Question 1

Figure 16-3
  
Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community, and other residents in the neighborhood. Figure 16-3 shows the demand curves for the residents of the retirement community, labeled Market A, and other residents in the neighborhood, labeled Market B. The demand curves are not identical.
-Refer to Figure 16-3.Which group of customers is likely to have a more elastic demand curve (more sensitive to price)?

Accepted Answer

A) the other residents of the neighborhood-market B 
B) There is no difference in the elasticity of demand between the two groups. 
C) the customers from "The Chateau"-market A 
D) There is insufficient information to answer this question.

Question 2

Table 16-3
  
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?

Accepted Answer

A) 5 hours; total revenue = $35 
B) 4 hours; total revenue = $28 
C) 3 hours; total revenue = $21 
D) 2 hours; total revenue = $14

Question 3

A firm that engages in price discrimination must be able to identify the preferences of every customer it serves.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is not a requirement for a successful price discrimination strategy?

Accepted Answer

A) A firm must have market power. 
B) The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price. 
C) Managers must practice yield management. 
D) Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.

Question 5

Publishers practice price discrimination when they sell books at high prices to

Accepted Answer

A) early adopters. 
B) local bookstores. 
C) large chain bookstores. 
D) online book sellers.

Question 6

Successful price discrimination cannot take place if

Accepted Answer

A) the market is perfectly competitive. 
B) the market can be segmented into different buyer groups. 
C) customers are not able to resell the product. 
D) the demand curve facing the firm is downward sloping.

Question 7

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meet a consumer's preference allows Dell to extract more consumer surplus.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a way by which price-discriminating firms can segment a market?

Accepted Answer

A) on the basis of time of purchase, for example long-distance calling 
B) by requiring an advance purchase, for example airline tickets 
C) on basis of the buyer's location, for example requiring out-of-state students to pay higher tuition 
D) on the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

Question 9

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Accepted Answer

A) $6,720 
B) $7,680 
C) $10,240 
D) $13,440

Question 10

Suppose Dublin Electronics charges regular customers $60 for a Blu-ray player but allows senior citizens to purchase the same item for $45.Is this likely to be a successful price discriminating strategy?

Accepted Answer

A) Yes, firms price discriminate to maximize profits. 
B) No, price discrimination will not be effective because the store cannot prevent senior citizens from buying large quantities of Blu-ray players and reselling them for a profit. 
C) Yes, because senior citizens are likely to have a more elastic demand and therefore will be willing to pay a lower price compared to regular customers. 
D) No, because there are many different brands of Blu-ray players and consumers will shop around.

Question 11

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

Question 12

According to the law of one price, identical products should sell for the same price everywhere if

Accepted Answer

A) consumers have knowledge of the prices charged for products in different markets. 
B) transactions costs are zero. 
C) firms can prevent consumers from engaging in arbitrage. 
D) there are no tariffs or other restrictions on imports or exports.

Question 13

Table 16-2
  
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.Which of the following statements is true about the two markets?

Accepted Answer

A) The demand in Middle Fall is more price elastic than the demand in West Fall. 
B) The demand in Middle Fall is less price elastic than the demand in West Fall. 
C) The demand in Middle Fall is more income elastic than the demand in West Fall. 
D) The demand in Middle Fall is less income elastic than the demand in West Fall.

Question 14

The practice of continually adjusting prices to take into account fluctuations in demand is called "yield management."

Accepted Answer

A) True 
 B)False

Question 15

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal.Can price discrimination be illegal as well?

Accepted Answer

The answer of Racial discrimination and other forms of discrimination...

Question 16

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

Accepted Answer

A) Apple will charge college students and faculty members higher prices than it charges the general public. 
B) Apple will charge college students and faculty members lower prices than it charges the general public. 
C) the general public will earn arbitrage profits by buying MacBook Pro Laptop computers from Apple and reselling them to college students and faculty members. 
D) Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.

Question 17

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 total revenue it can expect to collect from the fixed fee portion of the price?

Accepted Answer

A) $2,560 
B) $5,760 
C) $7,870 
D) $10,240

Question 18

One reason why McDonald's charges a single price for its products is that it is difficult and costly for the company to determine each individual consumer's willingness to pay.

Accepted Answer

A) True 
 B)False

Question 19

Figure 16-2
  
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.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

Question 20

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.

Exam 16: Pricing Strategy

A firm that engages in price discrimination must be able to identify the preferences of every customer it serves.

Which of the following is not a requirement for a successful price discrimination strategy?

Publishers practice price discrimination when they sell books at high prices to

Successful price discrimination cannot take place if

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meet a consumer's preference allows Dell to extract more consumer surplus.

Which of the following is not a way by which price-discriminating firms can segment a market?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Suppose Dublin Electronics charges regular customers $60 for a Blu-ray player but allows senior citizens to purchase the same item for $45.Is this likely to be a successful price discriminating strategy?

According to the law of one price, identical products should sell for the same price everywhere if

Table 16-2 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.Which of the following statements is true about the two markets?

The practice of continually adjusting prices to take into account fluctuations in demand is called "yield management."

Racial discrimination and other forms of discrimination based on irrelevant factors are illegal.Can price discrimination be illegal as well?

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

One reason why McDonald's charges a single price for its products is that it is difficult and costly for the company to determine each individual consumer's willingness to pay.

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