Question 1

If price discrimination occurs in a market,

Accepted Answer

A)  the law of one price does not hold. 
B)  the firm earns arbitrage profits. 
C)  consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic. 
D)  the marginal cost of production is constant. 
A)  the law of one price does not hold. 
B)  the firm earns arbitrage profits. 
C)  consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic. 
D)  the marginal cost of production is constant.

Question 2

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.

Question 3

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Accepted Answer

A)  the Clayton Act. 
B)  the Federal Trade Commission Act. 
C)  the Robinson-Patman Act. 
D)  the Sherman Act. 
A)  the Clayton Act. 
B)  the Federal Trade Commission Act. 
C)  the Robinson-Patman Act. 
D)  the Sherman Act.

Question 4

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 cocktail price 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.
Under which scheme are the Lounge customers better off?

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 5

Delaware and North Dakota have identical state gasoline taxes of 23.0 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 41.4 cents. On October 8, 2013, the average price of one gallon of regular gasoline was $3.309 in Delaware and $3.394 in North Dakota. Briefly explain whether this is an example of price discrimination. Assume that the gasoline being sold is identical in both states.
Sources: gaspricewatch.com and gasbuddy.com.

Accepted Answer

This appears to be a case of p

Question 6

Assuming zero transaction cost, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as

Accepted Answer

A)  arbitrage profits. 
B)  transactions profits. 
C)  pure profits. 
D)  excess profits. 
A)  arbitrage profits. 
B)  transactions profits. 
C)  pure profits. 
D)  excess profits.

Question 7

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

Accepted Answer

A) True 
 B)False

Question 8

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Accepted Answer

A) True 
 B)False

Question 9

A firm that can effectively price discriminate will charge a higher price to

Accepted Answer

A)  customers who have the more elastic demand for the product. 
B)  customers who have the more inelastic demand for the product. 
C)  buyers who belong to the largest market segment. 
D)  buyers who are members of the smallest market segment. 
A)  customers who have the more elastic demand for the product. 
B)  customers who have the more inelastic demand for the product. 
C)  buyers who belong to the largest market segment. 
D)  buyers who are members of the smallest market segment.

Question 10

Many book publishers use cost-plus pricing to establish prices for some of their books. Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Accepted Answer

We should not expect a publishing compan

Question 11

Consider three pricing strategies that the firm can pursue: a. optimal two-part tariff pricing
B. perfect price discrimination
C. single-price monopoly pricing.
Of these three strategies, which is least likely to benefit society as a whole?

Accepted Answer

A)  a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price 
B)  perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not 
C)  Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer. 
D)  single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller) that are not exploited 
A)  a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price 
B)  perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not 
C)  Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer. 
D)  single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller) that are not exploited

Question 12

Figure 16-7   The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

A) True 
 B)False

Question 13

When firms price their products by adding a percentage markup to their average costs of production, this is called

Accepted Answer

A)  average cost pricing. 
B)  rounding up. 
C)  break-even pricing. 
D)  cost-plus pricing. 
A)  average cost pricing. 
B)  rounding up. 
C)  break-even pricing. 
D)  cost-plus pricing.

Question 14

From an economic perspective, price discrimination is desirable because

Accepted Answer

A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms. 
A)  the increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus. 
B)  it enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation. 
C)  the increase in profits results in higher corporate tax revenues received by the government which could be used to subsidize consumption for low-income individuals. 
D)  it redistributes wealth from wealthy consumers to highly innovative firms.

Question 15

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. What is the per-unit price?

Accepted Answer

A)  $28 
B)  $24 
C)  $12 
D)  $8 
A)  $28 
B)  $24 
C)  $12 
D)  $8

Question 16

When colleges use yield management techniques, they increase financial aid offers to students likely to be more price sensitive and they reduce financial aid offers to students likely to be less price sensitive.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  It leads to profit maximization. 
B)  It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C)  It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D)  It is easy to justify price increases when total costs of production increase. 
A)  It leads to profit maximization. 
B)  It is an easy method to implement if a firm produces multiple products and has overhead costs that are difficult to allocate to a particular good. 
C)  It could lead to price stability if the industry is made up of identical firms all using the same method of pricing. 
D)  It is easy to justify price increases when total costs of production increase.

Question 18

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. If Julie charges $10 per hour, what is the value of the consumer surplus received by Dawn?

Accepted Answer

A)  $2 
B)  $10 
C)  $12 
D)  $22 
A)  $2 
B)  $10 
C)  $12 
D)  $22

Question 19

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?

Accepted Answer

A)  Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B)  By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C)  By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D)  By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit. 
A)  Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers. 
B)  By charging a higher price in market B, Chantal has transferred some of the consumer surplus from customers in market B to customers in market A. 
C)  By charging different prices in markets A and B, Chantal can transfer some producer surplus into economic profit. 
D)  By charging a higher price in market B, Chantal can convert some consumer surplus into economic profit.

Question 20

Transactions costs refer to

Accepted Answer

A)  the implicit costs of production. 
B)  the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. 
C)  the raw material cost of production. 
D)  the cost of transporting goods from one destination to another. 
A)  the implicit costs of production. 
B)  the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services. 
C)  the raw material cost of production. 
D)  the cost of transporting goods from one destination to another.

Exam 16: Pricing Strategy

If price discrimination occurs in a market,

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

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Assuming zero transaction cost, if your local grocer buys oranges at a low price from an orchard and resells them to you at a higher price, then the grocer's revenue minus costs is known as

The Clayton Act of 1936 outlawed price discrimination that reduced competition.

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

A firm that can effectively price discriminate will charge a higher price to

Many book publishers use cost-plus pricing to establish prices for some of their books. Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Consider three pricing strategies that the firm can pursue: a. optimal two-part tariff pricing B. perfect price discrimination C. single-price monopoly pricing. Of these three strategies, which is least likely to benefit society as a whole?

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -An optimal two-part tariff pricing schedule maximizes consumer surplus.

When firms price their products by adding a percentage markup to their average costs of production, this is called

From an economic perspective, price discrimination is desirable because

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. What is the per-unit price?

When colleges use yield management techniques, they increase financial aid offers to students likely to be more price sensitive and they reduce financial aid offers to students likely to be less price sensitive.

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

Transactions costs refer to

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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