Question 1

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 2

The airline industry routinely engages in price discrimination across time.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) business travelers fly according to schedules that are planned months in advance.Many leisure travelers buy their tickets at the last minute. 
B) business travelers usually travel alone.Leisure travelers often fly with friends and family members;therefore,they have a more inelastic demand for airline tickets than business travelers. 
C) business travelers fly more often than most leisure travelers.As a result,their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D) business travelers often have inflexible schedules and have to travel on a particular day.The opposite is true for leisure travelers. 
A) business travelers fly according to schedules that are planned months in advance.Many leisure travelers buy their tickets at the last minute. 
B) business travelers usually travel alone.Leisure travelers often fly with friends and family members;therefore,they have a more inelastic demand for airline tickets than business travelers. 
C) business travelers fly more often than most leisure travelers.As a result,their employers are able to bargain with airlines for lower fares than leisure travelers pay. 
D) business travelers often have inflexible schedules and have to travel on a particular day.The opposite is true for leisure travelers.

Question 4

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 5

Movie theaters often charge different people different prices for admission.Why don't theaters charge different prices for popcorn and other food items?

Accepted Answer

A) Although the elasticity of demand for admission differs among customers,most people have the same the elasticity of demand for food items. 
B) Concession stand personnel are too busy to ensure that different people pay different prices for food items. 
C) Once people are in the theater,concession stands have monopoly power and can charge everyone the same high prices for food. 
D) It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand. 
A) Although the elasticity of demand for admission differs among customers,most people have the same the elasticity of demand for food items. 
B) Concession stand personnel are too busy to ensure that different people pay different prices for food items. 
C) Once people are in the theater,concession stands have monopoly power and can charge everyone the same high prices for food. 
D) It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand.

Question 6

Price discrimination

Accepted Answer

A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer. 
A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.

Question 7

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

Accepted Answer

A) first-degree exploitation,or perfect price discrimination. 
B) maximization of producer surplus,or perfect price discrimination. 
C) first-degree price discrimination,or perfect price discrimination. 
D) first-degree transfer of consumer surplus,or perfect price discrimination. 
A) first-degree exploitation,or perfect price discrimination. 
B) maximization of producer surplus,or perfect price discrimination. 
C) first-degree price discrimination,or perfect price discrimination. 
D) first-degree transfer of consumer surplus,or perfect price discrimination.

Question 8

Joss is a marketing consultant.Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report.Iris is willing to pay $500 for the service while Daphne is willing to pay $800.Suppose that the opportunity cost of Joss's time is $1,200.Assume that Iris and Daphne do not know each other.If Joss charges the same price per copy of the report to both Iris and Daphne

Accepted Answer

A) the report will not get written. 
B) only Daphne will commission the job and the report will be written. 
C) both Iris and Daphne will commission the job and the report will be written. 
D) no conclusion can be drawn without information on the price. 
A) the report will not get written. 
B) only Daphne will commission the job and the report will be written. 
C) both Iris and Daphne will commission the job and the report will be written. 
D) no conclusion can be drawn without information on the price.

Question 9

With perfect price discrimination there is

Accepted Answer

A) no deadweight loss. 
B) no producer surplus. 
C) one single price. 
D) an increase in consumer surplus. 
A) no deadweight loss. 
B) no producer surplus. 
C) one single price. 
D) an increase in consumer surplus.

Question 10

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand,the price in the market segment with more-elastic customer demand will be

Accepted Answer

A) greater than $34. 
B) less than $34. 
C) less than marginal revenue in that market segment. 
D) equal to marginal revenue in that market segment. 
A) greater than $34. 
B) less than $34. 
C) less than marginal revenue in that market segment. 
D) equal to marginal revenue in that market segment.

Question 11

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Accepted Answer

A) True 
 B)False

Question 12

$$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Potential } \
\text { Customer }
\end{array} & \begin{array} { c } 
\text { Willingness to } \
\text { Pay (dollars per } \
\text { hour) }
\end{array} \
\hline \text { Arun } & \$ 8 \
\hline \text { Bernice } & 9 \
\hline \text { Cara } & 10 \
\hline \text { Dawn } & 12 \
\hline
\end{array}$$ 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,how many hours of pet sitting services will be purchased and by whom?

