Question 1

Third-degree price discrimination exists whenever:

Accepted Answer

A)  the seller knows exactly how much each potential customer is willing to pay and will charge accordingly. 
B)  different prices are charged by blocks of services. 
C)  the seller can separate markets by geography,income,age,etc.,and charge different prices to these different groups. 
D)  the seller will bargain with buyers in each of the markets to obtain the best possible price. 
A)  the seller knows exactly how much each potential customer is willing to pay and will charge accordingly. 
B)  different prices are charged by blocks of services. 
C)  the seller can separate markets by geography,income,age,etc.,and charge different prices to these different groups. 
D)  the seller will bargain with buyers in each of the markets to obtain the best possible price. C

Question 2

Which of the statements about price discrimination is (are)false?

Accepted Answer

A)  It must be possible to segment the market. 
B)  It must be difficult to transfer the seller's product from one market segment to another. 
C)  Public utilities practice first-degree price discrimination. 
D)  There must be differences in the elasticity of demand from one segment to another. 
E)  c and d 
A)  It must be possible to segment the market. 
B)  It must be difficult to transfer the seller's product from one market segment to another. 
C)  Public utilities practice first-degree price discrimination. 
D)  There must be differences in the elasticity of demand from one segment to another. 
E)  c and d C

Question 3

Consolidated Salt Company sells table salt to both retail grocery chains and commercial users (e.g.,bakeries,snack food makers,etc.).The demand function for each of these markets is: 
$$\begin{array} { l } 
\text {Retail grocery chains:}&P _ { 1 } = 180 - 8 Q _ { 1 } \
\text {Commercial users:}&P _ { 2 } = 100 - 4 Q _ { 2 }
\end{array}$$
  where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets.Consolidated's total cost function (which includes a "normal" return to the owners)for salt is: $$\mathrm { TC } = 50 + 20 \left( \mathrm { Q } _ { 1 } + \mathrm { Q } _ { 2 } \right)$$ (a) Determine Consolidated's total profit function.
Assuming that Consolidated is effectively able to charge different prices in the two
(b) markets, what are the profit-maximizing price and output levels for the product in the two markets? What is Consolidated's total profit under this condition?
Assuming that Consolidated is required to charge the same price in each market, what are
(c) the profit-maximizing price and output levels? What is Consolidated's total profit under this condition?

Accepted Answer

(a)? = TR ? TC = P₁Q₁ + P₂Q₂ ? TC = (180 ? 8Q₁)Q₁ + (100 ?4Q₂)Q₂ ? [50 + 20(Q₁ + Q₂)] = 180Q₁ ? 8Q₁² + 100Q₂ ? 4Q₂² ? 50 ? 20Q₁ ? 20Q₂ = ?50 + 160Q₁ + 80Q₂ ? 8Q₁² ? 4Q₂² (b) $$\begin{aligned} \frac { \partial \pi } { \partial Q _ { 1 } } & = 0 \ \frac { \partial \pi } { \partial Q _ { 1 } } & = 160 - 16 \mathrm { Q } _ { 1 } \ 0 & = 160 - 16 \mathrm { Q } _ { 1 } ^ { * } \ \mathrm { Q } _ { 1 } ^ { * } & = 10 \text { units } \ \mathrm { P } _ { 1 } ^ { * } & = 180 - 8 ( 10 ) \ & = \$ 100 / \text { unit } \end{aligned}$$ $$\begin{array} { l } \frac { \partial \pi } { \partial Q _ { 2 } } = 0 \text { (conditions for maximizing } \pi \text { ) } \\ \frac { \partial \pi } { \partial Q _ { 2 } } = 80 - 8 Q _ { 2 } \\ 0 = 80 - 8 Q _ { 2 } ^ { * } \\ Q _ { 2 } ^ { * } = 10 \text { units } \\ P _ { 2 } ^ { * } = 100 - 4 ( 10 ) \\ = \$ 60 / \text { unit } \end{array}$$ $$\begin{aligned} \pi ^ { * } & = - 50 + 160 ( 10 ) + 80 ( 10 ) - 80 ( 10 ) ^ { 2 } - 4 ( 10 ) ^ { 2 } \ & = \$ 1150 \end{aligned}$$ (c)180 ? 8Q₁ = 100 ? 4Q₂ $$\begin{aligned} Q _ { 2 } & = \frac { - 80 + 8 Q _ { 1 } } { 4 } \ & = - 20 + 2 Q _ { 1 } \end{aligned}$$ ? = ?50 + 160Q₁ + 80(?20 + 2Q₁)? 8Q₁² ? 4(?20 + 2Q₁)² = ?50 + 160Q₁ ? 1600 + 160Q₁ ? 8Q₁² ? 1600 + 320Q₁ ? 16Q₁² = ?3250 + 640Q₁ ? 24Q₁² $\frac { \mathrm { d } \pi } { \mathrm { dQ } } = 0$ (condition for maximizing $\left. \pi \right)$ $$\frac { \mathrm { d } \pi } { \mathrm { dQ } _ { 1 } } = 640 - 48 \mathrm { Q } _ { 1 }$$ $$0 = 640 - 480 Q _ { 1 } ^ { * }$$ $$Q _ { 1 } ^ { * } = 13.33 \text { units }$$ $$\begin{aligned} Q _ { 2 } ^ { * } & = - 20 + 2 ( 13.33 ) \ & = 6.67 \text { units } \end{aligned}$$ $$\begin{aligned} \mathrm { Q } ^ { * } & = \mathrm { Q }^ { * } _ { 1 } + \mathrm { Q }^ { * } _ { 2 } \ & = 13.33 + 6.67 \ & = 20 \text { units } \end{aligned}$$ $$\begin{aligned} P ^ { * } & = P _ { 2 } ^ { * } = 180 - 8 ( 13.33 ) \ & = \$ 73.36 / \text { unit } \end{aligned}$$ $$\begin{aligned} \pi & = - 3250 + 640 ( 13.33 ) - 24 ( 13.33 ) ^ { 2 } \ & = \$ 1,016.67 \end{aligned}$$

Question 4

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:

Accepted Answer

A)  make them reduce the amount of overbooking. 
B)  cause them to increase the amount of overbooking. 
C)  let them keep the same amount of overbooking. 
A)  make them reduce the amount of overbooking. 
B)  cause them to increase the amount of overbooking. 
C)  let them keep the same amount of overbooking.

Question 5

Firms must prevent resale between segments using a variety of: ​

Accepted Answer

A)  ​fences 
B)  ​bridges 
C)  ​tunnels 
D)  ​none of the above 
A)  ​fences 
B)  ​bridges 
C)  ​tunnels 
D)  ​none of the above

Question 6

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:

Accepted Answer

A)  spillage and spoilage both increase. 
B)  spillage decreases,but spoilage increases. 
C)  spillage and spoilage both decrease. 
D)  spoilage decreases,but spillage increases. 
A)  spillage and spoilage both increase. 
B)  spillage decreases,but spoilage increases. 
C)  spillage and spoilage both decrease. 
D)  spoilage decreases,but spillage increases.

Question 7

The following are possible examples of price discrimination,EXCEPT:

Accepted Answer

A)  prices in export markets are lower than for identical products in the domestic market. 
B)  senior citizens pay lower fares on public transportation than younger people at the same time. 
C)  a product sells at a higher price at location A than at location B,because transportation costs are higher from the factory to A. 
D)  subscription prices for a professional journal are higher when bought by a library than when bought by an individual. 
A)  prices in export markets are lower than for identical products in the domestic market. 
B)  senior citizens pay lower fares on public transportation than younger people at the same time. 
C)  a product sells at a higher price at location A than at location B,because transportation costs are higher from the factory to A. 
D)  subscription prices for a professional journal are higher when bought by a library than when bought by an individual.

Question 8

Second-degree price discrimination:

Accepted Answer

A)  is also known as block rate setting 
B)  is imperfect in the eyes of a monopolist 
C)  is regularly practiced by public utilities 
D)  is effective only in the case of services or products which are sold in easily metered units 
E)  all of the above 
A)  is also known as block rate setting 
B)  is imperfect in the eyes of a monopolist 
C)  is regularly practiced by public utilities 
D)  is effective only in the case of services or products which are sold in easily metered units 
E)  all of the above

Question 9

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

Accepted Answer

A) True 
 B)False

Question 10

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:

Accepted Answer

A)  the preference rankings of vacationers travelling together are negatively correlated. 
B)  a preference for cities is always higher than preferences for mountain vistas. 
C)  preference rankings of vacationers travelling together are positively correlated. 
D)  preference for the seaside is always higher than preferences for city excursions. 
E)  no one wants to take a European vacation package to cities,mountains,and the seaside. 
A)  the preference rankings of vacationers travelling together are negatively correlated. 
B)  a preference for cities is always higher than preferences for mountain vistas. 
C)  preference rankings of vacationers travelling together are positively correlated. 
D)  preference for the seaside is always higher than preferences for city excursions. 
E)  no one wants to take a European vacation package to cities,mountains,and the seaside.

Question 11

​Firms should begin their pricing decisions by:

Accepted Answer

A)  ​assessing total marginal cost of the product 
B)  ​identifying the value drivers in each customer segment 
C)  ​researching the market price of competitors 
D)  ​none of the above 
A)  ​assessing total marginal cost of the product 
B)  ​identifying the value drivers in each customer segment 
C)  ​researching the market price of competitors 
D)  ​none of the above

Question 12

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:

Accepted Answer

A)  Spoilage increases 
B)  Spillage increases 
C)  Overbooking increases 
A)  Spoilage increases 
B)  Spillage increases 
C)  Overbooking increases

Question 13

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production).

