Deck 11: More Realistic and Complex Pricing

Question 1

You own two different energy drink brands with similar elasticities: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",you can only increase your total sales if

A)​Prices for "600 minute energy" are increased
B)Prices for "600 minute energy" are reduced
C)Prices for "600 minute energy" stay constant
D)​None of the above

Answer 1

B

Question 2

​Upon acquiring a complement the inter-relatedness of demand leads to,MR________

A)​Rising
B)Falling
C)Staying constant
D)​None of the above

Answer 2

A

Question 3

Firm A owns produces both toothpaste and toothbrushes.In order to increase profits the firm must​

A)​Increase prices for both toothbrushes and toothpaste
B)Decrease prices for both toothbrushes and toothpaste
C)Increase prices on toothbrushes and increase the price on toothpaste
D)​Increase prices on toothbrushes but keep the price on toothpaste constant

Answer 3

B

Question 4

​If an ice-cream manufacturer acquires a frozen yogurt producer,you would likely see

A)​Lower prices for both the ice cream and the frozen yogurt
B)Higher prices for both the ice cream and the frozen yogurt
C)Higher prices for ice cream,but lower prices for frozen yogurt
D)​Higher prices for frozen yogurt but lower prices for ice cream

Question 5

​You are the owner of an art supply store,selling both paint and paintbrushes.In order to maximize total sales you should

A)​Decrease the price on the paint only
B)Decrease the price on paintbrushes only
C)Decrease the price on both the paint and the paintbrushes
D)​Increase the price on both the paint and the paintbrushes

Question 6

​Which of the following is FALSE?

A)​To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,raise prices on both the products
C)After acquiring a complementary product,raise prices on both the products
D)​All of the above

Question 7

Which of the following is true?​

A)​To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,lower prices on both the products
C)After acquiring a complementary product,raise prices on both the products
D)​All of the above

Question 8

Which of the following is FALSE?​

A)​To reduce cannibalization among products,make the products more homogenous
B)After acquiring a substitute product,raise prices on both the products
C)After acquiring a complementary product,lower prices on both the products
D)​All of the above

Question 9

​You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",sales of "600 minute energy" would

A)​Increase
B)Decrease
C)Not change
D)​None of the above

Question 10

You own two different energy drink brands: "Blue Cow" and "600 minute energy." If you reduce the price on "Blue Cow",​

A)​Sales of "Blue Cow" would increase,without any changes in sales for "600 minute energy."
B)Sales of both "Blue Cow" and "600 minute energy." would increase
C)Sales of "Blue Cow" would increase,but the sales of "600 minute energy" would be cannibalized
D)​Neither "Blue Cow" nor "600 minute energy" would see an increase in sales.

Question 11

If a hot dog manufacturer acquires a bakery that primarily bakes hot dog buns,you would likely see​

A)​Higher prices for the hot dogs but lower prices for the buns
B)Higher prices for the buns but lower prices for the hot dogs
C)Higher prices for both the hot dogs and the buns
D)​Lower prices for both the hot dogs and the buns

Question 12

​For jointly owned substitute products,cannibalization leads to MR______MC

A)​Being higher than
B)Being lower than
C)Equaling
D)​None of the above

Question 13

​The general rule to increase profits when two close substitute brands are jointly owned is

A)​Increase prices for both brands
B)Decrease prices for both brands
C)Increase prices on one brand,decreasing it for the other
D)​Increase prices on one brand,keeping the prices of the second brand constant

Question 14

​Which of the following is FALSE?

A)​To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,lower prices on both the products
C)After acquiring a complementary product,lower prices on both the products
D)​All of the above

Question 15

​In a multi-product firm,cannibalization is

A)​An increase in the quality of both the brand's products
B)A decrease in the quality of both the brands products
C)An increase in both the brand's sales
D)​An increase in one of the brand's sales due to the decrease in sales of the other.

Question 16

Which of the following is true?​

A)​To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,raise prices on both the products
C)After acquiring a complementary product,lower prices on both the products
D)​All of the above

Question 17

The general rule to increase profits when two close complementary brands are jointly owned is​

A)​Increase prices for both brands
B)Decrease prices for both brands
C)Increase prices on one brand,decreasing it for the other
D)​Increase prices on one brand,keeping the prices of the second brand constant

Question 18

​After acquiring closely substitutable product brands,a firm can successfully raise prices on both of the brands without losing much of its total sales because

A)​Customers are insensitive to price changes
B)None of these sales would be captured by its other brand
C)Some of these sales lost by one brand would be captured by the other
D)​All of the above

Question 19

​Which of the following is TRUE?