Accepted Answer

A) 2 hours (1 hour by Cara and 1 hour by Dawn) 
B) 1 hour by Cara only 
C) 1 hour by Dawn only 
D) 3 hours (1 hour each by Arun,Bernice,and Cara) 
A) 2 hours (1 hour by Cara and 1 hour by Dawn) 
B) 1 hour by Cara only 
C) 1 hour by Dawn only 
D) 3 hours (1 hour each by Arun,Bernice,and Cara)

Question 13

If,at a firm's projected sales level,the marginal cost is $125,the average cost is $150 and the markup is 20 percent,then its selling price is

Accepted Answer

A) $125. 
B) $150. 
C) $165. 
D) $180. 
A) $125. 
B) $150. 
C) $165. 
D) $180.

Question 14

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Accepted Answer

A) True 
 B)False

Question 15

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity } \
\text { Demanded in } \
\text { Middle Fall } \
\text { (tubes per week) }
\end{array} & \begin{array} { c } 
\text { Price per } \
\text { Tube }
\end{array} & \begin{array} { c } 
\text { Quantity Demanded } \
\text { in West Fall } \
\text { (tubes per week) }
\end{array} & \begin{array} { c } 
\text { Price per } \
\text { Tube }
\end{array} \
\hline 1 & \$ 8 & 1 & \$ 5.00 \
\hline 2 & 7 & 2 & 4.50 \
\hline 3 & 6 & 3 & 4.00 \
\hline 4 & 5 & 4 & 3.50 \
\hline 5 & 4 & 5 & 3.00 \
\hline
\end{array}$$ Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2.The average cost of production is constant at $2 per tube.
-Refer to Table 16-2.How many tubes of toothpaste will Neem sell in Middle Fall and at what price?

Accepted Answer

A) Q = 2 units;P = $7 
B) Q = 3 units;P = $6 
C) Q = 4 units;P = $5 
D) Q = 5 units;P = $4 
A) Q = 2 units;P = $7 
B) Q = 3 units;P = $6 
C) Q = 4 units;P = $5 
D) Q = 5 units;P = $4

Question 16

The law of one price holds exactly only if

Accepted Answer

A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good. 
A) antitrust laws are being enforced. 
B) buyers have complete information. 
C) transactions costs are zero. 
D) it is impossible for buyers to resell the good.

Question 17

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations,then it is engaging in

Accepted Answer

A) odd pricing. 
B) cost-plus pricing. 
C) price discrimination. 
D) markup pricing. 
A) odd pricing. 
B) cost-plus pricing. 
C) price discrimination. 
D) markup pricing.

Question 18

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Accepted Answer

A) The total revenue received under the two pricing schedules is the same. 
B) The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C) The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D) The total revenue received under an optimal two-part tariff could be greater than,less than,or equal to that received under perfect price discrimination,depending on the fixed-fee portion of the two-part tariff. 
A) The total revenue received under the two pricing schedules is the same. 
B) The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination. 
C) The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination. 
D) The total revenue received under an optimal two-part tariff could be greater than,less than,or equal to that received under perfect price discrimination,depending on the fixed-fee portion of the two-part tariff.

Question 19

Are restaurant coupons a form of price discrimination? Why or why not?

Accepted Answer

Yes,coupons are a form of price discrimi

Question 20

If a monopolist practices perfect price discrimination

Accepted Answer

A) the firm will break even in the long run. 
B) consumers surplus will be equal to the deadweight loss. 
C) producer surplus will equal consumer surplus. 
D) consumer surplus will be zero. 
A) the firm will break even in the long run. 
B) consumers surplus will be equal to the deadweight loss. 
C) producer surplus will equal consumer surplus. 
D) consumer surplus will be zero.

Exam 16: Pricing Strategy

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

The airline industry routinely engages in price discrimination across time.

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

If price discrimination occurs in a market

Movie theaters often charge different people different prices for admission.Why don't theaters charge different prices for popcorn and other food items?

Price discrimination

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

With perfect price discrimination there is

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand,the price in the market segment with more-elastic customer demand will be

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

If,at a firm's projected sales level,the marginal cost is $125,the average cost is $150 and the markup is 20 percent,then its selling price is

The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

The law of one price holds exactly only if

If a firm charges different consumers different prices for the same product and the difference cannot be attributed to cost variations,then it is engaging in

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Are restaurant coupons a form of price discrimination? Why or why not?

If a monopolist practices perfect price discrimination

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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