Exam 16: Pricing Strategy

Potential Customer Willingness to Pay (dollars per hour) Arun \ 8 Bernice 9 Cara 10 Dawn 12 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.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.How many hours will be purchased and what is her total revenue?

The expenses you encounter when you buy in one market and sell in a distant market are known as

Some consumer electronics products such as plasma TVs,DVD players,and digital cameras,are introduced at very high prices but over time,their prices start falling (beyond what could be attributed to falling costs as companies take advantage of economies of scale and cheaper technologies).Which of the following is the best explanation for this observation?

Differentiating products to suit customers' tastes is a form of price discrimination.

Firms price discriminate

Article Summary Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription,and how using this method of first-degree price discrimination would generate higher profits.Shiller explains that the more information a company has about its customers,the better it is at being able to set prices to increase profits.As he stated in his paper,"Using all variables to tailor prices,one can yield variable profits 1.39 percent higher than variable profits obtained using non-tailored 2nd degree price-discrimination.Using demographics alone to tailor prices raises profits by much less,yielding variable profits only 0.14% higher than variable profits attainable under 2nd degree [price discrimination]." -Refer to the Article Summary.The pricing method described in the article is referred to as first-degree price discrimination.First-degree price discrimination is also known as

Figure 16-4 -Refer to Figure 16-4.Graph (a)represents a monopolist who cannot price discriminate and graph (b)represents a monopolist practicing perfect price discrimination.On each graph,identify the monopoly price,the monopoly output,the efficient output,and the areas representing profit,consumer surplus,and deadweight loss.

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that

The price of admission to Walt Disney World

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal,customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.

What is yield management? How is yield management being used in the airline industry?

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

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?

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

Odd pricing became common in the late 19th century.Although the origins of odd pricing are uncertain,several explanations for the practice have been given.Which of the following is one of these explanations?

Toot Sweets Bakery sells freshly baked muffins from 6.30 am at $1.20 per muffin.By 4 pm,the remaining muffins are marked down to $0.60 each.Which of the following statements is true?

Arnold's Airport Transport provides passenger transportation to and from the local airport.Arnold charges a flat rate of $30 per person for round-trip service,and he gives a $5 discount to senior citizens.Assume Arnold's marginal cost is $3.00 per person.Draw two graphs,one showing demand and marginal cost for his $30 customers,of which he has 300 per month,and the other graph showing demand and marginal cost for his senior citizen customers,of which he has 100 per month.If Arnold charged all of his customers $30,he would have 325 customers per month.

The following table contains the actual prices charged by four Web sites for the PlayStation 4 game Call of Duty;Black Ops III in November 2015. Target \ 59.99 Walmart 59.00 Best Buy 59.99 GarneStop 59.99 Explain whether the information in this table contradicts the law of one price.

In an optimal two-part tariff pricing schedule,consumer surplus is zero.

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 best off?