Question 1

Consider a monopoly facing a demand structure where the price elasticity of demand is -1.25. The optimal markup factor is:

Accepted Answer

A)  5 times marginal revenue. 
B)  0.2 times marginal revenue. 
C)  5 times marginal cost. 
D)  0.2 times marginal cost. 
A)  5 times marginal revenue. 
B)  0.2 times marginal revenue. 
C)  5 times marginal cost. 
D)  0.2 times marginal cost.

Question 2

The price elasticity of demand for senior citizens purchasing coffee from McDonald's is -5, while non-senior citizens have a price elasticity of demand equal to -1.25. If it costs McDonald's $0.02 to produce a coffee, the optimal price for a cup of coffee for senior citizens and the resultant marginal cost under third-degree price discrimination are, respectively:

Accepted Answer

A)  $0.016 and $0.20. 
B)  $0.02 and $0.80. 
C)  $0.025 and $0.02. 
D)  $0.10 and $0.02. 
A)  $0.016 and $0.20. 
B)  $0.02 and $0.80. 
C)  $0.025 and $0.02. 
D)  $0.10 and $0.02.

Question 3

The price elasticity of demand for senior citizens purchasing coffee from McDonald's is -5, while non-senior citizens have a price elasticity of demand equal to -1.25. If it costs McDonald's $0.02 to produce a coffee, the optimal price for a cup of coffee for non-senior citizens and the resultant marginal cost under third-degree price discrimination are:

Accepted Answer

A)  $0.004 and $0.02. 
B)  $0.02 and $0.80. 
C)  $0.10 and $0.02. 
D)  $10 and $0.20. 
A)  $0.004 and $0.02. 
B)  $0.02 and $0.80. 
C)  $0.10 and $0.02. 
D)  $10 and $0.20.

Question 4

Which of the following is a true statement about the process of cross-subsidization, given that a firm is selling two products?

Accepted Answer

A)  The two products cannot have interdependent demand functions. 
B)  The firm will sell both of its products at prices set above costs. 
C)  The firm needs cost complementarities in the production of the two goods. 
D)  The firm will sell both of its products at prices set above costs and the firm needs cost complementarities in the production of the two goods. 
A)  The two products cannot have interdependent demand functions. 
B)  The firm will sell both of its products at prices set above costs. 
C)  The firm needs cost complementarities in the production of the two goods. 
D)  The firm will sell both of its products at prices set above costs and the firm needs cost complementarities in the production of the two goods.

Question 5

You run a golf course at a tourist resort. At your resort, there are two distinct groups of players. One group owns property at the resort and resides there most of the year. On average, each of these consumers has a monthly inverse demand for golf services of P = 100 - 0.5Q. The other group visits for one week at a time and has a total weekly demand curve of P = 40 - 0.1Q. What pricing strategy will maximize your profits?

Accepted Answer

Suppose the marginal cost to the golf co

Question 6

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?

Accepted Answer

A)  Intensive advertising campaign 
B)  Price wars with competitors 
C)  Frequent buyer rebate programs 
D)  None of the answers are correct. 
A)  Intensive advertising campaign 
B)  Price wars with competitors 
C)  Frequent buyer rebate programs 
D)  None of the answers are correct.

Question 7

You have just been hired as manager of a new health spa in Retirement Village, Florida. The owner has commissioned a market study that estimates the average customer's monthly demand curve for visiting the health spa to be Qd = 50 - 0.25P. The cost of operating is C(Q) = 3Q, where Q is the number of visits. The owner has been charging a $20 per month membership fee and a $5 per visit fee. Part of your salary is 10 percent of the monthly profits. Suggest a pricing strategy that will increase your salary.

Accepted Answer

With the original pricing scheme, the nu

Question 8

Which of the following statements is true regarding a simple pricing rule for monopoly and monopolistic competition?

Accepted Answer

A)  P[EF/(1 + EF)] = MC 
B)  P = [(1 + EF)/EF]MC 
C)  P[(1 + EF)/EF] = MC 
D)  All of the statements associated with this question are correct. 
A)  P[EF/(1 + EF)] = MC 
B)  P = [(1 + EF)/EF]MC 
C)  P[(1 + EF)/EF] = MC 
D)  All of the statements associated with this question are correct.

Question 9

Firms will often implement randomized pricing in an attempt to reduce:

Accepted Answer

A)  only competitor price information. 
B)  only consumer price information. 
C)  both customer and competitor information about price. 
D)  Randomized pricing does not affect information available to consumers or competitors. 
A)  only competitor price information. 
B)  only consumer price information. 
C)  both customer and competitor information about price. 
D)  Randomized pricing does not affect information available to consumers or competitors.

Question 10

You are the manager of a gas station and your goal is to maximize profits. Based on your past experience, the elasticity of demand by Ohioans for a car wash is -3, while the elasticity of demand by non-Ohioans for a car wash is -1.5. If you charge Ohioans $9 for a car wash, how much should you charge a man with a Kentucky license plate for a car wash?

Accepted Answer

A)  $6 
B)  $15 
C)  $18 
D)  $9 
A)  $6 
B)  $15 
C)  $18 
D)  $9

Question 11

Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services. Suppose that an individual's inverse demand for wireless services in the greater Boston area is estimated to be P = 100 - 33Q and the marginal cost of providing wireless services to the area is $1 per minute. What is the optimal two-part price that you would suggest to Verizon?

Accepted Answer

A)  Charge a fixed fee = $95.5 and a usage fee of $1 per minute. 
B)  Charge a fixed fee = $3 and a usage fee of $0.33 per minute. 
C)  Charge a fixed fee = $148.50 and a usage fee of $1 per minute. 
D)  Charge a fixed fee = $3 and a usage fee of $3 per minute. 
A)  Charge a fixed fee = $95.5 and a usage fee of $1 per minute. 
B)  Charge a fixed fee = $3 and a usage fee of $0.33 per minute. 
C)  Charge a fixed fee = $148.50 and a usage fee of $1 per minute. 
D)  Charge a fixed fee = $3 and a usage fee of $3 per minute.

Question 12

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?

Accepted Answer

A)  $4 
B)  $8 
C)  $12 
D)  $16 
A)  $4 
B)  $8 
C)  $12 
D)  $16

Question 13

Refer to the figure below. During high-peak times, what price-quantity combination should the firm charge to maximize profit?

Accepted Answer

A)  P1 and Q3 
B)  P2 and Q3 
C)  P4 and Q3 
D)  P1 and Q2 
A)  P1 and Q3 
B)  P2 and Q3 
C)  P4 and Q3 
D)  P1 and Q2

Question 14

Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. The optimal commodity bundling strategy is:

Accepted Answer

A)  Charge $150 for a suit. 
B)  Charge $75 for a suit. 
C)  Charge $100 for a suit. 
D)  Charge $125 for a suit. 
A)  Charge $150 for a suit. 
B)  Charge $75 for a suit. 
C)  Charge $100 for a suit. 
D)  Charge $125 for a suit.

Question 15

The idea of charging two different groups of consumers two different prices is practiced in:

Accepted Answer

A)  two-part pricing. 
B)  price matching. 
C)  commodity bundling. 
D)  None of the answers are correct. 
A)  two-part pricing. 
B)  price matching. 
C)  commodity bundling. 
D)  None of the answers are correct.

Question 16

The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two-part pricing, what is the optimal price to charge a consumer for each unit purchased?

Accepted Answer

A)  $0 
B)  $1 
C)  $4 
D)  None of the answers are correct. 
A)  $0 
B)  $1 
C)  $4 
D)  None of the answers are correct.

Question 17

First-degree price discrimination:

Accepted Answer

A)  occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased. 
B)  results in the firm extracting all surplus from consumers. 
C)  occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased and results in the firm extracting all surplus from consumers. 
D)  None of the answers are correct. 
A)  occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased. 
B)  results in the firm extracting all surplus from consumers. 
C)  occurs when a firm charges each consumer the maximum price he or she would be willing to pay for each unit of the good purchased and results in the firm extracting all surplus from consumers. 
D)  None of the answers are correct.

Question 18

You are the manager of a gas station in a small town, and your goal is to maximize profits. Based on your experience, the elasticity of demand of Texans for a car wash is -2, while that of non-Texans is -1.5. Your marginal cost is $6.
a. Are the conditions necessary for price discrimination to be an effective means of enhancing profits being met? Explain.
b. What is the profit-maximizing price to charge a Texan for a car wash?
c. What is the profit-maximizing price to charge a Californian for a car wash?

Accepted Answer

@#IMG-DLM& c. Price

Question 19

When two or more divisions mark up prices in excess of marginal cost:

Accepted Answer

A)  double marginalization occurs. 
B)  two-part pricing occurs. 
C)  second-degree price discrimination occurs. 
D)  None of the answers are correct. 
A)  double marginalization occurs. 
B)  two-part pricing occurs. 
C)  second-degree price discrimination occurs. 
D)  None of the answers are correct.

Question 20

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What are the profits of the monopoly in equilibrium?

Accepted Answer

A)  $300 
B)  $400 
C)  $500 
D)  $600 
A)  $300 
B)  $400 
C)  $500 
D)  $600

Consider a monopoly facing a demand structure where the price elasticity of demand is -1.25. The optimal markup factor is:

Which of the following is a true statement about the process of cross-subsidization, given that a firm is selling two products?

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?

Which of the following statements is true regarding a simple pricing rule for monopoly and monopolistic competition?

Firms will often implement randomized pricing in an attempt to reduce:

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?

Refer to the figure below. During high-peak times, what price-quantity combination should the firm charge to maximize profit?

Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. The optimal commodity bundling strategy is:

The idea of charging two different groups of consumers two different prices is practiced in:

The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two-part pricing, what is the optimal price to charge a consumer for each unit purchased?

First-degree price discrimination:

When two or more divisions mark up prices in excess of marginal cost:

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What are the profits of the monopoly in equilibrium?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Exam 11: Pricing Strategies for Firms With Market Power

Consider a monopoly facing a demand structure where the price elasticity of demand is -1.25. The optimal markup factor is:

Which of the following is a true statement about the process of cross-subsidization, given that a firm is selling two products?

If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty?

Which of the following statements is true regarding a simple pricing rule for monopoly and monopolistic competition?

Firms will often implement randomized pricing in an attempt to reduce:

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?

Refer to the figure below. During high-peak times, what price-quantity combination should the firm charge to maximize profit?

Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat and $50 for pants. Consumers of type B will pay $75 for a coat and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. The optimal commodity bundling strategy is:

The idea of charging two different groups of consumers two different prices is practiced in:

The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two-part pricing, what is the optimal price to charge a consumer for each unit purchased?

First-degree price discrimination:

When two or more divisions mark up prices in excess of marginal cost:

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What are the profits of the monopoly in equilibrium?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters