Question 1

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

Accepted Answer

A)  yield management. 
B)  elasticity management. 
C)  brand management. 
D)  marketing. 
A)  yield management. 
B)  elasticity management. 
C)  brand management. 
D)  marketing. A

Question 2

The following table contains the actual prices charged by four Websites for the PlayStation 3 game The Last of Us in October 2013.
   Explain whether the information in this table contradicts the law of one price.

Accepted Answer

The data in the table does seem to contradict the law of one price, since the price of this game at Wal-Mart and is considerably less than the price at Best Buy, GameStop, and Target.

Question 3

Which of the following will prevent firms from engaging in price discrimination?

Accepted Answer

A)  yield management 
B)  arbitrage 
C)  transactions costs 
D)  odd pricing 
A)  yield management 
B)  arbitrage 
C)  transactions costs 
D)  odd pricing B

Question 4

Which of the following describes two-part tariff pricing?

Accepted Answer

A)  A firm charges two different prices for the same good. 
B)  An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C)  A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D)  A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television or a suite of furniture. 
A)  A firm charges two different prices for the same good. 
B)  An importer has to pay a tax at the nation's borders, and a sales tax when the good is sold. 
C)  A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D)  A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car, a plasma television or a suite of furniture.

Question 5

A firm using a two-part tariff faces a tradeoff because

Accepted Answer

A)  the only way to increase the fixed-fee portion of the price is to lower the per-unit portion of the price. 
B)  the only way to increase total revenue is to lower per-unit profit. 
C)  any increase in consumer surplus must be offset by a decrease in producer surplus. 
D)  the smaller the variation between the parts of the price, the greater the deadweight loss generated by the pricing scheme. 
A)  the only way to increase the fixed-fee portion of the price is to lower the per-unit portion of the price. 
B)  the only way to increase total revenue is to lower per-unit profit. 
C)  any increase in consumer surplus must be offset by a decrease in producer surplus. 
D)  the smaller the variation between the parts of the price, the greater the deadweight loss generated by the pricing scheme.

Question 6

Which of the following is not an advantage of cost-plus pricing?

Accepted Answer

A)  It is easy to calculate. 
B)  It requires little information. 
C)  If a firm is selling multiple products, it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D)  It ensures that the firm will maximize its profits. 
A)  It is easy to calculate. 
B)  It requires little information. 
C)  If a firm is selling multiple products, it ensures that the firm's prices will cover costs that are difficult to assign to one product. 
D)  It ensures that the firm will maximize its profits.

Question 7

If a firm knew every consumer's willingness to pay and could prevent arbitrage, it could charge every consumer a different price. This practice is known as

Accepted Answer

A)  first-degree exploitation, or perfect price discrimination. 
B)  maximization of producer surplus, or perfect price discrimination. 
C)  first-degree price discrimination, or perfect price discrimination. 
D)  first-degree transfer of consumer surplus, or perfect price discrimination. 
A)  first-degree exploitation, or perfect price discrimination. 
B)  maximization of producer surplus, or perfect price discrimination. 
C)  first-degree price discrimination, or perfect price discrimination. 
D)  first-degree transfer of consumer surplus, or perfect price discrimination.

Question 8

Assume 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?

Accepted Answer

a. If a firm uses an optimal two-part ta

Question 9

According to the law of one price,

Accepted Answer

A)  if transaction costs are zero, identical goods should sell for the same price everywhere. 
B)  if transactions costs are zero, firms must sell a product at a price equal to its marginal cost. 
C)  if transactions costs are zero, all firms must earn the same profit margin. 
D)  there must be no differences in the cost of producing identical goods by different producers. 
A)  if transaction costs are zero, identical goods should sell for the same price everywhere. 
B)  if transactions costs are zero, firms must sell a product at a price equal to its marginal cost. 
C)  if transactions costs are zero, all firms must earn the same profit margin. 
D)  there must be no differences in the cost of producing identical goods by different producers.

Question 10

The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.

Accepted Answer

A) True 
 B)False

Question 11

Consider the following pricing strategies: a. perfect price discrimination
B. charging different prices to different groups of customers
C. optimal two-part tariff
D. single-price monopoly pricing
Which of the pricing strategies leads to the economically efficient output level?

