Econ 414 Final Chapter 14

Vacation tours to Europe invariably package visits to disparate regions: cities mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when: a. the preference ranking of vacationers traveling together are negatively correlated. b. a preference for cities is always higher than preferences for mountain visits c. preference ranking of vacationers traveling together are positively correlated d. preference for the seaside is always higher than preferences for city excursions e. no one wants to take a European vacation package to cities, mountains and the seaside.

a

A manufacturer produces two types of computer software, Word processing (W), and Spreadsheet (S), which is offered to two different retail outlets (#1 and #2). The following table shows the maximum price each retail outlet is willing to pay for each individual software product. What is the optimal pricing strategy that will maximize revenue for the manufacturer, given the maximum the retail outlets are willing to pay? a. Bundle both products (W and S) and sell them at $230. b. Price product W at $170 and product S at $135. c. Price product w at $170 and product s at $170. d. Price product w and $95 and product s at $105. e. bundle both products (W and S) and sell them at $275.

a

For a monopolist that engages in price discrimination, when the price elasticity in market 1 is less ( in absolute value) than in market 2, the optimal price in market 1 will exceed the optimal price in market 2. a. true b. false

a

If airlines found that the number of no shows starts to increase, then its policy for optimal overbooking would tend to: a. make them reduce the amount of over booking b. Cause them to increase the amount of overbooking c. let them keep the same amount of over booking

b

( ) is a new product pricing strategy which results in a high initial product price. This price i reduced over time as demand at the higher price is satisfied. a. prestige pricing b. price lining c. skimming d. incremental pricing e. none of the above

c

The following are possible examples of price discrimination EXCEPT: a. prices in export markets are lower than for identical products in the domestic market. b. senior citizens pay lower fares on public transportation than younger people at the same time c. a product sells at a higher price at location A than at location B, because transportation costs are higher from the factory to A d. subscription prices for a professional journal are higher when bought by a library than when bought by an individual

c

The segmenting of customers into several small groups such as household, institutional, commercial, and industrial users, and establishing a different rate schedule for each group is known as: a. first degree price discrimination b. market penetration c. third degree price discrimination d. second degree price discrimination e. none of the above

c

Third degree price discrimination exists whenever: a. the seller knows exactly how much each potential customer is willing to pay and will charge accordingly. b. different prices are charged by blocks of services. c. the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups. d. the seller will bargain with buyers in each of the markets to obtain the best possible price.

c

Which of the following pricing policies best identifies when a product should be expanded, maintained, or discontnued? a. full cost pricing policy b. target pricing policy c. marginal pricing policy d. market share pricing policy e. markup pricing policy

c

Which of the statements about price discrimination is (are) false? a. It must be possible to segment the market b. It must be difficult to transfer the seller's product from one market segment to another c. Public utilities practice first degree price discrimination d. There must be differences in the elasticity of demand from one segment to another e. c and d

c

( ) is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm. a. incremental price b. marginal price c. fullcost price d. transfer price e. none of the above

d

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting: a. universal access price discrimination b. declining block price discrimination c. mixed bundling price discrimination d. two part price discrimination e. uniform pricing

d

If an airline company decides to buy smaller jets with fewer seats, then the problem of: a. spillage and spoilage both increase b. spillage decreases, but spoilage increases c. spillage and spoilage both decrease d. spoilage decreases, but spillage increases

d

To maximize profits, a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ( ) in all markets. a. ratio of price to marginal cost b. ratio of marginal cost to marginal utility c. ratio price to elasticity d. marginal revenue e. none of the above

d

Electricity pricing that varies in its billing expense throughout the day is called

dynamic pricing

Second degree price discrimination: a. is also known as block rate setting b. is imperfect in the eyes of a monopolist c. is regularly practices by public utilities d. is effective only in the case of services or products which are sold in early metered units e. all of the above

e

Restaurants try to buy just enough fish to match the expected walk-ins and reservations. If they buy a lot more fish, in the language of revenue management: a. Spoilage increases b. Spillage increases c. Overbooking increases

a

Barbers give a price discount to kids. According to price discrimination, if barbers use price discrimination, this implies demand for hair cuts by kids is more elastic. a. true b. false

a

Cross functional revenue management examines capacity, pricing, and customer account management in order to maximize revenue. If the MegaPlex movie theater finds that too often they have to turn customers away form their theaters at peak movie times for blockbusters creating too much slippage, cross functional revenue management suggests: a. They could consider increasing the capacity of each theater to be able to seat more customers b. They could lower the price at the peak times to reduce the problem of spoilage c. They could stop showing blockbuster movies and select more critically acclaimed art films to decrease spoilage d. They could stop showing movies at night.

a

In ( ) price discrimination, the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production). a. first degree b. second degree c. third degree d. a and b e. none of the above

a