Economics 5

$30

Again, suppose the firm faces the demand and marginal cost shown below, and incurs fixed costs of $30,000. What price will the firm actually charge for its product? $10 $20 $25 $30

It depends on the way dialysis centers are reimbursed through insurance is correct Dialysis centers are paid by the government, and the structure of that arrangement determines the impact of Epogen® on profitability.

If dosage requirements, and therefore variable costs, differ across patients, what is the impact on the profitability of a dialysis center? It reduces a dialysis center's profits It increases a dialysis center's profits It has no effect on a dialysis center's profits It depends on the way dialysis centers are reimbursed through insurance

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Say an airline has 100 tickets for sale for a flight from Boston to New York. At a price of $130, only 70 people would be willing to buy tickets. The airline would generate revenues of $9,100. The airline could, instead, offer the tickets for $115 and sell 80 of them. What is the airline's marginal revenue when it decreases price from $130 to price of $115? $

Monopolists maximize profit by pricing where marginal revenue equals marginal cost. This occurs on the graph above where the blue line (MR) intersects the black line (MC) at a quantity of 1,000. To find the profit-maximizing price, find the price at which 1,000 will be the quantity demanded. This price is $15 and is the profit-maximizing price.

Suppose a firm faces the demand and marginal cost shown below, and has incurred a fixed cost of $10,000. What is the profit maximizing price?

A printer charging $2/book to print 1000 copies, and $0.75/book to print 2000 copies is correct This is an example of "bulk" pricing, where the price is lower for higher quantities. Similarly, your gym membership will cost less if you and your friends all join, increasing the quantity of memberships purchased. In both cases, customers self-select into the higher or lower price categories by determining their quantity.

You have decided to join a gym membership as a New Year's resolution. You just received an email from Livingsocial that if you recommend more than five people to join gym membership, you and the other five people will each receive a 40% discount for gym membership at Boston Sports Club. What type of price discrimination is this most similar to? An amusement park charging a daily entrance fee and offering its rides for free A printer charging $2/book to print 1000 copies, and $0.75/book to print 2000 copies A souvenir seller haggling with individual customers to reach an agreed-upon price A university bookstore offering a 5% discount to current students

Offering one free box of truffles to anyone who purchases two boxes The chocolatier does not need to know which consumers would be interested in buying larger quantities at a discount in order to offer the deal. Selling misshaped truffles in bulk at a price of $12 per pound Consumers with lower WTP can self-select into buying the cheaper but uglier truffles. Offering a discount to students and seniors is correct This method relies on the chocolatier knowing that students and seniors are the consumers who have a lower WTP. Offering a 20% off sale on a single type of truffle each week Consumers with a lower WTP could self-select buy choosing to buy only the truffles that were on sale.

A chocolatier produces truffles and sells each 1 pound box of truffles for $20. However, the chocolatier knows that some consumers would be willing to pay more than the cost of the chocolate, but less than $20 per pound, and wishes to sell truffles to these consumers as well. Which of the following price discrimination methods relies on the chocolatier knowing which types of consumers are likely to have a lower willingness to pay? Offering one free box of truffles to anyone who purchases two boxes Selling misshaped truffles in bulk at a price of $12 per pound Offering a discount to students and seniors Offering a 20% off sale on a single type of truffle each week

Charge a $12 cover fee to enter the bar, and sell drinks for $2 each is correct The price of drinks should be equal to marginal cost ($2), and the cover fee should capture all the remaining surplus. In this case, one customer would be willing to pay a fee of $12, and the other would be willing to pay a fee of $15. The bar will earn more by catering to both customers, and charging a $12 cover fee. Charge a $15 cover fee to enter the bar, and sell drinks for $2 each is incorrect Only the customers who are willing to buy 5 drinks at $5 each would be willing to pay this fee. The bar can earn more by lowering the cover fee. Charge a $16 cover fee to enter the bar, and offer drinks for free Both types of customer will enter the bar, but profits will not be maximized. Imagine there are only 2 customers: the bar will earn $32 - $14 = $18. Pricing to cover marginal cost, and charging a $12 cover fee, would lead to profits of $24. Allow customers to enter the bar for free, and sell drinks for $5 each Both types of customer will enter the bar, but profits will not be maximized. Imagine there are only two customers: the bar will earn $3 each on 7 drinks sold, for total profits of $21.

A bar finds that 50% of its customers have a willingness to pay of $8 per drink, and would like to order 2 drinks per night. The other 50% of the bar's customers have a willingness to pay of $5 per drink, and would like to order 5 drinks per night. Each drink costs the bar $2. What would be the best way for the bar to implement a two-part tariff? Charge a $12 cover fee to enter the bar, and sell drinks for $2 each Charge a $15 cover fee to enter the bar, and sell drinks for $2 each Charge a $16 cover fee to enter the bar, and offer drinks for free Allow customers to enter the bar for free, and sell drinks for $5 each

revenue earned on the last unit sold. To calculate marginal revenue, you would need to subtract lost revenue on inframarginal customers from this number. variable cost to produce an extra unit. This is the marginal cost. total revenue divided by the total number of units sold. This is price. change in total revenue that results from selling an extra unit. is correct Marginal revenue takes into account both the extra revenue from selling one more unit to a customer and the lost revenue from lowering the price that will be charged to customers that would have bought the product already.

"Marginal revenue" refers to the: revenue earned on the last unit sold. variable cost to produce an extra unit. total revenue divided by the total number of units sold. change in total revenue that results from selling an extra unit.

Sell the three DVDs as a bundle at a price of $40 is correct Both customers will purchase this bundle, resulting in revenues of $80 and costs of $30. Profits will be $50.

A DVD retailer has two customers, with different willingnesses to pay for the three DVDs it is offering. Customer A is willing to pay $20 for "The Avengers," $8 for "Frozen," and $12 for "Gravity." Customer B is willing to pay $16 for "The Avengers," $20 for "Frozen," and $10 for "Gravity." Each DVD costs the retailer $5. How should the retailer price the three DVDs? Sell the three DVDs as a bundle at a price of $40 Sell "The Avengers" and "Frozen" as a bundle, at a price of $28, and sell "Gravity" separately at a price of $10. Sell "The Avengers" for $16, "Frozen" for $8, and "Gravity" for $10. Sell "The Avengers" for $16, "Frozen" for $20, and "Gravity" for $10.