A)​To reduce cannibalization among products,reposition a product so that it does not directly compete with the other
B)After acquiring a substitute product,lower prices on both the products
C)After acquiring a complementary product,raise prices on both the products
D)​None of the above

Question 20

​Acquiring a firm that sells a substitute good would make the demand curve for your original product

A)​More inelastic
B)More elastic
C)Unchanged
D)​None of the above

Question 21

​For products like parking lots and hotels,the relevant costs and benefits to determine how much capacity to build are

A)​LRMR and LRMC
B)LRMR and SRMC
C)SRMR and SRMC
D)​SRMR and LRMC

Question 22

​Firm X owns both a grocery store and the parking lot outside the grocery store.In order to increase the traffic at the store the owners of the store should

A)​Increase the prices on the goods sold in the store
B)Increase the parking rates
C)All of the above
D)​None of the above

Question 23

A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces.Which of the following strategies should it implement?​

A)​Decrease parking rates if the lot fills up much earlier than 9am
B)Increase parking rates if the lot doesn't fill up until much after 9am
C)If the lot fills up right around 9am the price is right
D)​All of the above

Question 24

A football stadium has a fixed number of seats.Given this,how should stadium management determine ticket prices?

A)​When MRB)When MRC)When MR>MC,price to fill capacity
D)​Both A&C

Question 25

​The pricing rule MR=MC holds for

A)​All firms
B)Single product firms
C)Multiple product firms
D)​None of the above

Question 26

Firms that face capacity constraints can increase output only up to the capacity,but no further.Therefore,firms​

A)​Should price to capacity as long as MR > MC
B)Should price to capacity as long as MR = MC
C)Should price to capacity as long as MR < MC
D)​Should not take capacity into consideration in pricing decisions

Question 27

​A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces.Which of the following strategies should it implement?

A)​Increase parking rates if the lot fills up much earlier than 9am
B)Decrease parking rates if the lot doesn't fill up until much after 9am
C)If the lot fills up right around 9am the price is right
D)​All of the above

Question 28

Owners of a parking lot are deciding whether or not to add more parking spaces to the lot.The owners should increase parking spaces as long as:​

A)​LRMR=LRMC
B)LRMR>LRMC
C)LRMRD)​None of the above

Question 29

All of the following are true,except​

A)​Some consumers may infer high quality from high price
B)Low prices can indicate lower quality given that no other information is available
C)Promotional campaigns do not affect consumer's perception on quality
D)​It makes more sense to raise price when advertising makes demand less elastic

Question 30

​After firm A acquired firm B,it raised the prices for the goods produced by both firms.This can increase profits if those goods are

A)​Substitutes
B)Complements
C)Not related
D)​None of the above

Question 31

​On average,if demand is unknown and costs of underpricing are _______ than the costs of overpricing,then err on the side of_________.

A)​Smaller;overpricing
B)Smaller;underpricing
C)Larger;underpricing
D)​None of the above

Question 32

​A firm that acquires a substitute product can try to reduce inter-product cannibalization by

A)​Doing nothing
B)Repositioning its product or the substitute so that they do not directly compete with each other
C)Pricing each product at the same level
D)​Lowering the prices on both the products

Question 33

​Owners of a parking lot are deciding whether or not to add more parking spaces to the lot.The owners should stop adding parking spaces where:

A)​LRMR=LRMC
B)LRMR>LRMC
C)LRMRD)​None of the above

Question 34

​Firm X owns both a grocery store and the parking lot outside the grocery store.In order to increase the traffic at the store,the store should

A)​Decrease the prices on the goods sold in the store
B)Increase the parking rates
C)All of the above
D)​None of the above

Question 35

The owner of a recently built cruise ship is deciding how to price its rooms.What advice would you give the owner?​

A)​Since MRB)Since MRC)Since MR>MC,price to fill capacity
D)​Both A&C

Question 36

​Firm X owns both a grocery store and the parking lot outside the grocery store.In order to increase the traffic at the store it must

A)​Decrease the prices on the goods sold in the store
B)Decrease the parking rates
C)All of the above
D)​None of the above

Question 37

Brenda's Bakery started selling coffee along with pastries.In order to increase total sales she should

A)​Increase the prices on coffee
B)Decrease the price on pastries
C)Increase the price of pastries
D)​Shut down

Question 38

​For products like parking lots and hotels,costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.Therefore,

A)​If SRMR>SRMC at capacity,then the firms should price to fill capacity
B)If SRMRC)If LRMR>LRMC at capacity,then the firms should price to fill capacity
D)​If LRMR>LRMC at capacity,then the firms should price to fill capacity

Question 39

​After firm A acquired firm B,it lowered the prices for the goods produced by both firms.This can increase profits if the goods are

A)​Substitutes
B)Complements
C)Not related
D)​None of the above

Question 40

​Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because

A)​They lose market power
B)There is an increase in the overall demand for their products
C)The bundle has a more elastic demand than individual goods
D)​The bundle has a more inelastic demand than individual goods

Question 41

If advertising makes demand of a product less elastic,it makes sense for a firm to​

A)​Decrease the price of the product
B)Increase the price of the product
C)Leave the price unchanged
D)​None of the above

Question 42

Firms should raise the prices on their goods​

A)​If the demand for the product is elastic
B)If it acquires a firm selling a complement good
C)If it acquires a firm selling a substitute good
D)​Both a and c

Question 43

​By focusing the customers on the price of a product,you make

A)​The demand for the product more inelastic
B)The customers less price sensitive to the product
C)Both A & B
D)​None of the above

Question 44

Firms should lower the prices on their goods​

A)​If the demand for the product is elastic
B)If it acquires a firm selling a complement good
C)If it acquires a firm selling a substitute good
D)​Both a and b

Question 45

​Which of the following are ways of promoting a firm's product

A)​Advertising
B)Discount coupons
C)End-of-aisle displays
D)​All of the above

Question 46

​Given that you observe nothing but the high price of the product,you are more likely to infer that

A)​The product is low quality
B)The product is high quality
C)The product is the lowest quality possible
D)​The product is defective

Question 47

By focusing the customers on the price of a product,you

A)​Increase your chances of engaging in a price war with your competitors
B)Make the customers more price sensitive to the product
C)Make the demand for the product more elastic
D)​All of the above

Question 48

After a massive promotional campaign of Justin Bieber's latest music album,the producers decided to raise the prices on the album.This implies that the producers expect the promotion to have made the demand for the album​

A)​More elastic
B)Unitary elastic
C)Perfectly elastic
D)​More inelastic

Question 49

​A discount shoe manufacturer's advertisement suggests that they are almost as good as the name brands but better value.The shoe manufacturer believes that the advertisement will

A)​Make the demand for its product more elastic
B)Make his customers more price sensitive
C)Cause people to directly compare his product to the name brands
D)​All of the above

Question 50

​A local restaurant increases the prices on its burgers as soon as it begins a promotional campaign.Which of the following is most likely to be true?

A)​The promotional campaign featured how much better their burgers are
B)The promotional campaign focused on the value per dollar
C)The promotional campaign made demand more elastic
D)​All of the above

Question 51

For a cruise liner deciding how to price its rooms,if the cost of overpricing is lower than the cost of underpricing,then the management of the cruise liner should​

A)​Price lower than what they expect would fill capacity
B)Price higher than what they expect would fill capacity
C)Price such that they would expect to just fill capacity
D)​None of the above

Question 52

A Swiss watch company advertises its history of superior craftsmanship.The company thinks that this would​

A)​Make the demand for the product less elastic
B)Make the customers less sensitive to the price
C)Assist them with differentiating their product
D)​All of the above

Question 53

A Swiss watch company advertises its history of superior craftsmanship.The company thinks that this will

A)​Make the demand for the product more elastic
B)Make the customers more sensitive to the price
C)Not impact the demand for their product
D)​None of the above

Question 54

By focusing the customers on the price of a product,you make the demand for the product​

A)​More elastic
B)Less elastic
C)Perfectly inelastic
D)​None of the above

Question 55

​By focusing the customers on the price of a product,you make

A)​The demand for the product more inelastic
B)The customers less price sensitive to the product
C)The demand for the product more elastic
D)​Only B&C

