Question 1

Which of the following would not be categorized as a form of third-degree price discrimination?

Accepted Answer

A)  Group pricing.
B)  Promotional pricing.
C)  Versioning.
D)  Personalized pricing. D

Question 2

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  True

Question 3

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. B

Question 4

Which of the following is considered a necessary condition for successful price discrimination?

Accepted Answer

A)  A firm's customers must all have the same price elasticity of demand.
B)  Firms are able to prevent resale among different groups of customers.
C)  Firms must be able to determine each customer's maximum willingness to pay for the product in question.
D)  Firms must operate in a perfectly competitive market.

Question 5

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 6

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 7

As the price elasticity of demand for an item increases, so does the firm's ability to mark up the price of the item above average cost.

Accepted Answer

A) True 
 B)False

Question 8

The markups restaurants apply to various items are heavily influenced by the price elasticity of the demand for each item.

Accepted Answer

A) True 
 B)False

Question 9

A firm's profits will be greatest when it practices:

Accepted Answer

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

Question 10

"Personalized pricing" and "group pricing" are examples of:

Accepted Answer

A)  first-degree and second-degree price discrimination, respectively.
B)  second-degree and third-degree price discrimination, respectively.
C)  first-degree price discrimination.
D)  first-degree and third-degree price discrimination, respectively.

Question 11

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 12

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 13

The text describes three different "degrees" of price discrimination.Of these, which one is theoretically capable of generating the greatest amount of economic profit for the firm? Why? In contrast, which one do you think has the greatest applicability to the range of goods and services consumers typically purchase?

Accepted Answer

The answer of The text describes three different "degrees" of...

Question 14

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 15

In the Airline Pricing Strategies case discussed in the text, a product with fewer rules and restrictions can command a higher price.

Accepted Answer

A) True 
 B)False

Question 16

When demand is elastic, the marginal revenue resulting from a decrease in price is:

Accepted Answer

A)  positive.
B)  zero.
C)  negative.
D)  cannot be determined without more information.

Question 17

When the macroeconomy is doing poorly (as it was in 2009), profits of existing firms decrease, creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

Accepted Answer

A) True 
 B)False

Question 18

Assuming the demand curve is downward sloping, as price increases, the price elasticity of demand for a good (in absolute value)and marginal revenue:

Accepted Answer

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

Question 19

The situation in which a firm charges different prices for different blocks of output is referred to as:

Accepted Answer

A)  first-degree price discrimination.
B)  second-degree price discrimination.
C)  third-degree price discrimination.
D)  fourth-degree price discrimination.

Question 20

It is frequently observed that when a city is located next to a major highway, gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of:

Accepted Answer

A)  first-degree price discrimination.
B)  second-degree price discrimination.
C)  third-degree price discrimination.
D)  illegal price discrimination.

Exam 10: Pricing Strategies for the Firm

Which of the following would not be categorized as a form of third-degree price discrimination?

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.

Which of the following statements is correct?

Which of the following is considered a necessary condition for successful price discrimination?

Which of the following is an example of price discrimination?

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.

As the price elasticity of demand for an item increases, so does the firm's ability to mark up the price of the item above average cost.

The markups restaurants apply to various items are heavily influenced by the price elasticity of the demand for each item.

A firm's profits will be greatest when it practices:

"Personalized pricing" and "group pricing" are examples of:

Third-degree price discrimination refers to situation in which:

Which of the following statements is not correct?

Promotional pricing would best be categorized as a form of:

In the Airline Pricing Strategies case discussed in the text, a product with fewer rules and restrictions can command a higher price.

When demand is elastic, the marginal revenue resulting from a decrease in price is:

When the macroeconomy is doing poorly (as it was in 2009), profits of existing firms decrease, creating an incentive for existing firms to exit unprofitable markets.This in turn makes it more difficult for the remaining firms to mark up price over average or marginal cost.

Assuming the demand curve is downward sloping, as price increases, the price elasticity of demand for a good (in absolute value) and marginal revenue:

The situation in which a firm charges different prices for different blocks of output is referred to as:

It is frequently observed that when a city is located next to a major highway, gas stations located close to the highway charge higher prices than gas stations located farther away.This is an example of: