Question 1

Suppose a restaurant is trying to determine how much to charge for a bowl of chili,and decides to run an experiment to see how much its customers are willing to pay by allowing them to set their own price for this menu item.
a.Is charging a customer the price he or she is willing to pay for the bowl of chili an example of price discrimination? Briefly explain.
b.What is it called when a firm knows every consumer's willingness to pay,and can charge every consumer a different price? What happens to consumer surplus in this situation?

Accepted Answer

The answer of Suppose a restaurant is trying to determine...

Question 2

There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.

Accepted Answer

A) True 
 B)False

Question 3

Arbitrage

Accepted Answer

A) is the act of buying an item at a low price and reselling the item at a higher price. 
B) is the act of selling an item on consignment and collecting a huge portion of the proceeds to compensate for the seller's time. 
C) is the act of buying an item at a low price,bundling it with another and selling the new package at a much higher price. 
D) is any act of buying and selling that results in the seller earning an above normal profit.

Question 4

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 per-unit price it should charge,if any?

Accepted Answer

A) It should not charge a price per unit;just a flat fee to consume as much of the product as desired. 
B) It should charge a range of prices from $40 to $12. 
C) $12 
D) $16

Question 5

Price discrimination is a rational strategy for a profit-maximizing firm when

Accepted Answer

A) it is possible to engage in arbitrage across market segments. 
B) it is not possible to segment consumers into identifiable markets. 
C) there is no opportunity for arbitrage across market segments. 
D) firms want to increase the amount of consumer surplus received by its customers.

Question 6

The term "early adopters" refers to

Accepted Answer

A) firms that are the first to implement a new technology that is used to produce new goods or services. 
B) book clubs that are first to recommend best-selling books to their members. 
C) consumers who respond quickly to fads,seasonal changes,etc. 
D) consumers who are willing to pay high prices to be among the first to own new products.

Question 7

The law of one price states

Accepted Answer

A) federal and state statutes that prohibit price discrimination. 
B) that all customers should pay the same price. 
C) that identical products should sell for the same price everywhere. 
D) government regulation of prices for all firms.

Question 8

$$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Potential } \
\text { Customer }
\end{array} & \begin{array} { c } 
\text { Willingness to } \
\text { Pay (dollars per } \
\text { hour) }
\end{array} \
\hline \text { Arun } & \$ 8 \
\hline \text { Bernice } & 9 \
\hline \text { Cara } & 10 \
\hline \text { Dawn } & 12 \
\hline
\end{array}$$ 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 decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers?

Accepted Answer

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

Question 9

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

Accepted Answer

A) yield management. 
B) elasticity management. 
C) brand management. 
D) marketing.

Question 10

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

Accepted Answer

A) arbitrage. 
B) two-part tariff pricing. 
C) price discrimination. 
D) odd pricing.

Question 11

What is the difference between price discrimination and other forms of discrimination?

Accepted Answer

The answer of What is the difference between price discrimination...

Question 12

Cost-plus pricing may be a reasonable way to determine price when

Accepted Answer

A) marginal cost and average fixed cost are roughly equal. 
B) marginal cost and average cost are about the same. 
C) marginal cost differs significantly from average cost. 
D) marginal cost is very low.

Question 13

To successfully price discriminate,a firm must ensure that there are no opportunities for arbitrage.

Accepted Answer

A) True 
 B)False

Question 14

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product,in addition to a per-unit price.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) A firm must have the ability to charge a price greater than marginal cost. 
B) Some consumers must have a 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. 
C) The firm must be able to prevent arbitrage. 
D) Transactions costs must be the same for all consumers.

Question 16

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 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

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Accepted Answer

The answer of Many book publishers use cost-plus pricing to...

Question 19

Which of the following undermines a firm's ability to engage in price discrimination?

Accepted Answer

A) the seller's market power 
B) the inability to prevent resale of the product from one market segment to another 
C) buyers having different elasticities of demand for the product 
D) the seller's ability to segment the total market

Question 20

Which of the following will prevent firms from engaging in price discrimination?

Accepted Answer

A) yield management 
B) arbitrage 
C) transactions costs 
D) odd pricing

Exam 16: Pricing Strategy

There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.

Arbitrage

Price discrimination is a rational strategy for a profit-maximizing firm when

The term "early adopters" refers to

The law of one price states

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

Bubba's Hula Shack bar and bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of

What is the difference between price discrimination and other forms of discrimination?

Cost-plus pricing may be a reasonable way to determine price when

To successfully price discriminate,a firm must ensure that there are no opportunities for arbitrage.

A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product,in addition to a per-unit price.

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

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.

Many book publishers use cost-plus pricing to establish prices for some of their books.Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Which of the following undermines a firm's ability to engage in price discrimination?

Which of the following will prevent firms from engaging in price discrimination?