Question 56

​Advertising claiming superior quality of a product makes its demand

A)​More elastic
B)Less elastic
C)Perfectly elastic
D)​None of the above

Question 57

​A discount shoe manufacturer's advertisement suggests that they are almost as good as the name brands but better value.The shoe manufacturer believes that the advertisement will make

A)​The demand for its product less elastic
B)His customers less price sensitive
C)Him able to raise prices
D)​None of the above

Question 58

For a cruise liner deciding how to price its rooms,if the cost of overpricing is higher than the cost of underpricing,then the management of the cruise liner should​

A)​Price lower than what they expect would fill capacity
B)Price higher than what they expect would fill capacity
C)Price such that they would expect to just fill capacity
D)​None of the above

Question 59

​Given that you observe nothing but the low price of the product,you are more likely to infer that

A)​The product is high quality
B)The product is the highest quality possible
C)The product is low quality
D)​None of the above

Question 60

​If advertising makes demand of a product more elastic,it makes sense for a firm to

A)​Decrease the price of the product
B)Increase the price of the product
C)Leave the price unchanged
D)​None of the above

Question 61

​Many wines are priced high in order to

A)​Indicate low quality 
B)Indicate high quality
C)Indicate a bargain brand
D)​None of the above

Question 62

​Wine Merger
In October,2014,Vintners Global Resource's (VGR)agreed to purchase M.A.Silva.VGR is a leading manufacturer of glass bottles and packaging for wines and M.A.Silva is a manufacturer of premium natural corks.What is the expected effect of this merger on price-cost margins?

Question 63

​Cover Charges
Hank's Honkytonk is a local bar and nightspot.On weekends,it requires a $5 cover charge to defray the costs of the live musical acts Hank brings in.This has worked wonderfully,as it generates capacity crowds and a long line of people waiting to enter.However,after the cost of the acts,he still loses money on the weekends.What is his marginal revenue and marginal cost of a patron on weekends and how should he attempt to fix his unprofitability problem?

Question 64

An airline wants to introduce a charge for snacks on flights.Why would it not be such a good idea?​

A)​Passengers would be less likely to buy snacks
B)Passengers would be more likely to carry their own snacks onboard
C)Passengers would feel nickel-and-dimed and would switch airlines
D)​All of the above

Question 65

​Large amusement parks charge entrance fees rather than fee per ride because

A)​Customers are more sensitive to paying a fee per ride
B)Customers are less sensitive to paying a fee per ride
C)Customers view paying per ride as a smaller cost
D)​None of the above

Question 66

​In order to increase sales the firm can

A)​Increase the reference price for the product
B)Decrease prices
C)Differentiate their product
D)​All of the above

Question 67

​Prospect theory implies that consumers are motivated by

A)​The actual price level
B)The distance of the price from the reference price
C)All of the above
D)​None of the above

Question 68

​Why would large department stores such as Home Depot rather face shortages than increase the prices of basic food and repair items in cases of natural disasters such as Hurricanes?

A)​They do not want to increase sales
B)They are maximizing sales
C)They do not want to be viewed as unfair
D)​All of the above

Question 69

​New Phone
ShorTech,is a smaller company that makes of knockoff consumer electronic devices including its Quadrant mobile phone.Sales had been doing okay for a number of months before ShorTech launched a massive advertising campaign in which it shows that its phone can do just about everything the industry leader phone can do.What change in pricing would you suggest for the Quadrant phone concurrent with the campaign?

Question 70

An online shoe retailer wants to introduce handling charges for purchases less than $50.How should the retailer pose the charges to its customers to improve its chances of being well-received?

A)​Introduce it separately as handling
B)Lump it together with shipping costs,but don't let the customer know until they check out
C)Introduce it as free above $50
D)​Hide it from the customer

Question 71

​Viceroy Vacations is deciding on how to price its vacation packages.Which of the following strategies would you suggest?

A)​Price the flight,hotel and car separately
B)Advertise it as an all-inclusive vacation
C)Give them away as free vacations to everyone
D)​Close down your company.No one goes on vacations anymore

Question 72

Beverage Merger
Cott Corp.markets a portfolio of beverages,bottled waters,beverage,and coffee delivery systems for homes and offices.In November,2014,it has agreed to merge with DS Services of America,a water and coffee direct-to-consumer services provider.What is the expected effect of this merger on price-cost margins?