The change in costs does not impact the profit maximizing price and quantity sold for the dairy farmer. A monopolist should set prices to where marginal revenue is equal to marginal cost. If marginal cost changes, then the monopolist will no longer be pricing where marginal revenue equals marginal cost. The increase in variable costs will decrease the optimal price that should be set by the farmer. If variable (marginal) costs increase, marginal revenue will now be lower than marginal cost. By lowering the price, the monopolist is further decreasing marginal revenue and thus marginal revenue will still be lower than marginal cost. The increase in variable costs will increase the optimal price that should be set by the farmer. is correct If variable (marginal) costs increase, marginal revenue will now be lower than marginal cost. Thus the monopolist must increase the price it charges until marginal revenue is equal to marginal cost. The impact on price cannot be determined due to some costs increasing, and other costs decreasing. is incorrect A monopolist should set prices so that marginal revenue is equal to marginal cost. If marginal cost changes, then the monopolist will no longer be pricing where marginal revenue equals marginal cost. Fixed costs play no role in determining how a business should price once it is already in the industry.

A dairy farmer is a monopolist in the milk industry and is currently selling milk at the profit maximizing price. As a result of a terrible storm, the dairy farmer sees an increase in cost of feed for the cows. At the same time, the dairy farm receives an insurance check which effectively lowers the fixed costs of the farm. What effect will this cost change have on the optimal price of milk the farmer sets? The change in costs does not impact the profit maximizing price and quantity sold for the dairy farmer. The increase in variable costs will decrease the optimal price that should be set by the farmer. The increase in variable costs will increase the optimal price that should be set by the farmer. The impact on price cannot be determined due to some costs increasing, and other costs decreasing.

The increase in variable costs will increase the optimal price that should be set by the farmer. is correct If variable (marginal) costs increase, marginal revenue will now be lower than marginal cost. Thus the monopolist must increase the price it charges until marginal revenue is equal to marginal cost.

A dairy farmer is a monopolist in the milk industry and is currently selling milk at the profit maximizing price. As a result of a terrible storm, the dairy farmer sees an increase in cost of feed for the cows. At the same time, the dairy farm receives an insurance check which effectively lowers the fixed costs of the farm. What effect will this cost change have on the optimal price of milk the farmer sets? The change in costs does not impact the profit maximizing price and quantity sold for the dairy farmer. The increase in variable costs will decrease the optimal price that should be set by the farmer. The increase in variable costs will increase the optimal price that should be set by the farmer. The impact on price cannot be determined due to some costs increasing, and other costs decreasing.

Charge $100 monthly membership fee, and $60 per ticket At these prices, the customer would attend all three performances, and would pay a total of $280, resulting in $160 in profits for the symphony. Charge a $190 monthly membership fee, and $40 per ticket is correct At these prices, the customer would attend all three performances, and would pay her total WTP of $310, resulting in $190 in profits for the symphony. Charge only a $300 monthly membership At these prices, the customer would attend all three performances, and the symphony would earn $180 in profits. Charge no monthly membership, and $100 per ticket At these prices, the customer would attend only 2 performances, and would pay a total of $200, resulting in $120 in profits for the symphony. Result

A fan of classical music would like to attend the symphony multiple times in a given month, but her willingness to pay for each subsequent performance decreases with the number of performances she has already attended. In particular, she is willing to pay $150 for the first performance, $100 for the second, and $60 for the third. The cost of each ticket to the symphony amounts to roughly $40. Which of the two-part tariff schemes listed below yields the highest profit to the symphony from the given fan? Charge $100 monthly membership fee, and $60 per ticket Charge a $190 monthly membership fee, and $40 per ticket Charge only a $300 monthly membership Charge no monthly membership, and $100 per ticket

$500 is correct Lowering the price of the phone from $501 to $500 will bring in one new customer, and $500 in new revenues. Since there are no customers who would buy the phone at any price higher than $500, the firm doesn't lose revenue on any inframarginal customers. MR = $500 - $0.

A firm sells a smartphone. At a price of $500, there is only one customer. At prices above $500, no one purchases the phone. What is the firm's marginal revenue at a price of $500? $0 $250 $500 $1000

Charge a monthly fee of $20, and $8 per visit. Only the first set of consumers would subscribe, yielding a profit of 50 * ($20 + ($8 - $2) * 10) = $4,000. Charge no monthly fee, and $8 per visit. All consumers would subscribe, yielding a profit of 50 * ($8 - $2) * 10 + 50 * ($8 - $2) * 12 = $6,600. Charge a monthly fee of $72, and $2 per visit. is correct Both groups would subscribe, yielding a profit of 100 * $72 = $7,200

A fitness center has 100 prospective clients. 50 of them wish to attend the gym ten times per month, and are willing to pay $10 per visit. The other 50 want to attend 12 times per month but are only willing to pay $8 per visit. The cost to the fitness center of a single person using the equipment and space for a session is $2. Which two-part tariff scheme will result in the highest profits for the fitness center? Charge a monthly fee of $20, and $8 per visit. Charge no monthly fee, and $8 per visit. Charge a monthly fee of $72, and $2 per visit.

Sell bouquets of flowers at $35 each, and include a free vase with each bouquet is correct Every customer will buy the bundle. If there were only two customers, this would result in $70 in revenues.

A flower shop finds that about half of its customers are willing to pay $30 for a bouquet of flowers, and are willing to pay $10 for a vase. The other half of its customers are generally willing to pay only $20 for a bouquet, but value vases at about $15. How should the flower shop price its products in order to maximize revenues? Sell bouquets of flowers at $20 each, and vases at $10 each Sell bouquets of flowers at $30 each, and vases at $10 each Sell bouquets of flowers at $35 each, and include a free vase with each bouquet Sell bouquets of flowers at $40 each, and include a free vase with each bouquet

$3 If the marginal cost of producing a cupcake is $3, then the monopolist would make gross margin of $9*80 - $3*80 = $480 selling at $9. This is greater than the gross margin made selling at $10, which are $10*50 - $3*50 = $350. Thus selling at $9 would be better for the monopolist. $7 If the marginal cost of producing a cupcake is $7, then the monopolist would make gross margin of $9*80 - $7*80 = $160 selling at $9. This is greater than the gross margin made selling at $10, which are $10*50 - $7*50 = $150. Thus selling at $9 would be better for the monopolist. $8 is correct If the marginal cost of producing a cupcake is $8, then the monopolist would make gross margin of $9*80 - $8*80 = $80 selling at $9. This is less than the gross margin made selling at $10, which are $10*50 - $8*50 = $100. Thus selling at $10 is better for the monopolist. $11 If the marginal cost of producing a cupcake is $11, then the monopolist would make gross margin of $10*50 - $11*50 = a loss of $50. Thus selling at $10 cannot be best for the monopolist because it is selling below marginal cost.

A monopolist bakery is currently selling its cupcakes for $10 and the quantity demanded is 50. If the monopolist lowers its price to $9, it will have a quantity demanded of 80. Which of the following could be the marginal cost of producing a cupcake if the monopolist is maximizing profits at a price of $10? $3 $7 $8 $11

The price will be $20 and the quantity sold will be 15 At a quantity of 15, the monopolist could charge $50 per unit. The price will be $50 and the quantity sold will be 15 is correct Marginal cost = marginal revenue at a quantity of 15. The monopolist will sell 15 cars, and determine price based on the demand curve. The price will be $40 and the quantity sold will be 20 The monopolist will sell the quantity of cars where marginal revenue = marginal cost. The price will be $20 and the quantity sold will be 30 The monopolist will sell the quantity of cars where marginal revenue = marginal cost. Result

A monopolist faces the demand curve shown below, and incurs a cost of $20 for each unit it sells. What will be the price and quantity sold? The price will be $20 and the quantity sold will be 15 The price will be $50 and the quantity sold will be 15 The price will be $40 and the quantity sold will be 20 The price will be $20 and the quantity sold will be 30

The average revenue is lower than the average cost. See correct answer for explanation. The average revenue equals the average cost. See correct answer for explanation. The marginal revenue exceeds the marginal cost. See correct answer for explanation. The marginal revenue equals the marginal cost. is correct The monopolist's revenue is maximized when marginal revenue is equal to the marginal cost.

A monopolist's profits are maximized when: The average revenue is lower than the average cost. The average revenue equals the average cost. The marginal revenue exceeds the marginal cost. The marginal revenue equals the marginal cost.

$10 At a price of $10, the monopolist will sell coffee to everyone in the region, but will not make any profit since the cost of each pound of coffee sold is also $10. $12 At a price of $12, the monopolist will sell coffee to everyone in the region. Since the cost of each pound of coffee is $10, the monopolist will make $2 on every pound it sells. Thus profit will be equal to $2 multiplied by the number of people in the region. $15 is correct At a price of $15, the monopolist will not sell coffee to the 45% of people who are only willing to pay $12, so 55% of people in the region will buy coffee. Since the cost of each pound of coffee is $10, the monopolist will make $5 on every pound it sells. Thus profit will be equal to $5 multiplied by 55% multiplied by the number of people in the region. This is equal to $2.75 multiplied by the number of people in the region. This is the greatest amount of profit. $20 At a price of $20, the monopolist will only sell coffee to 25% of the region. Since the cost of each pound of coffee is $10, the monopolist will make $10 on every pound it sells. Thus profit will be equal to $10 multiplied by 25% multiplied by the number of people in the region. Thus profit will be equal to $2.50 multiplied by the number of people in the region.

A monopolistic coffee producer discovers that 30% of the people in the region are willing to pay $15 for a pound of coffee, another 25% are willing to pay $20, and the remaining 45% are only willing to pay $12. The cost of producing each pound of coffee is $10. How much should the monopolist charge for each pound of coffee? $10 $12 $15 $20

$15 is correct At a price of $15, the monopolist will not sell coffee to the 45% of people who are only willing to pay $12, so 55% of people in the region will buy coffee. Since the cost of each pound of coffee is $10, the monopolist will make $5 on every pound it sells. Thus profit will be equal to $5 multiplied by 55% multiplied by the number of people in the region. This is equal to $2.75 multiplied by the number of people in the region. This is the greatest amount of profit.

A monopolistic coffee producer discovers that 30% of the people in the region are willing to pay $15 for a pound of coffee, another 25% are willing to pay $20, and the remaining 45% are only willing to pay $12. The cost of producing each pound of coffee is $10. How much should the monopolist charge for each pound of coffee? 10 12 15 20

Prices and profits will not change See correct answer for explanation. Prices and profits will decrease is correct The customer now has the power to negotiate price with the seller, and prices will likely fall as a result. Profit will decrease as the customer captures an increased share of the surplus. Prices and profits will increase See correct answer for explanation. Prices will decrease and profits will not change See correct answer for explanation. Result

A monopolistic producer of caviar has historically sold all of its caviar to 10 distributors. Recently, one of the distributors has acquired all of its competitors, becoming the caviar producer's sole customer. How are the caviar producer's prices and profits likely to change as a result of this downstream consolidation? Prices and profits will not change Prices and profits will decrease Prices and profits will increase Prices will decrease and profits will not change

$600 Charging $600 would lead to zero profits. $1000 Charging $1000 would lead to everyone purchasing the rug, at $400 of profit each. If there are 100 customers, that would lead to profits of $40,000. $1500 At $1500, only 40% of the population would purchase a rug, in which case you might as well charge $2000. $2000 is correct Charging $2000 would lead to 40% of the population purchasing at $1400 profit each. If there are 100 customers, that would be total profits of $56,000.

A monopolistic seller of rare oriental rugs discovers that 60% of the population is willing to pay $1,000 for a rug. The remaining 40% of the population is willing to pay $2000. Each rug costs $600 to produce. How much should the monopolist charge for each rug? $600 $1000 $1500 $2000

II > I > III is correct Pricing scheme I would generate a profit of ($150K-$50K) * 35 - $1.5M = $2M. Pricing scheme II would generate ($200-$50K) * 25 - $1.5M =$2.25M. Pricing scheme III would generate ($250K-$50K) * 15 - $1.5M = $1.5M. III > I > II See correct answer for explanation. I > II > III See correct answer for explanation. II > III > I See correct answer for explanation.

A monopolistic seller of sports cars has traced out the following demand curve: 10 customers have willingness to pay (WTP) of $100K each, another 10 customers have WTP of $150K each, another 10 customers have WTP of $200K each; and a further 15 customers have WTP of $250K. Each sports car costs $50K to produce, but the production process requires a fixed machinery investment of $1.5M as well. The seller is considering setting one of the following prices: I. A price of $150K II. A price of $200K III. A price of $250K What is the order of the profits, from greatest to least, generated by these three pricing schemes? II > I > III III > I > II I > II > III II > III > I

A real estate developer is offering identical houses for sale for $350,000 each, and has 20 willing customers. The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses. What would be the developer's change in revenue from lowering the price in this way? -$100,000 is correct The current revenue is $350,000*20 = $7M. By lowering the price, the seller would get $300,000*23 = $6.9M, which is $100,000 less. Thus, the developer should not lower the price to $300,000. $100,000 See correct answer for explanation. $900,000 See correct answer for explanation. $1,050,000 See correct answer for explanation.

A real estate developer is offering identical houses for sale for $350,000 each, and has 20 willing customers. The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses. What would be the developer's change in revenue from lowering the price in this way? -$100,000 $100,000 $900,000 $1,050,000

$100 is correct At a price of $250, the firm is earning $5000 per month. At a price of $200, it will earn $6000 per month. Marginal revenue is $6000-$5000 = $1000/10=$100 per table.

A single firm is the only seller of furniture in an isolated college town. It has spent $25,000 in fixed costs, and can produce tables at a marginal cost of $100. It has been selling 20 tables per month at a price of $250. The management believes it can sell 30 tables per month if it drops prices to $200. What would be the firm's marginal revenue from lowering the price in this way? -$100 $100 $200 $600

Price Internet at $30/month and landlines at $40/month. is incorrect All customers would purchase Internet, creating profits of $0 per month. 100 customers would purchase landlines, creating profits of $1000 per month. Total profits would be $1000 per month. Price Internet at $40/month and landlines at $40/month. is correct 100 customers would purchase only Internet, creating profits of $1000. The other 100 customers would only purchase landlines, creating profits of $1000. Total profits would be $2000 per month. Bundle the two goods at a combined price of $50/month. All customers would purchase the bundle, leading to losses of $2000 per month Bundle the two goods at a combined price of $70/month. Only 100 customers would purchase the bundle, leading to profits of $1000 per month.

A telephone company offers two services: landlines and Internet. There are two types of customer demographics for these services. One customer demographic values the Internet service at $40/month, but only values landlines at $10/month. The other customer demographic values the Internet service less, at $30/month, but values the landline telephone service at $40/month. The two customer demographics are each comprised of 100 persons. Internet and landlines each cost $30/month to supply to each customer who purchases them (so the cost to supply both products to a customer is $60/month). Which pricing scheme should the telephone company adopt? Price Internet at $30/month and landlines at $40/month. Price Internet at $40/month and landlines at $40/month. Bundle the two goods at a combined price of $50/month. Bundle the two goods at a combined price of $70/month.

The restaurant is in a convenient location near several schools and businesses. A convenient location can increase customers' willingness to pay for the restaurant's hamburgers. The restaurant pays higher monthly rent than its competitors. is correct In a competitive market, higher costs alone cannot justify higher prices. The restaurant has been around for many years and customers have a nostalgic preference for it. In this case, customers might choose to buy the hamburgers in spite of their higher price. The restaurant offers its milkshakes and fries for a price below the market average. In this case, a customer might end up paying the same total amount for a meal at this restaurant as at another one.

A town has many fast food restaurants, which charge an average of $6 for a hamburger. However, one fast food restaurant charges $10 for a hamburger and remains very competitive. Which of the following situations could not, by itself, explain this restaurant's ability to charge a higher price? The restaurant is in a convenient location near several schools and businesses. The restaurant pays higher monthly rent than its competitors. The restaurant has been around for many years and customers have a nostalgic preference for it. The restaurant offers its milkshakes and fries for a price below the market average.

The airlines fly identical planes, with the same type of seat and the same amount of legroom for customers is correct This makes the airlines more similar to each other in non-price ways, making it more likely that they will compete on price. One airline offers meals on board every flight while the other serves no meals but has fewer delayed flights Different passengers are likely to prefer one or the other of these approaches, and the variation should reduce price competition. Each airline offers flights to a different set of other cities Consumers will choose their airline based on where they need to go, making price competition unnecessary. The airlines offer loyalty programs, motivating existing customers to continue to fly with them Consumers who have already flown on one or the other of the airlines will have greater reason to fly with that airline again. This differentiates the airlines, and can reduce price competition.

A town with a small airport is served by two competing airlines. Which of the following strategies would make the airlines more likely to compete on price? The airlines fly identical planes, with the same type of seat and the same amount of legroom for customers One airline offers meals on board every flight while the other serves no meals but has fewer delayed flights Each airline offers flights to a different set of other cities The airlines offer loyalty programs, motivating existing customers to continue to fly with them

Estimate the customer's willingness to pay and set the per-unit price equal to the average WTP. See correct answer for explanation. Set the price of each piece of furniture equal to the marginal cost of producing it. is correct An optimal two-part tariff prices each unit at marginal cost, and charges a lump sum fee on top. Set the price between the marginal cost of producing the most costly unit and the customer's lowest estimated willingness to pay. See correct answer for explanation. Set the per-unit price to $0 and capture value through the fee instead. See correct answer for explanation.

An artisan who creates customized furniture has a customer who is interested in purchasing several pieces of furniture. The artisan decides to sell the furniture via a two-part tariff, charging a fee to work with the customer and an additional price for each individual piece of furniture. How should the artisan determine the price of each piece of furniture? Estimate the customer's willingness to pay and set the per-unit price equal to the average WTP. Set the price of each piece of furniture equal to the marginal cost of producing it. Set the price between the marginal cost of producing the most costly unit and the customer's lowest estimated willingness to pay. Set the per-unit price to $0 and capture value through the fee instead.

Offer the most popular dish served by the incumbent restaurant. This would make the restaurant more similar to its competitors, making it more likely to have to compete on price. Open the restaurant location near the incumbent restaurant. This would make the restaurant more similar to its competitors, making it more likely to have to compete on price. Use new technology and business practices to cut variable costs lower than the incumbent restaurant. is correct This would allow the restaurant to come out of a price war with profits since it has lower costs and thus can offer lower prices than the incumbent restaurant. Specialize in a type of cuisine not served by other restaurants in the region. is correct This would differentiate the restaurant from its competitors, making it less likely to have to compete on price. Set prices lower than the incumbent restaurant to capture market share. Lowering prices will start a price war with the incumbent. This might not be profitable for the entrepreneur.

An entrepreneur is looking to open a restaurant in a town with only one other restaurant. The incumbent restaurant is very successful with high profits. Which of the following business strategies are most likely to allow the entrepreneur to start a profitable restaurant? Select all that apply. Offer the most popular dish served by the incumbent restaurant. Open the restaurant location near the incumbent restaurant. Use new technology and business practices to cut variable costs lower than the incumbent restaurant. Specialize in a type of cuisine not served by other restaurants in the region. Set prices lower than the incumbent restaurant to capture market share.

Bundle the three operas together. is correct A bundle of the three operas would be priced at $370, and the opera would earn a total of $740 in revenues, or $500 in profits. Bundle "Madama Butterfly" and "Eugene Onegin," and sell "Carmen" separately. is incorrect The bundle would be sold for $250, and "Carmen" would be sold for $100. Cost would be the same as in the optimal scenario, but revenues would be only $700. Bundle "Carmen" and "Eugene Onegin," and sell "Madama Butterfly" separately. The bundle would be priced at $270 (only Customer 2 would purchase it), and "Madama Butterfly" would be priced at $200 (only Customer 1 would purchase it). Costs would be $120, and revenues would be $470, resulting in profits of $350. Sell each opera separately. "Carmen" would be sold for $100, "Madama Butterfly" would be sold for $200, and "Eugene Onegin" would be sold for $150. Total revenues would be $550, and total costs would be $160, resulting in profits of $390.

An opera house is offering three performances, and has two types of consumers. The performances are "Carmen," "Madama Butterfly," and "Eugene Onegin." Consumer 1 has WTP of $100 for a ticket to "Carmen," $200 for "Madama Butterfly," and $70 for "Eugene Onegin." Consumer 2 has WTP of $120 for "Carmen," $100 for "Madama Butterfly," and $150 for "Eugene Onegin." Each ticket costs the opera house $40. How should the opera house bundle the goods? Bundle the three operas together. Bundle "Madama Butterfly" and "Eugene Onegin," and sell "Carmen" separately. Bundle "Carmen" and "Eugene Onegin," and sell "Madama Butterfly" separately. Sell each opera separately.

For which pricing system was the profit to the bakery greater? The fixed price See correct answer for explanation. The two-part tariff is correct Correct, the two-part tariff had profits of $14, compared to the $8 profits from the fixed price. Result

Consider the following table which shows the willingness to pay of HBS Online staff for successive quantities of cake slices. Ben Katherine 1st Slice $5 $7 2nd Slice $3 $2 3rd Slice . $2 $0 4th Slice $1 $0 For which pricing system was the profit to the bakery greater? The fixed price The two-part tariff

$5 is correct A fixed price of $5 would result in profits of $5 * 2 - $1 * 2 = $8.

Consider the following table which shows the willingness to pay of HBS Online staff for successive quantities of cake slices. Ben Katherine 1st Slice $5 $7 2nd Slice $3 $2 3rd Slice . $2 $0 4th Slice $1 $0 Let's say the bakery does not know about two-part tariffs. If the variable cost to produce a slice of cake is still $1, which of the following fixed prices should the bakery charge? 5 4 3 2

The per-unit charge should be equal to the per-unit cost, which in this case is $1.

Consider the following table which shows the willingness to pay of HBS Online staff for successive quantities of cake slices. Ben Katherine 1st Slice $5 $7 2nd Slice $3 $2 3rd Slice . $2 $0 4th Slice $1 $0 The variable cost to produce a slice of cake is $1. The bakery wants to implement a two-part tariff. What per-unit-price should the bakery charge?

The fee should cover the rest of the surplus that is not covered by the per-unit charge. In this case Ben and Katherine both have surpluses of $7. This is calculated by adding up their willingness to pay beyond the per-unit charge. So for Ben, surplus is: $4 + $2 + $1 + $0 = $7. And for Katherine, surplus is: $6 + $1 = $7.

Consider the following table which shows the willingness to pay of HBS Online staff for successive quantities of cake slices. Ben Katherine 1st Slice $5 $7 2nd Slice $3 $2 3rd Slice . $2 $0 4th Slice $1 $0 The variable cost to produce a slice of cake is still $1. The bakery wants to implement a two-part tariff. What fee should the bakery charge?

Customers feel a connection with and have a long history with CityHealth. is correct This could raise the willingness to pay for CityHealth insurance, allowing CityHealth to win in a price war. CityHealth has established connections with healthcare providers in the city that allow them to negotiate better rates and lower their costs. is correct Having lower variable costs allows CityHealth to price lower than HealthWay in a price war and thus remain profitable. CityHealth paid less for the construction of their headquarters in the city than HealthWay did. Fixed costs have no impact on the pricing strategies of the two companies. Thus having lower fixed costs will not allow CityHealth to win a price war and remain profitable. The majority of CityHealth customers are not willing to switch insurance providers for minor cost-savings. is correct If this is true, CityHealth will be able to retain a portion of its customers through its incumbent advantage.

Consider the previous example of CityHealth and HealthWay. Suppose HealthWay imitated CityHealth and captured the market by offering a lower price. Now suppose CityHealth has developed the ability to adjust their prices, resulting in a price war between the two companies. Which of the following could allow CityHealth to be profitable? Select all that apply. Customers feel a connection with and have a long history with CityHealth. CityHealth has established connections with healthcare providers in the city that allow them to negotiate better rates and lower their costs. CityHealth paid less for the construction of their headquarters in the city than HealthWay did. The majority of CityHealth customers are not willing to switch insurance providers for minor cost-savings.

Yes, HealthWay should now imitate CityHealth's insurance network and charge a slightly lower price to capture the entire market. is correct If CityHealth is unable to adjust prices, then they will not be able to lower prices to compete with HealthWay. Since the companies are so similar, this price lowering will result HealthWay capturing the entire market.

Consider the previous example of CityHealth and HealthWay. Suppose insurance companies are unable to adjust prices easily due to government regulation and long-term plans with fixed prices. Does this new information change the optimal strategy for HealthWay? Yes, HealthWay should now imitate CityHealth's insurance network and charge a slightly lower price to capture the entire market. No, HealthWay should still differentiate by creating a network that covers the third of the city's healthcare providers that are not covered by CityHealth.

Sell all three products in a bundle for $260. is correct At this price, both customers will buy the bundle and only $5 of surplus is not captured by BuyMore. This is the $5 extra that Andrew would have been willing to pay for the bundle.

Consider the previous example: Nisha Andrew Cost Taylor Swift Tickets $160 $35 $20 Patriots Tickets $85 $220 $25 Facebook Access $15 $10 $0 Sell all three products in a bundle for $265. Sell all three products in a bundle for $260. Sell the tickets together for $255 and sell Facebook access for a fixed price of $10. Sell the tickets together for $245 and sell Facebook access for a fixed price of $10.

At a price of $260, BuyMore will sell two bundles. BuyMore will also incur the cost for each item twice, one for each bundle. Thus profits are: $260 * 2 - ($20 + $25 + $0) * 2 = $520 - $90 = $430

Consider the previous example: Nisha Andrew Cost Taylor Swift Tickets $160 $35 $20 Patriots Tickets $85 $220 $25 Facebook Access $15 $10 $0 If BuyMore sells all three products in a bundle for $260, what will be their profit?

$160 for Taylor Swift Tickets, $220 for Patriots Tickets, and $10 for Facebook Access. is correct Profits will be ($160 - $20) + ($220 - $25) + ($10 * 2 - $0 * 2) = $355

Consider the previous example: Nisha Andrew Cost Taylor Swift Tickets $160 $35 $20 Patriots Tickets $85 $220 $25 Facebook Access $15 $10 $0 If BuyMore sells each product separately, what prices should it use?

Profit is calculated by taking the revenue earned ($7 * 2 + $1 * 6 = $20) and subtracting the total costs ($1* 6 = $6), thus giving $14 in profit.

Consider the same example: Ben Katherine 1st Slice $5 $7 2nd Slice $3 $2 3rd Slice $2 $0 4th Slice $1 $0 If the variable cost to produce a slice of cake is still $1, and the bakery charges the optimal $7 fee and $1 per-unit-price, what will be the profit of the bakery?

Fixed costs reduce the optimal quantity and price of the drug for both competitive firms and monopolies. See correct answer for explanation. Fixed costs reduce the optimal quantity and price for a monopolist, but not for a competitive firm. See correct answer for explanation. Fixed costs reduce the optimal quantity and price for a competitive firm, but not for a monopolist. is incorrect In the long run, competitive firms must make enough money to cover fixed costs, but in the short-run this does not affect price or quantity produced. Fixed costs have no effect on the optimal price and quantities produced for either a competitive firm or a monopolist. is correct A monopolist's optimal price is not affected by the fixed costs it incurs. Also, in the short run, competitive firms are willing to price as low as their variable costs, regardless of what fixed costs are.

How would fixed costs affect the optimal quantity produced by a monopoly versus a competitive firm? Fixed costs reduce the optimal quantity and price of the drug for both competitive firms and monopolies. Fixed costs reduce the optimal quantity and price for a monopolist, but not for a competitive firm. Fixed costs reduce the optimal quantity and price for a competitive firm, but not for a monopolist. Fixed costs have no effect on the optimal price and quantities produced for either a competitive firm or a monopolist.

I and II is correct With first degree price discrimination, the producer can price each item right at each individual consumer's willingness to pay. The consumer captures no surplus (it is all captured by the producer) and there is no dead-weight loss.

If first-degree (or "perfect") price discrimination is possible, which of the following statements are true? I. The dead-weight loss is equal to zero II. The consumer's surplus is equal to zero III. The producer's surplus is equal to zero I I and II II and III III

Differentiate by creating a network that covers the third of the city's healthcare providers that are not covered by CityHealth. is correct By differentiating, HealthWay is targeting a different segment of consumers and will not be directly competing with CityHealth in price. As a result, a price war is less likely to occur and profits can be sustained.

In a major city, there is currently only one health insurance provider, CityHealth. CityHealth's insurance network covers two-thirds of the city's hospitals and private health practices. (Insurance networks are a network of healthcare providers that offer discounted rates to patients with a specific insurance.) A new insurance company, HealthWay, is considering entering the city. If both insurance companies are able to adjust prices, which of the following is HealthWay's best strategy? Imitate CityHealth's insurance network and charge a slightly lower price to capture the entire market. Differentiate by creating a network that covers the third of the city's healthcare providers that are not covered by CityHealth.

SpeedPlus (new entrant) captures all surplus. is correct Since InterSet cannot change its offering, all consumers will purchase internet from SpeedPlus, and InterSet will capture no surplus.

In the previous question, assuming speed is the only difference between the two services, how is the surplus split between InterSet and SpeedPlus? InterSet (old firm) captures all surplus. SpeedPlus (new entrant) captures all surplus. InterSet (old firm) and SpeedPlus (new entrant) split the surplus. Both firms receive zero profits.

There will be no deadweight loss, and most of the surplus will be captured by the artisan. is correct Deadweight loss will be avoided since each piece of furniture is sold at its marginal cost. Once the customer has paid the lump sum fee, he will buy every piece of furniture for which his WTP is more than or equal to its cost. Since the lump sum fee is set barely low enough for the customer to pay it, most of the surplus is going to the artisan through the fee. There will be no deadweight loss, and the surplus will be close to evenly split between the customer and the artisan. See correct answer for explanation. There will be some deadweight loss, and most of the surplus will be captured by the artisan. See correct answer for explanation. There will be some deadweight loss, and the surplus will be close to evenly split between the customer and the artisan. See correct answer for explanation.

In the situation of the artisan in the previous question, assume that the artisan has a fairly accurate estimate of the customer's willingness to pay for each unit, and sets the lump sum fee just low enough that the customer decides to pay it. Remember that we are only assessing the artisan's transactions with one customer. In this case, what will be the deadweight loss and the distribution of surplus? There will be no deadweight loss, and most of the surplus will be captured by the artisan. There will be no deadweight loss, and the surplus will be close to evenly split between the customer and the artisan. There will be some deadweight loss, and most of the surplus will be captured by the artisan. There will be some deadweight loss, and the surplus will be close to evenly split between the customer and the artisan.

$600 is correct There are three customers who each purchase the phone at a price of $200. Revenue = $200*3=$600.

Let's stick with the same smartphone producer from the previous example. If the firm reduces its price slightly, it finds that there are no additional customers willing to purchase a phone at $490, or $450, or $400, etc. At a price of $200, however, two new customers would buy the smartphone (in addition to the customer with a WTP of $500). What is the firm's revenue at a price of $200? $100 $200 $400 $600

The firm's pricing decision is not affected by fixed costs is correct Fixed costs do not influence the pricing decision of a monopoly.

Now suppose instead of $25,000 in fixed costs, the furniture producer had to incur $30,000 in fixed costs. The marginal cost of each table is still $100. How will this affect the price charged by the firm? The firm's pricing decision is not affected by fixed costs The firm will choose to price at $250 rather than $200 The firm will raise prices to the point where revenues are equal to total costs

Profits will likely fall is correct Since the firm now has only one customer, that customer has significant negotiating power. Prices and Profits will likely drop.

Originally, the furniture producer sold furniture to individual students in the college town. However, the college has decided to purchase furniture for its students (increasing college tuition to cover the cost!), and the furniture producer now sells to a single customer. How is this change likely to impact the furniture producer's profits? Profits will likely fall Profits will likely not be changed Profits will likely increase

At a price of $20, the firm would sell 3000 units of the good and earn $60,000 in revenues - enough to cover the $30,000 in variable costs and the $30,000 in fixed costs.

Suppose a firm faces the demand and marginal cost shown below, and incurs fixed costs of $30,000. What price would be necessary to cover all costs?

