Question 1

Which of the following antitrust laws forbade firms to engage in price discrimination if the effect would lessen competition or create a monopoly?

Accepted Answer

A) the Sherman Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Cellar-Kefauver Act 
A) the Sherman Act 
B) the Clayton Act 
C) the Robinson-Patman Act 
D) the Cellar-Kefauver Act

Question 2

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 3

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 4

Figure 16-5  
-Refer to Figure 16-5.Consider the following two pricing strategies: a.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.

Accepted Answer

A) b;b 
B) a;b 
C) a;neither strategy 
D) b;neither strategy 
A) b;b 
B) a;b 
C) a;neither strategy 
D) b;neither strategy

Question 5

Price discrimination is the practice of

Accepted Answer

A) charging different prices for the same good when the price differences are not due to differences in cost. 
B) charging different prices for the same good when the price differences arise because of differences in cost. 
C) charging different prices for different qualities of a product. 
D) charging higher prices for brand-named goods and lower prices for generic versions of the goods. 
A) charging different prices for the same good when the price differences are not due to differences in cost. 
B) charging different prices for the same good when the price differences arise because of differences in cost. 
C) charging different prices for different qualities of a product. 
D) charging higher prices for brand-named goods and lower prices for generic versions of the goods.

Question 6

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 the price of the report is $500 per copy

Accepted Answer

A) only Iris will purchase Joss's services and Joss will undertake the job for her. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
D) both Iris and Daphne will want to purchase Joss's services but Joss will not be willing to undertake the job. 
A) only Iris will purchase Joss's services and Joss will undertake the job for her. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
D) both Iris and Daphne will want to purchase Joss's services but Joss will not be willing to undertake the job.

Question 7

Figure 16-1  
-Refer to Figure 16-1.What is the consumer surplus received under perfect price discrimination?

Accepted Answer

A) the area under the demand curve above P1 
B) the area under the demand curve above P3 
C) the area under the demand curve above P4 
D) zero 
A) the area under the demand curve above P1 
B) the area under the demand curve above P3 
C) the area under the demand curve above P4 
D) zero

Question 8

Book publishers use price discrimination routinely,but the form of price discrimination they use is different from the form used by airlines and other industries.Explain.

Accepted Answer

Some consumers in some markets are willi

Question 9

If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of

Accepted Answer

A) price gouging. 
B) rational ignorance. 
C) arbitrage. 
D) price discrimination. 
A) price gouging. 
B) rational ignorance. 
C) arbitrage. 
D) price discrimination.

Question 10

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

Accepted Answer

A) subject to a retail profits tax. 
B) not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items. 
C) the result of arbitrage. 
D) accounting profits but not economic profits. 
A) subject to a retail profits tax. 
B) not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items. 
C) the result of arbitrage. 
D) accounting profits but not economic profits.

Question 11

One method of setting price using the cost-plus method is to add

Accepted Answer

A) a given percentage of marginal cost to marginal cost of production. 
B) a given percentage of fixed cost to total fixed cost. 
C) a given percentage of average total cost to average total cost. 
D) a given percentage of average variable cost to average total cost. 
A) a given percentage of marginal cost to marginal cost of production. 
B) a given percentage of fixed cost to total fixed cost. 
C) a given percentage of average total cost to average total cost. 
D) a given percentage of average variable cost to average total cost.

Question 12

When a monopolist engages in perfect price discrimination,the quantity produced and sold

Accepted Answer

A) is lower than the quantity produced and sold if it adopted a single price. 
B) is larger than the quantity produced and sold if it adopted a single price. 
C) is the same level as that produced and sold if it adopted a single price. 
D) could be lower,higher,or the same as that produced and sold if it adopted a single price. 
A) is lower than the quantity produced and sold if it adopted a single price. 
B) is larger than the quantity produced and sold if it adopted a single price. 
C) is the same level as that produced and sold if it adopted a single price. 
D) could be lower,higher,or the same as that produced and sold if it adopted a single price.

Question 13

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 14

Figure 16-1  
-Refer to Figure 16-1.With perfect price discrimination,the firm will produce and sell

Accepted Answer

A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units. 
A) Q1 units. 
B) Q2 units. 
C) Q3 units. 
D) Q4 units.

Question 15

An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

A) True 
 B)False

Question 16

If firms differentiate their products in different ways and charge different price because of these differentiation factors,then

Accepted Answer

A) the law of one price is not violated. 
B) transactions costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic. 
A) the law of one price is not violated. 
B) transactions costs are being ignored. 
C) the firm must not be maximizing profit. 
D) demand must be perfectly elastic.

Question 17

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 are called

Accepted Answer

A) exchange costs. 
B) implicit costs. 
C) transactions costs. 
D) selling costs. 
A) exchange costs. 
B) implicit costs. 
C) transactions costs. 
D) selling costs.

Question 18

Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.If Sensei charges the competitive price for his classes,what is the maximum amount of admission fee that he can collect from his customers?

Accepted Answer

A) the area A + B 
B) the area A + B + C + D 
C) the area A + B + C + D + E 
D) the area A + C + D + G + H 
A) the area A + B 
B) the area A + B + C + D 
C) the area A + B + C + D + E 
D) the area A + C + D + G + H

Question 19

Figure 16-5  
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing price it will charge?

Accepted Answer

A) It should charge a range of prices from $40 to $16. 
B) It should charge a range of prices from $40 to $12. 
C) $2 
D) $8 
A) It should charge a range of prices from $40 to $16. 
B) It should charge a range of prices from $40 to $12. 
C) $2 
D) $8

Question 20

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 cocktail price and a cover charge that will generate total revenue equal to the area X.
D.A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s)achieve the economically efficient outcome?

Accepted Answer

A) schemes a and c 
B) scheme b 
C) schemes b and d 
D) scheme d only 
A) schemes a and c 
B) scheme b 
C) schemes b and d 
D) scheme d only

Exam 16: Pricing Strategy

Which of the following antitrust laws forbade firms to engage in price discrimination if the effect would lessen competition or create a monopoly?

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

Price discrimination is the practice of

Figure 16-1 -Refer to Figure 16-1.What is the consumer surplus received under perfect price discrimination?

Book publishers use price discrimination routinely,but the form of price discrimination they use is different from the form used by airlines and other industries.Explain.

If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

One method of setting price using the cost-plus method is to add

When a monopolist engages in perfect price discrimination,the quantity produced and sold

From an economic perspective,price discrimination is desirable because

Figure 16-1 -Refer to Figure 16-1.With perfect price discrimination,the firm will produce and sell

An optimal two-part tariff pricing schedule maximizes consumer surplus.

If firms differentiate their products in different ways and charge different price because of these differentiation factors,then

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 are called

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing price it will charge?

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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