Accepted Answer

A)  a only 
B)  a and b only 
C)  a and c only 
D)  a, b, and c only 
A)  a only 
B)  a and b only 
C)  a and c only 
D)  a, b, and c only

Question 12

Figure 16-6   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 16-6 shows this demand curve.
-Refer to Figure 16-6. 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 13

According to the law of one price, identical products should sell for the same price everywhere if

Accepted Answer

A)  consumers have knowledge of the prices charged for products in different markets. 
B)  transactions costs are zero. 
C)  firms can prevent consumers from engaging in arbitrage. 
D)  there are no tariffs or other restrictions on imports or exports. 
A)  consumers have knowledge of the prices charged for products in different markets. 
B)  transactions costs are zero. 
C)  firms can prevent consumers from engaging in arbitrage. 
D)  there are no tariffs or other restrictions on imports or exports.

Question 14

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

Accepted Answer

A)  odd pricing. 
B)  cost-plus pricing. 
C)  price discrimination. 
D)  markup pricing. 
A)  odd pricing. 
B)  cost-plus pricing. 
C)  price discrimination. 
D)  markup pricing.

Question 15

A successful strategy of price discrimination requires that a firm be a price-taker.

Accepted Answer

A) True 
 B)False

Question 16

Refer to Figure 16-2. Suppose Plato Playhouse charges a single price of Pd for each performance. Which of the following statements is true?

Accepted Answer

A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets, but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets. 
A)  The company is selling more than the profit-maximizing quantity in the non-student market and less than the profit-maximizing quantity in the student market. 
B)  The company is selling less than the profit-maximizing quantity in the non-student market and more than the profit-maximizing quantity in the student market. 
C)  The company is selling less than the profit-maximizing quantity in both markets, but it is maximizing its revenue. 
D)  The company is selling less than the profit-maximizing quantity in both markets.

Question 17

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient level of output.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true?

Accepted Answer

A)  Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing. 
B)  Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing. 
C)  Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing. 
D)  Of the three pricing schedules, single-price monopoly, an optimal two-part tariff and perfect price discrimination, profit is highest under single-price monopoly pricing. 
A)  Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing. 
B)  Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing. 
C)  Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing. 
D)  Of the three pricing schedules, single-price monopoly, an optimal two-part tariff and perfect price discrimination, profit is highest under single-price monopoly pricing.

Question 19

Figure 16-1  
-Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell

Accepted Answer

A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units. 
A)  Q1 units. 
B)  Q2 units. 
C)  Q3 units. 
D)  Q4 units.

Question 20

When a firm charges $4.95 instead of $5.00, what do economists call this pricing strategy?

Accepted Answer

A)  cost-plus pricing 
B)  indirect pricing 
C)  odd pricing 
D)  unusual pricing 
A)  cost-plus pricing 
B)  indirect pricing 
C)  odd pricing 
D)  unusual pricing

Exam 16: Pricing Strategy

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

The following table contains the actual prices charged by four Websites for the PlayStation 3 game The Last of Us in October 2013. Explain whether the information in this table contradicts the law of one price.

Which of the following will prevent firms from engaging in price discrimination?

Which of the following describes two-part tariff pricing?

A firm using a two-part tariff faces a tradeoff because

Which of the following is not an advantage of cost-plus pricing?

If a firm knew every consumer's willingness to pay and could prevent arbitrage, it could charge every consumer a different price. This practice is known as

Assume 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?

According to the law of one price,

The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.

Consider the following pricing strategies: a. perfect price discrimination B. charging different prices to different groups of customers C. optimal two-part tariff D. single-price monopoly pricing Which of the pricing strategies leads to the economically efficient output level?

According to the law of one price, identical products should sell for the same price everywhere if

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations, then it is engaging in

A successful strategy of price discrimination requires that a firm be a price-taker.

Refer to Figure 16-2. Suppose Plato Playhouse charges a single price of Pd for each performance. Which of the following statements is true?

Perfect price discrimination will lead a firm to produce up to the point where price equals marginal cost, the efficient level of output.

Which of the following statements is true?

Figure 16-1 -Refer to Figure 16-1. With perfect price discrimination, the firm will produce and sell

When a firm charges $4.95 instead of $5.00, what do economists call this pricing strategy?

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

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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