Exam 16: Pricing Strategy

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -Refer to Figure 16-7. 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?

If demand is taken into account, firms that use cost-plus pricing can adjust price by

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. What is the quantity sold to each group of customer and what is the total quantity sold?

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website and in retail stores. Apple charges lower prices to college students and faculty members because

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32. If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market. He later resold these items on eBay. The profits Harvey earned from these sales are

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 competitive price. (This is also called an optimal two-part tariff.) What is the total revenue it can expect to collect from the fixed fee portion of the price?

Book publishers often use price discrimination across time to increase profits. Toni Morrison's book, A Mercy, was published as a hardcover edition in November 2008 at a price of $23.95. In August 2009, the paperback version was published at a price of $15.00. Assume that 100,000 hardcover books were sold to hard-core Toni Morrison fans in November 2008, and 400,000 paperback books were sold to casual readers in August 2009. Illustrate each of these situations graphically. Assume that the marginal cost of the hardcover version is $2.00 and the marginal cost of the paperback version is $0.75.

One reason why airlines charge business travelers and leisure travelers different prices is

Online companies gather personal information about the customers who shop on their Websites and some of those companies will use the data to estimate price elasticities of the customers. Doing this is a way that these companies might be able to charge a higher price for a product to those customers who have a ________ price elasticity of demand.

Figure 16-1 -Refer to Figure 16-1. What is the consumer surplus received under perfect price discrimination?

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices. This information is then used to adjust prices of the firms' goods and services. This practice is called

The following table contains the actual prices charged by four Web sites for a Blu-ray disc of the movie The Twilight Saga: Breaking Dawn - Part 2 in October 2013. Explain whether the information in this table contradicts the law of one price.

Arnold Marion, a first-year economics student at Fazer College, was given an assignment to find an example of price discrimination and present it to his class. When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week. We paid $25 each for our seats in left field. My aunt and uncle paid $50 each for their tickets; they sat five rows behind the first base dugout. This is an example of price discrimination since we paid different prices for the same product, and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?

The price of admission to Walt Disney World

Though large firms have the knowledge and resources to utilize a better pricing strategy, many choose to use cost-plus pricing. One reason for this is that

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. Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price. What is the competitive price and what is the quantity demanded at this price?

The term "early adopters" refers to

Your text refers to airlines as "The Kings of Price Discrimination." Why is price discrimination common in the airline industry?

Price discrimination is possible in which of the following market structures? a. perfect competition B. monopoly C. oligopoly D. monopolistic competition