Question 1

The cost plus pricing formula tends to ignore:

Accepted Answer

A)  incremental costs. 
B)  customer quantity sensitivity. 
C)  fixed costs. 
D)  quotas 
A)  incremental costs. 
B)  customer quantity sensitivity. 
C)  fixed costs. 
D)  quotas A

Question 2

Calculate the markup price if MC = $10.00 and price elasticity equals 1.7.

Accepted Answer

A)  $5.88 
B)  $17.24 
C)  $24.27 
D)  $32.42 
A)  $5.88 
B)  $17.24 
C)  $24.27 
D)  $32.42 C

Question 3

A small fitness center offering only personal training services has the following demand and cost parameters:
Demand: The fitness center has found that it has some discretion in pricing - that is, it can raise price marginally without drastic reductions in volume. Based on statistical estimates of demand, and assuming external factors stay constant (e.g. price of competitors' services, income levels, etc.), the following relationship exists between the hourly rate for a personal training session (P), and the number of sessions demanded per day (Q):
P = 140 - Q
Costs: The fitness center finds that its variable costs (e.g. labor) increase at a constant rate of $40 with each additional training session provided per day. Fixed costs such as rent total $200 per day. This yields the following total variable cost (TVC) and Total Fixed Cost (TFC) equations:
TVC = 40Q
TFC = 200
(a) What is the approximate minimum number(s) of personal training sessions needed to break even (earn zero total profit).
(b) Find the price and quantity demanded (P and Q) that maximize total profit.
(c) What is the maximum possible profit?

Accepted Answer

In order to just break even, you would need to produce 3 training sessions. From the profit = total revenue-total cost column, the highest possible profit is $2300.00 which can be achieved by charging $90.00 per session and selling 50 sessions. This managerial decision maximizes profit in column L. Profit = Total Revenue - Total Cost = P*Q - TC(Q) = P*Q - (200+40Q),

Question 4

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

Accepted Answer

A)  helped political groups 
B)  established brand identity. 
C)  helped forge volunteerism 
D)  reduced alcohol consumption 
A)  helped political groups 
B)  established brand identity. 
C)  helped forge volunteerism 
D)  reduced alcohol consumption

Question 5

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the markup would be:

Accepted Answer

A)  $52.50. 
B)  $20.00. 
C)  $32.50. 
D)  $65.00. 
A)  $52.50. 
B)  $20.00. 
C)  $32.50. 
D)  $65.00.

Question 6

Hickey-Freeman will sell a second suit to the same person for a $100 discount. This attempt to take advantage of an individual's falling additional utility for more consumption is called:

Accepted Answer

A)  a two-part tariff. 
B)  first degree price discrimination. 
C)  block pricing. 
D)  cost-plus pricing. 
A)  a two-part tariff. 
B)  first degree price discrimination. 
C)  block pricing. 
D)  cost-plus pricing.

Question 7

If a firm prices its output at marginal cost - the competitive solution - then the gains from trade are:

Accepted Answer

A)  all in producer surplus. 
B)  split between producer and consumer surplus. 
C)  all in consumer surplus. 
D)  split in a Nash solution. 
A)  all in producer surplus. 
B)  split between producer and consumer surplus. 
C)  all in consumer surplus. 
D)  split in a Nash solution.

Question 8

The Robinson-Patman Act limits the ability of the firms to

Accepted Answer

A)  charge different prices to retailers 
B)  produce certain products 
C)  Price Discriminate 
D)  undertake Block Pricing 
A)  charge different prices to retailers 
B)  produce certain products 
C)  Price Discriminate 
D)  undertake Block Pricing

Question 9

Give examples of block pricing, bundling, price discrimination and two-part tariffs.

Accepted Answer

Packing 75 toilet tissue rolls for $3.75

Question 10

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the economic profits would be:

Accepted Answer

A)  $130.00. 
B)  $6,825.00. 
C)  $2,600.00. 
D)  $4,225.00. 
A)  $130.00. 
B)  $6,825.00. 
C)  $2,600.00. 
D)  $4,225.00.

Question 11

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the market price would be:

Accepted Answer

A)  $85.00 
B)  $52.50 
C)  $130.00 
D)  $32.50 
A)  $85.00 
B)  $52.50 
C)  $130.00 
D)  $32.50

Question 12

A customer pays an admission fee to get into the local YMCA, and also a monthly membership fee. This is called:

Accepted Answer

A)  Bundling 
B)  Two-part tariff 
C)  Price Discrimination 
D)  Block Pricing 
A)  Bundling 
B)  Two-part tariff 
C)  Price Discrimination 
D)  Block Pricing

Question 13

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

Accepted Answer

A)  bought customer goodwill. 
B)  established student identity. 
C)  helped forge volunteerism . 
D)  helped politicians 
A)  bought customer goodwill. 
B)  established student identity. 
C)  helped forge volunteerism . 
D)  helped politicians

Question 14

Great Nuggets finds that there is a clear gender difference in the demand for their chocolates. Men have very little price sensitivity and tend to buy whatever the sales clerk recommends. Women, on the other hand, tend to ask many questions about product quality and attempt to maximize the quantity available for the price. Great Nuggets would like to implement a two-tier pricing system based on gender. What (non-legal) problems would it encounter?

