Question 1

Which of the following statements is not correct?

Accepted Answer

A) First-degree and third-degree price discrimination work to increase a firm's profits by converting consumer surplus into revenue for the firm. 
B) First-degree and third-degree price discrimination work to increase a firm's profits by more accurately matching willingness to pay to the marginal costs of production. 
C) First-degree price discrimination works to increase a firm's profits by converting consumer surplus into revenue for the firm, while third-degree price discrimination increases a firm's profits by more accurately assessing the willingness to pay of different groups of consumers. 
D) Because it focuses on more accurately assessing the willingness to pay of different groups of consumers, third-degree price discrimination will increase a firm's profits more than will first-degree price discrimination.

Question 2

Promotional pricing would best be categorized as a form of:

Accepted Answer

A) first-degree price discrimination. 
B) second-degree price discrimination. 
C) third-degree price discrimination. 
D) no price discrimination.

Question 3

Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm.All else constant,this would cause the firm's ability to markup price above average cost to:

Accepted Answer

A) decrease. 
B) stay the same. 
C) increase. 
D) cannot be determined with the information given.

Question 4

Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct?

Accepted Answer

A) The markup pricing rule that is derived from the rule for profit maximization can be used as a substitute for determining the profit-maximizing level of output by equating marginal revenue and marginal cost. 
B) It is reasonable to assume that a profit-maximizing firm will never operate in the inelastic portion of its demand curve. 
C) The ability of a profit-maximizing firm to mark up price above average cost is unaffected by the price elasticity of demand for the firm's output. 
D) The markup factor and the price elasticity of demand are positively related, i.e., as the price elasticity of demand increases, the markup factor that the profit-maximizing firm can apply to its marginal cost in setting price increases as well.

Question 6

At the profit-maximizing level of output,the amount by which the firm can mark up price is:

Accepted Answer

A) inversely related to the price elasticity of demand for item in question. 
B) directly related to the price elasticity of demand for item in question. 
C) totally unrelated to the price elasticity of demand for item in question. 
D) equal to the ratio of the marginal and average costs of production.

Question 7

As practiced by book publishers,versioning involves first selling the hardcover edition of a book and then switching to a paperback edition to sell additional copies.As such,this is an application of second-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 8

Applying a uniform markup to set the price of the various products sold by a firm is more profitable than varying the markup based on differences in the price elasticity of demand for the firm's products.

Accepted Answer

A) True 
 B)False

Question 9

Third-degree price discrimination refers to situation in which:

Accepted Answer

A) a firm charges different prices for different blocks of output. 
B) a firm separates markets according to the price elasticity of demand. 
C) a firm is able to charge the maximum price consumers are willing to pay for each unit of output. 
D) a firm divides a market into thirds and charges each segment a different price.

Question 10

Which of the following is an example of price discrimination?

Accepted Answer

A) Increasing the price of a product when demand for the product increases. 
B) Charging different prices for a product in different regions of the country due to differences in transportation costs. 
C) Bundling complementary products to attract additional sales. 
D) Reducing the price of a product to reduce excess inventory.

Question 11

Which of the following statements is correct?

Accepted Answer

A) To maximize profit, a firm should apply a uniform markup to each product it sells. 
B) The profit-maximizing firm's ability to mark up price over average cost is limited by the price elasticity of demand for the product in question. 
C) It is not possible to maximize profits by using a markup pricing strategy. 
D) Using markup pricing is more complicated than simply setting price equal to marginal cost.

Question 12

In the case of a perfectly competitive firm,the optimal markup over marginal cost is 0 percent.

Accepted Answer

A) True 
 B)False

Question 13

What role does the price elasticity of demand play in markup pricing,i.e.,how does it affect the firm's ability to mark up price over marginal cost?

Accepted Answer

The answer of What role does the price elasticity of...

Question 14

Assume a firm sells two complementary products.Bundling is more likely to be a successful price discrimination strategy when one group of customers is willing to pay a higher price for one of the items in the bundle and another group is willing to pay a higher price for the other item.

Accepted Answer

A) True 
 B)False

Question 15

To the extent that customers can resell products to each other,the effectiveness of a price discrimination strategy will be undermined.

Accepted Answer

A) True 
 B)False

Question 16

As macroeconomic conditions improve and consumers' incomes and wealth increase,their demand for many products tends to become ________ price inelastic.As such,the ability of firms to mark up price above cost will ________.

Accepted Answer

A) more; increase 
B) more; decrease 
C) less; increase 
D) less; decrease

Question 17

In many areas of the country,electricity customers pay a set per unit price for each of the first X kilowatts and a lower per unit price for any additional kilowatts of electricity consumed in a month.This is an illustration of second-degree price discrimination.

Accepted Answer

A) True 
 B)False

Question 18

The practice of setting price by increasing the average costs of production by some percentage is referred to as:

Accepted Answer

A) average cost pricing. 
B) percentage pricing. 
C) rate-of-return pricing. 
D) markup pricing.

Question 19

So long as the absolute value of the price elasticity of demand for a firm's output is greater than 0,the firm's optimal markup factor will be positive as well.

Accepted Answer

A) True 
 B)False

Question 20

All else constant,there is an inverse relationship between the price elasticity of demand and the marginal revenue resulting from a decrease in price.

Accepted Answer

A) True 
 B)False

Exam 10: Pricing Strategies for the Firm

Which of the following statements is not correct?

Promotional pricing would best be categorized as a form of:

Assume there is a decrease in the number of substitutes for a good produced by a profit-maximizing price-setting firm.All else constant,this would cause the firm's ability to markup price above average cost to:

Applying a uniform markup to each of a firm's products is less profitable than varying the markup based on the elasticity of demand because the latter is able to exploit the sensitivity of quantity demanded to a change price.

Which of the following statements is correct?

At the profit-maximizing level of output,the amount by which the firm can mark up price is:

As practiced by book publishers,versioning involves first selling the hardcover edition of a book and then switching to a paperback edition to sell additional copies.As such,this is an application of second-degree price discrimination.

Applying a uniform markup to set the price of the various products sold by a firm is more profitable than varying the markup based on differences in the price elasticity of demand for the firm's products.

Third-degree price discrimination refers to situation in which:

Which of the following is an example of price discrimination?

Which of the following statements is correct?

In the case of a perfectly competitive firm,the optimal markup over marginal cost is 0 percent.

What role does the price elasticity of demand play in markup pricing,i.e.,how does it affect the firm's ability to mark up price over marginal cost?

Assume a firm sells two complementary products.Bundling is more likely to be a successful price discrimination strategy when one group of customers is willing to pay a higher price for one of the items in the bundle and another group is willing to pay a higher price for the other item.

To the extent that customers can resell products to each other,the effectiveness of a price discrimination strategy will be undermined.

As macroeconomic conditions improve and consumers' incomes and wealth increase,their demand for many products tends to become price inelastic.As such,the ability of firms to mark up price above cost will .

In many areas of the country,electricity customers pay a set per unit price for each of the first X kilowatts and a lower per unit price for any additional kilowatts of electricity consumed in a month.This is an illustration of second-degree price discrimination.

The practice of setting price by increasing the average costs of production by some percentage is referred to as:

So long as the absolute value of the price elasticity of demand for a firm's output is greater than 0,the firm's optimal markup factor will be positive as well.

All else constant,there is an inverse relationship between the price elasticity of demand and the marginal revenue resulting from a decrease in price.