Accepted Answer

A)  first-degree 
B)  second-degree 
C)  third-degree 
D)  a and b 
E)  none of the above 
A)  first-degree 
B)  second-degree 
C)  third-degree 
D)  a and b 
E)  none of the above

Question 14

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

Accepted Answer

A)  ratio of price to marginal cost 
B)  ratio of marginal cost to marginal utility 
C)  ratio of price to elasticity 
D)  marginal revenue 
E)  none of the above 
A)  ratio of price to marginal cost 
B)  ratio of marginal cost to marginal utility 
C)  ratio of price to elasticity 
D)  marginal revenue 
E)  none of the above

Question 15

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?

Accepted Answer

A)  full-cost pricing policy 
B)  target-pricing policy 
C)  marginal-pricing policy 
D)  market-share pricing policy 
E)  markup pricing policy 
A)  full-cost pricing policy 
B)  target-pricing policy 
C)  marginal-pricing policy 
D)  market-share pricing policy 
E)  markup pricing policy

Question 16

[Appendix: Advanced Material] Cross functional revenue management examines capacity,pricing,and customer account management in order to maximize revenue.If the MegaPlex Movie Theater finds that too often they have to turn customers away from their theaters at peak movie times for blockbusters creating too much slippage,cross functional revenue management suggests:

Accepted Answer

A)  They could consider increasing the capacity of each theater to be able to seat more customers. 
B)  They could lower the price at the peak times to reduce the problem of spoilage. 
C)  They could stop showing blockbuster movies and select more critically acclaimed art films to decrease spoilage. 
D)  They could stop showing movies at night. 
A)  They could consider increasing the capacity of each theater to be able to seat more customers. 
B)  They could lower the price at the peak times to reduce the problem of spoilage. 
C)  They could stop showing blockbuster movies and select more critically acclaimed art films to decrease spoilage. 
D)  They could stop showing movies at night.

Question 17

The optimal mark-up is: m = -1/ (E+1).When the mark-up on cookware equals 50%,then demand elasticity (E)for cookware is:

Accepted Answer

A)  -1 
B)  -1.5 
C)  -2 
D)  -3 
A)  -1 
B)  -1.5 
C)  -2 
D)  -3

Question 18

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.

Accepted Answer

A)  Prestige pricing 
B)  Price lining 
C)  Skimming 
D)  Incremental pricing 
E)  None of the above 
A)  Prestige pricing 
B)  Price lining 
C)  Skimming 
D)  Incremental pricing 
E)  None of the above

Question 19

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:

Accepted Answer

A)  first-degree price discrimination 
B)  market penetration 
C)  third-degree price discrimination 
D)  second-degree price discrimination 
E)  none of the above 
A)  first-degree price discrimination 
B)  market penetration 
C)  third-degree price discrimination 
D)  second-degree price discrimination 
E)  none of the above

Question 20

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

Accepted Answer

A)  universal access price discrimination 
B)  declining block price discrimination. 
C)  mixed bundling price discrimination. 
D)  two-part price discrimination. 
E)  uniform pricing 
A)  universal access price discrimination 
B)  declining block price discrimination. 
C)  mixed bundling price discrimination. 
D)  two-part price discrimination. 
E)  uniform pricing

Third-degree price discrimination exists whenever:

Which of the statements about price discrimination is (are)false?

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:

Firms must prevent resale between segments using a variety of:

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:

The following are possible examples of price discrimination,EXCEPT:

Second-degree price discrimination:

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:

Firms should begin their pricing decisions by:

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production).

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?

The optimal mark-up is: m = -1/ (E+1).When the mark-up on cookware equals 50%,then demand elasticity (E)for cookware is:

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Applications of Cost Theory

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Contracting,governance,and Organizational Form

Government Regulation

Long-Term Investment Analysis

Filters

Exam 14: Pricing Techniques and Analysis

Third-degree price discrimination exists whenever:

Which of the statements about price discrimination is (are)false?

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:

Firms must prevent resale between segments using a variety of: ​

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:

The following are possible examples of price discrimination,EXCEPT:

Second-degree price discrimination:

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:

​Firms should begin their pricing decisions by:

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production).

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?

The optimal mark-up is: m = -1/ (E+1).When the mark-up on cookware equals 50%,then demand elasticity (E)for cookware is:

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

Introduction and Goals of the Firm

Fundamental Economic Concepts

Demand Analysis

Estimating Demand

Business and Economic Forecasting

Managing in the Global Economy

Production Economics

Cost Analysis

Applications of Cost Theory

Prices,output,and Strategy: Pure and Monopolistic Competition

Price and Output Determination: Monopoly and Dominant Firms

Price and Output Determination: Oligopoly

Best-Practice Tactics: Game Theory

Contracting,governance,and Organizational Form

Government Regulation

Long-Term Investment Analysis

Filters

Firms must prevent resale between segments using a variety of:

Firms should begin their pricing decisions by: