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Exam 16: Pricing Strategy

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Question 41

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Cost-plus pricing is a reasonable way to determine the optimal price when

A) marginal cost and average cost are roughly equal.
B) fixed cost and variable costs are roughly equal.
C) fixed costs vary.
D) fixed costs are high.

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Question 42

Multiple Choice

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The Athenian Theatre sells play tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

A) This is an example of product differentiation but not price discrimination.
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay.
C) Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation.
D) Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent.

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Question 43

Multiple Choice

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The law of one price holds exactly only if

Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.

If firms differentiate their products in different ways and charge different price because of these differentiation factors, then

Figure 16.4 -Refer to Figure 16.4.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

The Canadian National Exhibition in Toronto charges people to enter the fair grounds as well as for each ride they go on.This pricing strategy is an example of

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?

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Joss is a marketing consultant.Iris and Daphne are potential customers interested in commissioning Joss to undertake a market survey and compile the findings in a report.Iris is willing to pay $500 for the service while Daphne is willing to pay $800.Suppose that the opportunity cost of Joss's time is $1,200.Assume that Iris and Daphne do not know each other.Which of the following statements is true?

In a perfectly competitive market, in the long run, arbitrage profits will be bid away.

Figure 16.4 -Refer to Figure 16.4.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 monopoly price.What is the revenue collected from the fixed fee portion of the price?

Which of the following statements is true?

Figure 16.4 -Refer to Figure 16.4.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 value of the consumer surplus from this pricing strategy?

Figure 16.1 -Refer to Figure 16.1.What is the economically efficient output level?

Figure 16.1 -Refer to Figure 16.1.With perfect price discrimination, the firm will produce and sell

Yield management and price discrimination have enabled firms to increase profits and, at the same time,

The law of one price states that identical products should sell for the same price everywhere as long as transactions costs are zero.

Some firms practice odd pricing because

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.