Exam 16: Pricing Strategy

Joss is a marketing consultant.Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report.Iris is willing to pay $500 for the service while Daphne is willing to pay $800.Suppose that the opportunity cost of Joss's time is $1,200.Assume that Iris and Daphne do not know each other.If the price of the report is $500 per copy

Many firms use odd pricing-charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?

If price discrimination occurs in a market,

In which market structure is it not possible to practice price discrimination?

What three conditions must hold for a firm to successfully price discriminate?

Assume that a firm is able to use an optimal two-part tariff. a.Is the outcome economically efficient? Why or why not? b.What happens to consumer surplus? c.Does this represent perfect price discrimination? Why or why not?

Suppose a restaurant is trying to determine how much to charge for a bowl of chili, and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item. a.Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain. b.What is it called when a firm knows every consumer's willingness to pay, and can charge every consumer a different price? What happens to consumer surplus in this situation?

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price.(This is also called a two-part tariff.)What is the per-unit price?

When you buy at a low price in one market then sell at a higher price in another market you are engaging in

Which of the following antitrust laws forbade firms to engage in price discrimination if the effect would lessen competition or create a monopoly?

Which of the following does not arise from price discrimination?

Which of the following statements about perfect price discrimination is false?

Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal, customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.

Figure 16-2 Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population. Figure 16-2 shows the demand curves for the two groups of customers. -Refer to Figure 16-2.Suppose Plato Playhouse price discriminates.What is the price charged in the two markets?

With perfect price discrimination, the marginal revenue curve

Figure 16-3 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical. -Refer to Figure 16-3.Suppose Chantal practices price discrimination.Which of the following statements is true?

Table 16-3 Julie plans to start a pet-sitting service. She surveyed her neighborhood to determine the demand for this service. Assume that each person surveyed demands only one hour of pet sitting services per period. Table 16-3 above shows a portion of her survey results. -Refer to Table 16-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?

From an economic perspective, price discrimination is desirable because

Clarissa Kessler operates a store that sells toys.Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost.Is this evidence of illegal price discrimination on the part of the discount store chain?