Ch 11. Pricing Strategies for Firms with Market Power - Practice

If a monopolist claim her profit-maximizing markup factor is 4, what is the corresponding price elasticity of demand

-1.33

43. If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand?

-1.5

44. If the profit-maximizing markup factor in a 3-firm Cournot oligopoly is -2, what is the corresponding market elasticity of demand?

-2/3

57. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm sells coats and pants for $25 each, but offers a bundle containing both a coat and pants for $150, how many bundles will the firm sell?

0

A monopoly producing a chip at a marginal cost of $6 per unit faces a demand elasticity of -2.5. Which price should it charge to optimize it profits?

10 per unit

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 - 2Q by the representative consumer?

12

A monopoly produces widgets at a marginal cost of $8 per unit and zero fixed costs. It faces an inverse demand function given by P = 38 - Q." The monopoly price is

23

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. The monopoly price is:

30

52. The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in two part pricing, what is the optimal fixed fee to charge each consumer?

32

54. The average consumer at a firm with market power has an inverse demand function of P = 10 - Q. The firm's cost function is C = 2Q. If the firm engages in optimal two-part pricing, it will earn profits of

32

5. A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is the optimal amount of this product to package in a single block?

4

46. A firm with market power has an individual consumer demand of Q = 20 - 4P and costs of C = 4Q. What is optimal price to charge for a block of 20 units?

90

40. Brand loyalty can be enhanced through: A. An advertising campaign B. A price war C. Neither an advertising campaign nor a price war D. An advertising campaign and a price war

A. An advertising campaign

58. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. The optimal commodity bundling strategy is: A. Charge $150 for a suit B. Charge $75 for a suit C. Charge $100 for a suit D. Charge $125 for a suit

A. Charge $150 for a suit

59. When two or more divisions mark up prices in excess of marginal cost, A. Double marginalization occurs B. Two-part pricing occurs C. Second-degree price discrimination occurs D. None of the statements associated with this question are correct

A. Double marginalization occurs

48. Which of the following pricing policies enhances profits by creating brand-loyal consumers? A. Frequent flyer programs B. Beat-or-pay strategies C. Trigger strategies D. Frequent flyer programs and beat-or-pay strategies

A. Frequent flyer programs

38. Which group of policies aims at discouraging rivals to enter a price war? A. Price matching, beat-or-pay, and randomized pricing B. Price matching, brand loyalty, and commodity bundling C. Randomized pricing, price discrimination, and cross subsidization D. Load-peak pricing, two-part pricing, and price matching

A. Price matching, beat-or-pay, and randomized pricing

33. Which of the following strategies will most likely not enhance profits in a Bertrand oligopoly? A. Two-part pricing B. Price matching C. Randomized pricing D. Brand loyalty

A. Two-part pricing

Brand loyalty can be enhanced through

An advertising campaign

37. Which of the following pricing policies compensate customers if the firm fails to provide the best price in the market? A. Price matching B. Beat-or-pay C. Brand loyalty D. Randomized pricing

B. Beat-or-pay

6. Which of the following statements about a price matching strategy is incorrect ? A. It may be applied in situations besides Bertrand oligopoly B. It requires that the firms can monitor their rival's prices C. It reduces the incentive for a rival firm to initiate a price war D. It only guarantees to match prices that are advertised publicly

B. It requires that the firms can monitor their rival's prices

The purpose of randomized pricing is to reduce

Both customer and competitor information about price

You have just been hired as a manager of a new health spa in Retirement Village, Florida. The owner has commissioned a market study that estimates the average customer's monthly demand curve number of visits, The owner has been charging a $20 per month membership fee and a $5 per-visit fee. Part of your salary is 10 prevent of the monthly profits. Suggest a pricing strategy that will increase your salary

By using two price strategy, $11.75 per customer. profit is $485.11

35. Price matching strategies may fail to enhance profits when: A. Firms cannot prevent customer's from deceptive claims B. Firms have different marginal costs C. Firms cannot prevent customer"s from deceptive claims or firms have different marginal costs D. None of the statements associated with this question are correct

C. Firms cannot prevent customer"s from deceptive claims or firms have different marginal costs

41. If a product is perceived by consumers as homogeneous, which of the following strategies will work to induce brand loyalty? A. Intensive advertising campaign. B. Price wars with competitors. C. Frequent buyer rebate programs. D. None of the statements associated with this question are correct.

C. Frequent buyer rebate programs

34. Firms that use a price matching strategy attempt to keep price at: A. Marginal cost B. The oligopoly price C. The monopoly price D. The oligopoly price or the monopoly price

C. The monopoly price

56. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $75 for pants and $75 for a coat, the firm will sell a coat to: A. Type A consumers B. Type B consumers C. Type A consumers and type B consumers D. None of the statements associated with this question are correct

C. Type A consumers and type B consumers

42. The purpose of randomized pricing is to reduce: A. consumer price information only. B. competitor price information only. C. both customer and competitor information about price. D. the firm's pricing inflexibility.

C. both customer and competitor information about price

49. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm can identify each consumer type and can price discriminate, what is the optimal price for a pair of pants? A. Charge both types $150 B. Charge both types $75 C. Charge type A consumers $50, and type B consumers $75 D. Charge type A consumers $50, and type B consumers $50

Charge type A consumers $50, and type B consumers $75

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using? Price discrimination Two-part pricing Commodity bundling Cross-subsidization

Cross-subsidization

A campus auditorium sells tickets at half price to students during the last 30 minutes before a concert starts. This is an example of: (A) price discrimination. (B) peak-load pricing. (C) price discrimination or peak-load pricing. (D) none of the statements is correct.

D) none of the statements is correct. n price discrimination, the seller sells the same good to different consumer groups at different prices, at the same time. So it's not price discrimination. Peak-load pricing is when a seller raises price during period of highest demand (peak load), but here prices are halved. So it's not peak load pricing.

31. The special demand structure that induces a firm to use a cross subsidization strategy is: A. Perfect substitution among products B. Imperfect substitution among products C. Independent demand for products D. Interdependent demand for products

D. Interdependent demand for products

50. A monopolist claims his profit-maximizing markup factor is 10. What is the price elasticity of demand for the firm's product? A. -1.5 B. -2.0 C. -2.5 D. None of the statements associated with this question are correct

D. None of the statements associated with this question are correct

51. If the profit-maximizing markup factor in a 10-firm Cournot oligopoly is -2, what is the corresponding market elasticity of demand? A. -1.0 B. -1.2 C. -2.0 D. None of the statements associated with this question are correct

D. None of the statements associated with this question are correct

39. Which group of policies aims at extracting all consumer surplus? A. Price discrimination and peak load pricing B. Cross subsidization and brand loyalty C. Price matching and randomized pricing D. Two-part pricing and commodity bundling

D. Two-part pricing and commodity bundling

Firms will often implement price-matching strategies to

Decrease price competition

If your demand for renting videos is Q = 5 - 2P, should you purchase the annual membership from a video store that charges $0.5 per rental, plus an annual membership fee of $12?

Definitely no

If Ef is the firm elasticity of demand and Em is the market elasticity of demand, the profit-maximizing markup factor for a firm operating in a monopolistically competitive industory with N identical firms is

Ef/ (1+Ef)

Which of the following statements about a price matching strategy is incorrect? A. It may be applied in situations besides Bertrand oligopoly B. It requires that the firms can monitor their rival's prices C. It reduces the incentive for a rival firm to initiate a price war D. It only guarantees to match prices that are advertised publicly

It requires that the firms can monitor their rival's prices

47. A firm has capacity limitations and charges $30 for their service during daily peak times. If the market demand elasticity drops from -3 during peak times to -5 at off peak times, how much should the firm charge to earn the maximum profit during off peak times?

Not enough information to determine

Which of the following pricing policies does not extract the entire consumer surplus from the market?

Peak load pricing

A campus auditorium sells tickets at half price to students during the last 30-minutes before a concert starts. This is an example of:

Price discrimination or peak-load pricing

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?

Senior citizens have a more elastic demand for movies than ordinary citizens

A monopoly produces widgets at a marginal cost of $55 per unit and has fized costs of $500. It faces an inverse demand function given by P=125-5Q. Suppose fixed costs are cut by $500; resulting in zero fized costs. what happens in the market

The firm produces the profit mazimizing output and price

As manager of the only video store in town, you have noticed that on Thursday through Sunday the demand for renting your movies is much higher than it is on Monday through Wednesday. You therefore conducted a study that revealed two different market demand curves. On weekends, your inverse demand curve is P=10-.001Q on weekdays, it is P=5-.01Q. The marginal cost of renting a movie is $.50 (50 cents). Your average customer never rents more than one movie at a time. What pricing strategy will maximize your profits?

This manager can maximize profits by engaging in two part pricing. Since demand differs on weekends and weekdays, the manager can adopt two different schemes. On weekends, the market inverse demand function is P = 10 - .001Q. Since marginal cost is $0.5, setting P = MC leads to a total 9,500 videos sold on the weekend. Total consumer surplus in the market is .5(10 - .5)(9500) = $45,125, or $4.75 for each of the 9500 customers. The optimal policy, therefore, is to charge a fixed fee of $4.75 to enter the store on a weekend, and then rent videos at the bargain price of $0.50 each once a consumer enters the store. Since the average consumer buys one video, this amounts to a price of $5.25 per video similar analysis reveals that, on weekdays, the entry fee should be $2.25, with videos still priced at $0.50 each (which amounts to $2.75 per video if each consumer buys exactly one).

55. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $100 for a suit (which includes both pants and a coat), the firm will sell a suit to: A. Type A consumers B. Type B consumers C. Type A consumers and type B consumers D. None of the statements associated with this question are correct

Type A consumers and type B consumers

Which of the following pricing strategies usually enhances the profits of firms with market power a. First-degree price discrimination b. Second-degree price discrimination c. Commodity bundling d. all of the above

d all of the above

Which of the following is an incorrect statement a. the lower the marginal cost, the higher the profit-maximizing b. The more inelastic the demand, the higher is the profit-maximizing markup c. The more elastic the demand, the lower is the profit-maximizing markup d. The price that maximizes revenues occurs when demand in unit elastic

a. the lower the marginal cost, the higher the profit-maximizing

Which of the following is not a true statement about the process of cross-subsidization, given a firm is selling two products a. The two products need to be interrelated through costs or demand b. The firm must sell both of its products at prices set above costs c. The firm cannot hae cost complementaries in the production of the two goods. d. b and c

d. b and c

Which of the following pricing strategies extracts all the consumer surplus from the market a. Second-degree price discrimination b. block pricing c. two-part pricing d. b and c

d. b and c