Accepted Answer

The problem this firm would face is re-s

Question 15

The simple case of pricing with market power assumes (a) all consumers are charged the same price, (b) the firm sells one product, (c) demand exists in one time period, and (d) competitors do not pursue pricing games. Economists insist on reviewing what happens as each assumption is relaxed one at a time. But it is clear that in real world all four are relaxed simultaneously. Why does economic analysis insist on such an unrealistic analysis?

Accepted Answer

The use of models provides an opportunit

Question 16

For decision making for the firm with market power, fixed costs are:

Accepted Answer

A)  a key element in the markup. 
B)  irrelevant. 
C)  the same as marginal costs. 
D)  opportunity costs of production. 
A)  a key element in the markup. 
B)  irrelevant. 
C)  the same as marginal costs. 
D)  opportunity costs of production.

Question 17

Season tickets for sporting events is an example of:

Accepted Answer

A)  Bundling 
B)  Two-part tariff 
C)  Price Discrimination 
D)  Block Pricing 
A)  Bundling 
B)  Two-part tariff 
C)  Price Discrimination 
D)  Block Pricing

Question 18

Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to locals and out-of-state visitors to the nearby Mall of America. The demand for day-passes to the water park for each market segment is independent of the other market segment. The marginal cost of providing service to each visitor is $5 per day. Suppose the daily demand curves for the two market segments are:
  (a.) If Wet-n-Wild Indoor Water Park charges one price to all visitors, what is the profit maximizing price? How many day-passes will be sold per day? 
(b.) If Wet-n-Wild Indoor Water Park charges one price to locals, what is the profit maximizing price for locals? How many day-passes will be sold per day to locals? 
(c.) If Wet-n-Wild Indoor Water Park charges one price to out-of-towners, what is the profit maximizing price for out-of-town guests? How many day-passes will be sold per day to out-of-town guests? 
(d.) Compare the prices from uniform pricing to the prices from price discrimination.

Accepted Answer

We add the two demand curves to get the

Question 19

Third degree price discrimination is defined by selling:

Accepted Answer

A)  to every customer at a different price. 
B)  at different prices by volume. 
C)  every unit at the same price. 
D)  to different groups at different prices. 
A)  to every customer at a different price. 
B)  at different prices by volume. 
C)  every unit at the same price. 
D)  to different groups at different prices.

Question 20

Disney sold The Little Mermaid for $20.00 with a $5.00 mail in rebate. The rebate should have:

Accepted Answer

A)  reduced overall customer demand. 
B)  stabilized overall customer demand. 
C)  increased overall customer demand. 
D)  inverted overall customer demand. 
A)  reduced overall customer demand. 
B)  stabilized overall customer demand. 
C)  increased overall customer demand. 
D)  inverted overall customer demand.

The cost plus pricing formula tends to ignore:

Calculate the markup price if MC = $10.00 and price elasticity equals 1.7.

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the markup would be:

Hickey-Freeman will sell a second suit to the same person for a $100 discount. This attempt to take advantage of an individual's falling additional utility for more consumption is called:

If a firm prices its output at marginal cost - the competitive solution - then the gains from trade are:

The Robinson-Patman Act limits the ability of the firms to

Give examples of block pricing, bundling, price discrimination and two-part tariffs.

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the economic profits would be:

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the market price would be:

A customer pays an admission fee to get into the local YMCA, and also a monthly membership fee. This is called:

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

For decision making for the firm with market power, fixed costs are:

Season tickets for sporting events is an example of:

Third degree price discrimination is defined by selling:

Disney sold The Little Mermaid for $20.00 with a $5.00 mail in rebate. The rebate should have:

Introduction

Economists View of Behavior

Markets, Organizations, and the Role of Knowledge

Demand

Production and Cost

Market Structure

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Incentive Conflicts and Contracts

Organizational Architecture

Decision Rights: The Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: The Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters

Exam 7: Pricing With Market Power

The cost plus pricing formula tends to ignore:

Calculate the markup price if MC = $10.00 and price elasticity equals 1.7.

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the markup would be:

Hickey-Freeman will sell a second suit to the same person for a $100 discount. This attempt to take advantage of an individual's falling additional utility for more consumption is called:

If a firm prices its output at marginal cost - the competitive solution - then the gains from trade are:

The Robinson-Patman Act limits the ability of the firms to

Give examples of block pricing, bundling, price discrimination and two-part tariffs.

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the economic profits would be:

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the market price would be:

A customer pays an admission fee to get into the local YMCA, and also a monthly membership fee. This is called:

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

For decision making for the firm with market power, fixed costs are:

Season tickets for sporting events is an example of:

Third degree price discrimination is defined by selling:

Disney sold The Little Mermaid for $20.00 with a $5.00 mail in rebate. The rebate should have:

Introduction

Economists View of Behavior

Markets, Organizations, and the Role of Knowledge

Demand

Production and Cost

Market Structure

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Incentive Conflicts and Contracts

Organizational Architecture

Decision Rights: The Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: The Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters