Exam 10: Pricing Strategies for the Firm

As the price elasticity of demand for an item increases,so does the firm's ability to mark up the price of the item above average cost.

Because it is more extensive,first-degree price discrimination is more profitable for the firm than is third-degree price discrimination.

The fixed fee a firm is able to charge as part of a two-part pricing strategy is inversely related to the amount of consumer surplus the customer realizes at the profit-maximizing level of output.

The managerial technique of markup pricing is consistent with the economic theory of profit maximization when the markup is positively related to the price elasticity of demand.

The text describes three different "degrees" of price discrimination.Of these,which one is theoretically capable of generating the greatest amount of economic profit for the firm? Why? In contrast,which one do you think has the greatest applicability to the range of goods and services consumers typically purchase?

Assuming the demand curve is downward sloping,as price increases,the price elasticity of demand for a good (in absolute value)and marginal revenue:

Is the profit-maximizing price-taking firm able to mark up price above the marginal costs of production at the profit-maximizing level of output? Why or why not?