Question 1

The airline industry routinely engages in price discrimination across time.

Accepted Answer

A) True 
 B)False  False

Question 2

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

Accepted Answer

A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 40 percent 
A) 15 percent 
B) 20 percent 
C) 25 percent 
D) 40 percent C

Question 3

Which of the following is not an example of price discrimination?

Accepted Answer

A) Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B) Unlike foreign tourists,citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C) Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D) Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities. 
A) Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels. 
B) Unlike foreign tourists,citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor. 
C) Senior citizens may purchase special fare tickets for public transportation that are not available to others. 
D) Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities. D

Question 4

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Accepted Answer

A) True 
 B)False

Question 5

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

Accepted Answer

A) the firm must set different prices for different regions where the product is sold. 
B) the firm must be willing to offer price discounts for senior citizens and children. 
C) the firm must be able to divide the market in a way that makes arbitrage impossible. 
D) the firm must choose a marketing strategy that appeals to different segments of the economy. 
A) the firm must set different prices for different regions where the product is sold. 
B) the firm must be willing to offer price discounts for senior citizens and children. 
C) the firm must be able to divide the market in a way that makes arbitrage impossible. 
D) the firm must choose a marketing strategy that appeals to different segments of the economy.

Question 6

Erin and Deidre,two residents in Ithaca,New York,are planning a trip to Boston.Erin,the sales manager for a large retailer,has to attend a business meeting.Deidre,a college student on vacation,is planning a leisurely trip to visit friends and relatives.Whose demand curve for air travel is likely to be more elastic?

Accepted Answer

A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information. 
A) Erin 
B) Deidre 
C) There is no difference in their price elasticities of demand. 
D) The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.

Question 7

Cost-price pricing typically does not result in profit-maximization.As a result,economists have two views of cost-plus pricing.One of these views is

Accepted Answer

A) cost-plus pricing is more likely to lead to profit-maximization for large firms than for small firms. 
B) cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine. 
C) cost-plus pricing is more likely to lead to profit-maximization for monopolistically competitive firms than for oligopoly firms. 
D) cost-plus pricing is more likely to result in profit-maximization the more elastic the firm's demand curve is. 
A) cost-plus pricing is more likely to lead to profit-maximization for large firms than for small firms. 
B) cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine. 
C) cost-plus pricing is more likely to lead to profit-maximization for monopolistically competitive firms than for oligopoly firms. 
D) cost-plus pricing is more likely to result in profit-maximization the more elastic the firm's demand curve is.

Question 8

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

Accepted Answer

A) the Sherman Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Cellar-Kefauver Act 
A) the Sherman Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Cellar-Kefauver Act

Question 9

Netflix,an online DVD rental service,engages in price discrimination by

Accepted Answer

A) charging customers who rent the fewest movies per month a higher rental price than customers who rent the most movies per month. 
B) providing customers who rent the fewest movies per month better service than customers who rent the most movies per month. 
C) charging customers who rent the fewest movies per month a lower rental price than customers who rent the most movies per month. 
D) providing customers who rent the most movies per month better service than customers who rent the fewest movies per month. 
A) charging customers who rent the fewest movies per month a higher rental price than customers who rent the most movies per month. 
B) providing customers who rent the fewest movies per month better service than customers who rent the most movies per month. 
C) charging customers who rent the fewest movies per month a lower rental price than customers who rent the most movies per month. 
D) providing customers who rent the most movies per month better service than customers who rent the fewest movies per month.

Question 10

Many colleges and universities practice yield management.As a result,they offer different financial aid packages to different students.One result of yield management is that colleges often

Accepted Answer

A) offer a less generous financial aid package to students who apply for an early admission decision. 
B) offer a more generous financial aid package to students who apply for an early admission decision. 
C) offer a less generous financial aid package to students with relatively high family incomes. 
D) offer a less generous financial aid package to students who don't participate in many extracurricular activities when they are in high school. 
A) offer a less generous financial aid package to students who apply for an early admission decision. 
B) offer a more generous financial aid package to students who apply for an early admission decision. 
C) offer a less generous financial aid package to students with relatively high family incomes. 
D) offer a less generous financial aid package to students who don't participate in many extracurricular activities when they are in high school.

Question 11

Cost-plus pricing may be a reasonable way to determine price when

Accepted Answer

A) marginal cost and average fixed cost are roughly equal. 
B) marginal cost and average cost are about the same. 
C) marginal cost differs significantly from average cost. 
D) marginal cost is very low. 
A) marginal cost and average fixed cost are roughly equal. 
B) marginal cost and average cost are about the same. 
C) marginal cost differs significantly from average cost. 
D) marginal cost is very low.

Question 12

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

Accepted Answer

A) True 
 B)False

Question 13

Draw a graph that shows producer surplus,consumer surplus,and deadweight loss in a market where the seller practices perfect price discrimination.Be sure to identify the demand curve,the marginal revenue curve,the marginal cost curve,and the profit maximizing quantity on the graph.

Accepted Answer

The perfect price discriminator sells Q₃

Question 14

Kentucky and Montana have identical state gasoline taxes of 27.8 cents per gallon.When added to the federal gasoline tax of 18.4 cents per gallon,the total tax on one gallon of gasoline in these two states is 46.2 cents.On December 19,2011,the average price of one gallon of regular gasoline was $3.086 in Kentucky and $3.248 in Montana.Briefly explain whether this is an example of price discrimination.Assume that the gasoline being sold is identical in both states.
Sources: commonsensejunction.com and gasbuddy.com.

Accepted Answer

This appears to be a case of p

Question 15

What is yield management? How is yield management being used in the airline industry?

Accepted Answer

Yield management is the use of sophistic

Question 16

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Accepted Answer

A) True 
 B)False

Question 17

Figure 16-2   Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-2 shows this demand curve.
-Refer to Figure 16-2.If Sensei acts as a monopolist,his profit-maximizing price is ________ and the number of classes sold is ________.

Accepted Answer

A) P0; Q0 
B) P0; Q1 
C) P1; Q0 
D) P1; Q1 
A) P0; Q0 
B) P0; Q1 
C) P1; Q0 
D) P1; Q1

Question 18

Are restaurant coupons a form of price discrimination? Why or why not?

Accepted Answer

Yes,coupons are a form of price discrimi

Question 19

Figure 16-3   The Lizard Lounge is well known for its exotic cocktails.Figure 16-3 shows its estimated demand curve for cocktails.
-Refer to Figure 16-3.The owners of the Lizard Lounge are considering the following four pricing options: a.A single price scheme where the price of cocktails equals the monopoly price.
B.A single price scheme where the cocktail price equals the competitive price.
C.A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Which scheme will earn the largest profit?

Accepted Answer

A) scheme a 
B) scheme b 
C) scheme c 
D) scheme d 
A) scheme a 
B) scheme b 
C) scheme c 
D) scheme d

Question 20

Figure 16-2   Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-2 shows this demand curve.
-Refer to Figure 16-2.With this pricing scheme - a competitive price for the classes and a one-time membership fee - what amount of producer surplus will Sensei earn?

Accepted Answer

A) the area A + B + C + D + E. 
B) the area E + F. 
C) the area H + G + F. 
D) the area A + B + C + D + E + F + G + H 
A) the area A + B + C + D + E. 
B) the area E + F. 
C) the area H + G + F. 
D) the area A + B + C + D + E + F + G + H

The airline industry routinely engages in price discrimination across time.

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

Which of the following is not an example of price discrimination?

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

Cost-price pricing typically does not result in profit-maximization.As a result,economists have two views of cost-plus pricing.One of these views is

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

Netflix,an online DVD rental service,engages in price discrimination by

Many colleges and universities practice yield management.As a result,they offer different financial aid packages to different students.One result of yield management is that colleges often

Cost-plus pricing may be a reasonable way to determine price when

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

Draw a graph that shows producer surplus,consumer surplus,and deadweight loss in a market where the seller practices perfect price discrimination.Be sure to identify the demand curve,the marginal revenue curve,the marginal cost curve,and the profit maximizing quantity on the graph.

What is yield management? How is yield management being used in the airline industry?

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Are restaurant coupons a form of price discrimination? Why or why not?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters

Exam 16: Pricing Strategy

The airline industry routinely engages in price discrimination across time.

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400,what is the firm's markup?

Which of the following is not an example of price discrimination?

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

Cost-price pricing typically does not result in profit-maximization.As a result,economists have two views of cost-plus pricing.One of these views is

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

Netflix,an online DVD rental service,engages in price discrimination by

Many colleges and universities practice yield management.As a result,they offer different financial aid packages to different students.One result of yield management is that colleges often

Cost-plus pricing may be a reasonable way to determine price when

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

Draw a graph that shows producer surplus,consumer surplus,and deadweight loss in a market where the seller practices perfect price discrimination.Be sure to identify the demand curve,the marginal revenue curve,the marginal cost curve,and the profit maximizing quantity on the graph.

What is yield management? How is yield management being used in the airline industry?

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Are restaurant coupons a form of price discrimination? Why or why not?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Filters