Question 1

P = 50 - 1/500 Q is the demand curve for tickets. MC = $10 per ticket. What is the optimal price and calculate the consumer surplus at this price?

Accepted Answer

The answer of P = 50 - 1/500 Q is...

Question 2

In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:

Accepted Answer

A)  bought political groups together. 
B)  established student identity. 
C)  helped forge addiction. 
D)  reduced alcohol consumption

Question 3

Many firms offer substantial rebates by mail or coupons for discounts at the point of sale. The people who use the rebates or coupons have _______ than the people who don't use them.

Accepted Answer

A)  greater price sensitivity 
B)  the same price sensitivity 
C)  less price sensitivity 
D)  inverted price sensitivity

Question 4

Using the linear approximation system to estimate the profit maximizing price requires that the managers know the costs of production and:

Accepted Answer

A)  the production function. 
B)  one price and quantity of demand. 
C)  two prices and quantities of demand. 
D)  decision-making process of the marketplace.

Question 5

The higher the price elasticity  the

Accepted Answer

A)  the more sensitive price changes is to quantity demanded 
B)  the less sensitive price changes is to quantity demanded 
C)  the more sensitive quantity demanded to price changes 
D)  the less sensitive quantity demanded to price changes

Question 6

Bio seeds offers free genetically modified seeds (GMS) to farmers in developing countries the first season. The land accepts only GMS in any other cropping season. So providing free seeds in the first season is a strategic way to

Accepted Answer

A)  bundle 
B)  administer a two-part tariff 
C)  enforce price discrimination 
D)  regulate future demand

Question 7

Electric generator companies did not raise their prices when there was a huge demand for their products, due to a power shortage. The companies were:

Accepted Answer

A)  concerned with being sued by consumer activists 
B)  concerned with political backlash 
C)  concerned with peoples' welfare 
D)  concerned with reputation and future demand

Question 8

Using cost plus pricing, what is the price if ATC = $23.50 and the target rate of return is 17 percent?

Accepted Answer

A)  $28.31 
B)  $138.24 
C)  $29.38 
D)  $46.74

Question 9

Many college basketball programs require alumni to join a booster club before they can buy season tickets. This is an example of:

Accepted Answer

A)  a two-part tariff. 
B)  first degree price discrimination. 
C)  block pricing. 
D)  cost-plus pricing.

Question 10

Under Block pricing, a company might

Accepted Answer

A)  charge a customer different prices per unit, depending upon the customer's loyalty. 
B)  charge a customer different prices per unit, depending upon the number of units purchased. 
C)  provide a customer different units, depending upon the price the consumer bids. 
D)  charge a customer different prices per unit, depending upon the price the consumer bids.

Question 11

A typical university football program requires alumni to join one of several booster clubs (each club gets seats in different parts of the stadium) before the person can buy season tickets. What has this got to do with consumer surplus?

Accepted Answer

The answer of A typical university football program requires alumni...

Question 12

A company might charge a customer different prices per unit, depending upon the number of units purchased. This is called:

Accepted Answer

A)  Bundling 
B)  Two-part tariff 
C)  Price Discrimination 
D)  Block Pricing

Question 13

If Tiger Toys faces a demand curve of P = 85 - .25Q and a MC = ATC = 20, then the output would be:

Accepted Answer

A)  65 units. 
B)  85 units. 
C)  130 units. 
D)  32.5 units.

Question 14

Price discrimination is usually defined as selling a product to different customers at:

Accepted Answer

A)  the same price even though costs of service are different. 
B)  different prices even though costs of service are different. 
C)  the same price even though the costs of service are the same. 
D)  different prices even though the costs of service are the same.

Question 15

Two consumers 1 and 2 of the same product have the following demand curves Q₁ = 500 - 10 P and Q₂ = 500 - 20 P. MC for the firm is $10. Calculate the prices when the firm discriminates between the two consumers. Is this a good strategy, or should the firm charge the same price to both of them?

Accepted Answer

The answer of Two consumers 1 and 2 of the...

Question 16

A firm with market power in pricing faces a:

Accepted Answer

A)  flat demand curve. 
B)  vertical demand curve in all cases. 
C)  price inelastic demand curve. 
D)  downward sloping demand curve.

Question 17

The simple case of pricing with market power assumes (a) all consumers are charged the same price, (b) the firm sells one product, and (c) demand exists in one time period. Discuss what happens as each assumption is relaxed.

Accepted Answer

The answer of The simple case of pricing with market...

Question 18

As a firm's market power in pricing decreases, the price elasticity of its demand:

Accepted Answer

A)  stays the same. 
B)  decreases. 
C)  is equal to one. 
D)  increases.

Question 19

Price discrimination requires that different customers have different levels of price sensitivity and that:

Accepted Answer

A)  the cost of production is different for every customer. 
B)  customers cannot resell the product amongst themselves. 
C)  demand is homogeneous amongst customers. 
D)  marginal costs are falling.

Question 20

Using cost plus pricing, what is the price if ATC = $14.50 and the target rate of return is 4 percent?

Accepted Answer

A)  $15.10 
B)  $49.34 
C)  $14.5 
D)  $22.10

Exam 7: Pricing With Market Power