Question 1

If,at the firm's projected sales level,the marginal cost is $40,the average cost is $50 and the markup is 30 percent,then its selling price is

Accepted Answer

A) $40. 
B) $50. 
C) $52. 
D) $65. 
A) $40. 
B) $50. 
C) $52. 
D) $65.

Question 2

What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?

Accepted Answer

When a firm uses cost-plus pricing to se

Question 3

Which of the following pricing strategies allows a firm to earn economic profit?

Accepted Answer

A) price discrimination 
B) charging a price equal to marginal cost 
C) charging a price equal to the average total cost of production 
D) charging a price equal to the average variable cost of production 
A) price discrimination 
B) charging a price equal to marginal cost 
C) charging a price equal to the average total cost of production 
D) charging a price equal to the average variable cost of production

Question 4

What is meant by the "law of one price"?

Accepted Answer

A) Identical products should sell for the same price everywhere. 
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C) This is a section of the Sherman Act that forced trusts (for example,the Standard Oil Company)to charge the same price for the same good or service in different states. 
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries. 
A) Identical products should sell for the same price everywhere. 
B) A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices. 
C) This is a section of the Sherman Act that forced trusts (for example,the Standard Oil Company)to charge the same price for the same good or service in different states. 
D) Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.

Question 5

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

Accepted Answer

A) buys the consumer the right to make future purchases at Costco. 
B) is a resalable asset to the consumer. 
C) is a resalable asset to the producer. 
D) is used by Costco to cover its fixed costs of production. 
A) buys the consumer the right to make future purchases at Costco. 
B) is a resalable asset to the consumer. 
C) is a resalable asset to the producer. 
D) is used by Costco to cover its fixed costs of production.

Question 6

What three conditions must hold for a firm to successfully price discriminate?

Accepted Answer

Successful price discrimination has thre

Question 7

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Accepted Answer

A) True 
 B)False

Question 8

If marginal costs differ quite substantially from average total costs,then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Accepted Answer

A) True 
 B)False

Question 9

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150,what is the firm's markup?

Accepted Answer

A) 75 percent 
B) 33.33 percent 
C) 25 percent 
D) impossible to determine with the information given 
A) 75 percent 
B) 33.33 percent 
C) 25 percent 
D) impossible to determine with the information given

Question 10

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

Accepted Answer

A) The transaction has made Lou better off and Kyle worse off. 
B) The transaction is economically inefficient. 
C) The transaction has made Lou and Kyle better off. 
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction. 
A) The transaction has made Lou better off and Kyle worse off. 
B) The transaction is economically inefficient. 
C) The transaction has made Lou and Kyle better off. 
D) It is not possible for Kyle to enjoy any consumer surplus from this transaction.

Question 11

Plato Playhouse,a theatre company in the university town of Wegg,caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.What is the quantity sold to each group of customers and what is the total quantity sold?

Accepted Answer

A) quantity sold to students = Qb;quantity sold to non-students = Qb;total sales = Qa 
B) quantity sold to students = Qc;quantity sold to non-students = Qb;total sales = Qb+Qc 
C) quantity sold to students = Qc;quantity sold to non-students = Qe;total sales = Qe+Qc 
D) quantity sold to students = Qc;quantity sold to non-students = Qd;total sales = Qd+Qc 
A) quantity sold to students = Qb;quantity sold to non-students = Qb;total sales = Qa 
B) quantity sold to students = Qc;quantity sold to non-students = Qb;total sales = Qb+Qc 
C) quantity sold to students = Qc;quantity sold to non-students = Qe;total sales = Qe+Qc 
D) quantity sold to students = Qc;quantity sold to non-students = Qd;total sales = Qd+Qc

Question 12

If a monopolist engages in first-degree price discrimination,it will produce the same output level as a perfectly competitive industry.

Accepted Answer

A) True 
 B)False

Question 13

$$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Potential } \
\text { Customer }
\end{array} & \begin{array} { c } 
\text { Willingness to } \
\text { Pay (dollars per } \
\text { hour) }
\end{array} \
\hline \text { Arun } & \$ 8 \
\hline \text { Bernice } & 9 \
\hline \text { Cara } & 10 \
\hline \text { Dawn } & 12 \
\hline
\end{array}$$ 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.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.What is the value of the consumer surplus enjoyed by her customers?

Accepted Answer

A) $39 
B) $28 
C) $11 
D) $0 
A) $39 
B) $28 
C) $11 
D) $0

Question 14

Plato Playhouse,a theatre company in the university town of Wegg,caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers.
-Refer to Figure 16-2.Suppose Plato Playhouse price discriminates.Which of the following statements is true?

Accepted Answer

A) By charging two different prices,the theatre company has redistributed some profits from those who can pay higher prices to those who cannot,thereby increasing economic efficiency. 
B) By charging two different prices,the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C) By charging two different prices,the theatre company has redistributed some profits from those who can pay higher prices to those who cannot,thereby improving equity. 
D) Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers. 
A) By charging two different prices,the theatre company has redistributed some profits from those who can pay higher prices to those who cannot,thereby increasing economic efficiency. 
B) By charging two different prices,the theatre company essentially allows those willing to pay higher prices to subsidize those who are not. 
C) By charging two different prices,the theatre company has redistributed some profits from those who can pay higher prices to those who cannot,thereby improving equity. 
D) Plato Playhouse will earn higher profits if it charges a single price-an average of the two prices- instead of charging two different prices to the two different groups of customers.

Question 15

Which of the following statements about two-part tariffs is false?

Accepted Answer

A) Because each individual has a different individual demand curve,if there is just one entrance fee some consumers will be able to reap some consumer surplus. 
B) The producer cannot capture the entire consumer surplus because the entrance fee might discourage some potential consumers even though they would have been willing to pay a lesser entrance fee. 
C) Two-part tariff pricing allows a producer to capture the entire consumer surplus. 
D) For two-part tariff pricing to be successful,the producer must be able to identify two distinct customer groups. 
A) Because each individual has a different individual demand curve,if there is just one entrance fee some consumers will be able to reap some consumer surplus. 
B) The producer cannot capture the entire consumer surplus because the entrance fee might discourage some potential consumers even though they would have been willing to pay a lesser entrance fee. 
C) Two-part tariff pricing allows a producer to capture the entire consumer surplus. 
D) For two-part tariff pricing to be successful,the producer must be able to identify two distinct customer groups.

Question 16

In a perfectly competitive market,in the long run,arbitrage profits will be bid away.

Accepted Answer

A) True 
 B)False

Question 17

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 $800 per copy

Accepted Answer

A) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D) neither Iris nor Daphne will commission the work. 
A) both Iris and Daphne will purchase Joss's services and Joss will undertake the job. 
B) only Daphne will purchase Joss's services and Joss will undertake the job for her. 
C) only Daphne will want to purchase Joss's services but Joss will not be willing to do the work. 
D) neither Iris nor Daphne will commission the work.

Question 18

Which of the following describes two-part tariff pricing?

Accepted Answer

A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders,and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car,a plasma television,or a suite of furniture. 
A) A firm charges two different prices for the same good. 
B) An importer has to pay a tax at the nation's borders,and a sales tax when the good is sold. 
C) A buyer pays an initial price for entrance to the market and an additional fee for each unit of the product purchased. 
D) A buyer must pay a down payment and monthly payments to buy big-ticket items such as a car,a plasma television,or a suite of furniture.

Question 19

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 competitive price.(This is also called an optimal two-part tariff. )What is the value of the consumer surplus from this pricing strategy?

Accepted Answer

A) $2,560 
B) $5,760 
C) $7,870 
D) 0 
A) $2,560 
B) $5,760 
C) $7,870 
D) 0

Question 20

With perfect price discrimination,the marginal revenue curve

Accepted Answer

A) is below the demand curve. 
B) is above the demand curve. 
C) is equal to the demand curve. 
D) is horizontal. 
A) is below the demand curve. 
B) is above the demand curve. 
C) is equal to the demand curve. 
D) is horizontal.

Exam 16: Pricing Strategy

If,at the firm's projected sales level,the marginal cost is $40,the average cost is $50 and the markup is 30 percent,then its selling price is

What is cost-plus pricing? Why do some firms use cost-plus pricing even when the firms' managers have the resources to devise a pricing strategy that would result in greater profits?

Which of the following pricing strategies allows a firm to earn economic profit?

What is meant by the "law of one price"?

Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee

What three conditions must hold for a firm to successfully price discriminate?

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

If marginal costs differ quite substantially from average total costs,then using a cost-plus pricing schedule will not lead to the profit maximizing price.

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150,what is the firm's markup?

Lou buys a Star Wars: The Force Awakens poster at a garage sale for $30 and resells it on eBay to Kyle for $60.Which of the following statements is true?

If a monopolist engages in first-degree price discrimination,it will produce the same output level as a perfectly competitive industry.

Which of the following statements about two-part tariffs is false?

In a perfectly competitive market,in the long run,arbitrage profits will be bid away.

Which of the following describes two-part tariff pricing?

With perfect price discrimination,the marginal revenue curve

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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