer rules and restrictions can command a higher price.

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

Certain hotels offer promotional strategies in which kids under 12 eat free at the hotel's restaurant.This is an example of second-degree price discrimination.

The goal of "personalized pricing" is to determine how much each individual customer is willing to pay for a product.As such,it is an application of first-degree price discrimination.

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

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.

When demand is elastic,the marginal revenue resulting from a decrease in price is:

Which of the following is considered a necessary condition for successful price discrimination?

"Personalized pricing" and "group pricing" are examples of:

Assume the price elasticity of demand for a product is -4.In this case,the firm's optimal markup is (approximately):

It is frequently observed that when a city is located next to a major highway,gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of:

A firm's profits will be greatest when it practices:

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.

When the macroeconomy is doing poorly (as it was in 2009),profits of existing firms decrease,creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

The difference between the total willingness to pay for a good and the amount actually spent measures:

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:

Which of the following would not be categorized as a form of third-degree price discrimination?

Managers and Economics

Demand, supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

Filters