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Exam 16: Pricing Strategy

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Question 21

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Erin and Deidre,two residents of Ithaca,New York,are planning a trip to Boston.Erin,the sales manager for a large retailer,has to attend a business meeting.Deidre,a college student on vacation,is planning a leisurely trip to visit friends and relatives.Which of the following statements is true?

A) An airline that price discriminates will charge Erin a higher price.
B) An airline that price discriminates will charge Deidre a higher price.
C) Since there is no difference in the cost of producing air travel,airlines will not charge different prices to Erin and Deidre.
D) An airline cannot price discriminate because buyers can resell their tickets through the Internet.

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Question 22

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Cost-price pricing typically does not result in profit-maximization.As a result,economists have two views of cost-plus pricing.One of these views is

A) cost-plus pricing is more likely to lead to profit-maximization for large firms than for small firms.
B) cost-plus pricing is a good way to approximate the profit-maximizing price when marginal revenue or marginal cost is difficult to determine.
C) cost-plus pricing is more likely to lead to profit-maximization for monopolistically competitive firms than for oligopoly firms.
D) cost-plus pricing is more likely to result in profit-maximization the more elastic the firm's demand curve is.

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Question 23

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$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { Demanded in } \\\text { Middle Fall } \\\text { (tubes per week) }\end{array} & \begin{array} { c } \text { Price per } \\\text { Tube }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { in West Fall } \\\text { (tubes per week) }\end{array} & \begin{array} { c } \text { Price per } \\\text { Tube }\end{array} \\\hline 1 & \$ 8 & 1 & \$ 5.00 \\\hline 2 & 7 & 2 & 4.50 \\\hline 3 & 6 & 3 & 4.00 \\\hline 4 & 5 & 4 & 3.50 \\\hline 5 & 4 & 5 & 3.00 \\\hline\end{array}$ 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?

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

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.Suppose Chantal charges all her customers a uniform price of $10 for a haircut.Which of the following statements is true?

For many products,such as fast foods,a variety of prices can be found,but sellers with higher prices can expect to sell their products because

Assume that a monopolist practices perfect price discrimination.The firm's marginal revenue curve will

The Bay Area subway system,BART,offers senior citizens discounted fares for BART rides.This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Why might a producer practice price discrimination?

Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve. -Refer to Figure 16-6.With this pricing scheme - a competitive price for the classes and a one-time membership fee - what amount of producer surplus will Sensei earn?

Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity,assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve. -Refer to Figure 16-6.If Sensei acts as a monopolist,his profit-maximizing price is ________ and the number of classes sold is ________.

With an optimal two-part tariff

Charging different prices to different consumers for the same product when the price differences are not due to differences in cost is called arbitrage.

$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Potential } \\\text { Customer }\end{array} & \begin{array} { c } \text { Willingness to } \\\text { Pay (dollars per } \\\text { hour) }\end{array} \\\hline \text { Arun } & \$ 8 \\\hline \text { Bernice } & 9 \\\hline \text { Cara } & 10 \\\hline \text { Dawn } & 12 \\\hline\end{array}$ 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 charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?

$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Quantity } \\\text { Demanded in } \\\text { Middle Fall } \\\text { (tubes per week) }\end{array} & \begin{array} { c } \text { Price per } \\\text { Tube }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { in West Fall } \\\text { (tubes per week) }\end{array} & \begin{array} { c } \text { Price per } \\\text { Tube }\end{array} \\\hline 1 & \$ 8 & 1 & \$ 5.00 \\\hline 2 & 7 & 2 & 4.50 \\\hline 3 & 6 & 3 & 4.00 \\\hline 4 & 5 & 4 & 3.50 \\\hline 5 & 4 & 5 & 3.00 \\\hline\end{array}$ 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.What is the total revenue received from both markets combined?

If demand is taken into account,firms that use cost-plus pricing can adjust price by

Why is it necessary for a firm that practices price discrimination be a price maker rather than a price taker?

A perfectly competitive firm cannot practice price discrimination because

A successful strategy of price discrimination requires that a firm be a price taker.

Arbitrage refers to the act of