Both firms are likely to receive zero profits. is correct The firms will compete for customers until price equals cost.

Suppose now that InterSet (the old firm) is able to change its offering. Now both firms can adjust the speed of the Internet they offer. What will happen to the two firms' profits? InterSet (old firm) will now capture some of the surplus. SpeedPlus (new entrant) will still capture all surplus. InterSet (old firm) will now capture more of the surplus than SpeedPlus (new entrant). Both firms are likely to receive zero profits.

10% No student would purchase the ticket for $18. 25% 60% of the students would purchase the ticket at $15, but the museum could earn more by lowering the price enough to attract the lower-WTP students. 33% At a price of $13.33, the museum will only attract the high-WTP students, and might as well charge their full WTP of $15. 50% is correct At $10, all of the students will be willing to purchase a ticket. Imagine there are 100 students total: this would lead to revenue (and profits) of $1000, compared to $900 at a price of $15. Result

Suppose that a museum of modern art discovers the following: adults are willing to pay $20 per ticket to see a Monet exhibit. Students are willing to pay less; 60% of students have WTP of $15, and 40% are willing to pay up to $10. There are no marginal costs to allowing more viewers into the museum. The museum manager decides to set the regular price at $20, and offer a student discount. What discount should it offer? 10% 25% 33% 50%

Offer internet speed just above that of InterSet is correct This will allow SpeedPlus to capture the entire market at the minimal cost.

Suppose that a small town is served by one Internet provider, InterSet, whose firm is set up in a way that it is prohibitively costly to change its offerings to customers. A new Internet provider, SpeedPlus, decides to enter the market. SpeedPlus conducted some market research, and discovered that the consumers in that small town would be very averse to paying any more for their internet than they currently do. SpeedPlus also knows that consumers prefer faster internet, (although speedier service is slightly more expensive to provide). Which of the following should SpeedPlus do? Offer Internet speed just below that of InterSet Offer internet speed just above that of InterSet Offer internet speed far below that of InterSet Offer internet speed far above that of InterSet

Consumer willingness to pay decreased. See correct answer for explanation. The demand curve was upward sloping. See correct answer for explanation. The firm was originally pricing where marginal revenue was greater than marginal cost. See correct answer for explanation. The firm was originally pricing where marginal revenue was lower than marginal cost. is correct The fact that the manufacturer could increase its revenues by raising prices and narrowing the client base indicated that the WTP of the high-type consumers was sufficiently higher than the WTP of the low-type consumers to make it inefficient to serve the low-type consumers.

Suppose that when a monopolistic car manufacturer raised its prices, it lost half of its customer base, but reported higher profits than before. Which of the following can be concluded? Consumer willingness to pay decreased. The demand curve was upward sloping. The firm was originally pricing where marginal revenue was greater than marginal cost. The firm was originally pricing where marginal revenue was lower than marginal cost.

A bundle of goods is correct Bundles are most effective when consumer willingness to pay is very different across different goods, as is the case here.

The following table shows two HBS Online participants' WTP for Taylor Swift tickets, Patriots tickets, and monthly Facebook access. It also shows the cost for each item: Nisha Andrew Cost Taylor Swift Tickets $160 $35 $20 Patriots Tickets $85 $220 $25 Facebook Access $15 $10 $0 A company, BuyMore, has bought the Patriots, Facebook, and Taylor Swift's concert agency. If Nisha and Andrew are the only two consumers, what do you think is the profit-maximizing pricing strategy for BuyMore to implement for these three products? (Take your best guess, the calculations will be done out in the following exercises.) A fixed price for each good A bundle of goods A two-part tariff By the revenue equivalence theorem, all three of the above pricing strategies will achieve the same profit.

$24 is correct At a price of $24, the monopolist will sell coffee to everyone in the region. Since the cost of each pound of coffee is $10, the monopolist will make $14 on every pound it sells. Thus profit will be equal to $14 multiplied by the number of people in the region. This is the greatest amount of profit.

The monopolistic coffee producer runs a very effective advertisement promoting its coffee and discovers that everyone in the region is now willing to pay double what they were before! Thus, 30% of the people in the region are willing to pay $30 for a pound of coffee, another 25% are willing to pay $40, and the remaining 45% are only willing to pay $24. The cost of producing each pound of coffee is still $10. How much should the monopolist charge for each pound of coffee? $10 $24 $30 $40

$150 At a price of $150, the firm will earn $50 in profit on each table, and will sell to 100% of its customers. If there are 100 customers, that will result in $5000 in profits. $200 At a price of $200, the firm will earn $100 in profit on each table, and will sell to 60% of its customers. If there are 100 customers, that will result in $6000 in profits. $250 At a price of $250, the firm will earn $150 in profit on each table, and will sell to 40% of its customers. If there are 100 customers, that will result in $6000 in profits. The furniture seller will earn the same profit pricing at $200 or at $250 is correct See explanations above.

The monopolistic furniture producer now discovers that 40% of the people in the town are willing to pay $250 for a table, another 20% are willing to pay $200, and the remaining 40% are only willing to pay $150. The cost of producing each table is still $100. How much should the monopolist charge for each table? $150 $200 $250 The furniture seller will earn the same profit pricing at $200 or at $250

Profit is equal to revenue minus costs. Revenue here is equal to $15 * 1,000 = $15,000. Costs are equal to $5 * 1,000 = $5,000 in variable costs, plus $10,000 in fixed costs, totaling $15,000 in costs. Thus profit is equal to $15,000 - $15,000 = $0.

The profit-maximizing price is $15 from the previous example. What is the profit of the monopolist given that the firm incurred a fixed cost of $10,000?

The multi-city travelers probably care more about the comfort of their seats, whereas the Boston-Amsterdam travelers might be willing to buy coach seats since they will spend less total time in flight. This would be a reason for the airline to set a higher price for the multi-city flight. The Boston-Amsterdam travelers are probably more flexible to choose their dates of travel than the multi-city travelers, since they only need to spend a few days overseas. If this were true, it should lead to a lower price for the Boston-Amsterdam flight. The Boston-Amsterdam roundtrip travelers are more likely to be on business, whereas the multi-city travelers going to Greece are likely to be on vacation, and therefore more price-sensitive. is correct A 3-day trip to Amsterdam (during weekdays) is more likely to be a business trip than a longer trip, including weekends, to multiple destinations. Vacation travelers are typically more flexible in their dates and destinations, and more price-conscious, since they are actually paying the bill. The Boston-Amsterdam flights must be more costly for the airline than the three flights in the multi-city trip combined. An airline's cost grow significantly with increased time in the air (and therefore more fuel burned) and with more take-offs and landings.

The round-trip business class airfare from Boston to Amsterdam (from August 18 through August 21) is $6,000. The round-trip business class airfare from Boston to Amsterdam to Athens and then returning to Boston (from August 18 through August 31) is $4,000. What is the most likely explanation for this price difference? The multi-city travelers probably care more about the comfort of their seats, whereas the Boston-Amsterdam travelers might be willing to buy coach seats since they will spend less total time in flight. The Boston-Amsterdam travelers are probably more flexible to choose their dates of travel than the multi-city travelers, since they only need to spend a few days overseas. The Boston-Amsterdam roundtrip travelers are more likely to be on business, whereas the multi-city travelers going to Greece are likely to be on vacation, and therefore more price-sensitive. The Boston-Amsterdam flights must be more costly for the airline than the three flights in the multi-city trip combined.

Neighborhood 1 Opening in Neighborhood 1 would make the new day care identical to the old one, capturing half the total surplus: 15 * ($70 - $30) = $600/day. Neighborhood 2 is correct Being located in Neighborhood 2 would attract all residents of Neighborhoods 2 and 3, and none of the residents of Neighborhood 1, for a surplus of: 20 * ($70 - $30) = $800/day. Neighborhood 3 Being located in Neighborhood 3 would attract all residents of Neighborhood 3, and half the residents of Neighborhood 2, for a profit of: 15 * ($70 - $30) = $600/day. It does not matter See explanations above.

The tiny town of Nemo has three neighborhoods located on a straight line: Neighborhood 1, Neighborhood 2, and Neighborhood 3, with Neighborhood 2 located equidistant between Neighborhood 1 and Neighborhood 3. There is one daycare center, located on Neighborhood 1. There are 10 families residing in each neighborhood, and each family has one child. Each family is willing to pay $70/day for daycare, and prefers daycare closest to its own neighborhood (though at current distances, families will purchase daycare services even if it's two neighborhoods away). Families are indifferent between any two daycares in the same neighborhood. Suppose that daycare costs $30/day per child to provide. A new daycare center is thinking of opening in Nemo. If both daycares will keep their price at $70/day, which neighborhood should the new daycare open in? Neighborhood 1 Neighborhood 2 Neighborhood 3 It does not matter

False is correct First degree price discrimination also requires the ability to charge different consumers at different rates. This may not be feasible if, for example, competing firms have already driven prices down to cost, or if consumers eligible for the low price buy large quantities of the product and resell it to customers with high WTP.

True or False: All that is required for first degree price discrimination is knowledge of each consumer's WTP for each marginal item. True False

Customers are indifferent between the two manufacturers' cars is correct If the two manufacturers are not differentiated in any way, they will have to compete on price.

Two car manufacturers are the only producers of cars in a market. Which of the following circumstances would make the manufacturers more likely to compete on price? One manufacturer produces only sedans, and the other produces only trucks One manufacturer's cars are designed to protect the passengers in a crash, while the other manufacturer's cars are designed to maximize gas mileage Customers are indifferent between the two manufacturers' cars The manufacturers both advertise heavily, but to different segments of the market

Sell tickets to the Natural History Museum for $20, and tickets to the Art Museum for $15 Imagine there are 100 potential visitors. 80 will buy a ticket to the Natural History Museum, and 100 will buy a ticket to the Art Museum. Total revenues will be $3100. Higher revenues can be achieved. Sell tickets to the Natural History Museum for $20, and tickets to the Art Museum for $40 Imagine there are 100 potential visitors. 80 will buy a ticket to the Natural History Museum, and 40 will buy a ticket to the Art Museum. Total revenues will be $3200. Higher revenues can be achieved. Sell the tickets as a bundle for $25 Imagine there are 100 potential visitors. All 100 of them will purchase the bundle, resulting in revenues of $2500. Higher revenues can be achieved. Sell the tickets as a bundle for $45 is correct Imagine there are 100 potential visitors. 80 of them will purchase the bundle, resulting in revenues of $3600.

Two museums, the Natural History Museum and the Art Museum, are owned and operated by the same city. The city has discovered that most potential visitors to the museums fall into one of three categories: 40% of the visitors would be willing to pay $30 for admission to the Natural History Museum, and $15 for admission to the Art Museum 40% of the visitors would be willing to pay $20 for admission to the Natural History Museum, and $40 for admission to the Art Museum 20% of the visitors would be willing to pay $10 for admission to the Natural History Museum, and $15 for admission to the Art Museum How should the city price the admissions tickets in order to maximize revenues? Sell tickets to the Natural History Museum for $20, and tickets to the Art Museum for $15 Sell tickets to the Natural History Museum for $20, and tickets to the Art Museum for $40 Sell the tickets as a bundle for $25 Sell the tickets as a bundle for $45

At a price of $115, the airline was earning $9,200 in revenue. At a price of $100, it earns $9,000. The marginal revenue is the difference divided by the increase in seats: -$200/10=-$20. With this price reduction, the airline went too far, and actually lost money.

We know that the airline could sell 80 seats at a price of $115. Now, say the airline can lower its price further, to $100, and sell 90 seats. What is the airline's marginal revenue when it lowers price from $115 to $100? $

$100 is correct At a price of $500, the firm sold one phone and earned revenues of $500. At a price of $200, the firm gains $400 in revenues from new customers, but loses $300 that it could have earned by charging the first customer a higher price. The change in revenue = $400 - $300. It could also simply be calculated as the difference in revenue: $600 (revenue after the price change) - $500 (revenue before the price change) = $100. The MR would then be the change in revenue ($100) divided by the change in units sold (2)= $50.

What is the firm's change in revenue when it reduces prices from $500 to $200? -$300 $100 $400 $600

It makes the demand curve that Amgen faces more elastic. Since Amgen is dependent on the buyers, they have the power to threaten not to purchase at high prices. Amgen is no longer a "price-setter" on a demand curve; instead, prices are determined through negotiation. When a firm has many buyers, it can typically set a price and force consumers to take it or leave it. If there is, say, only one buyer, the consumer and the producer have a similar degree of power and prices may be set through negotiation. It reduces the prices that Amgen can charge for Epogen®. Since buyers have power to negotiate with Amgen, prices will probably fall. All of the above. is correct See explanations above.

What is the impact of downstream consolidation on our pricing analysis? It makes the demand curve that Amgen faces more elastic. Amgen is no longer a "price-setter" on a demand curve; instead, prices are determined through negotiation. It reduces the prices that Amgen can charge for Epogen®. All of the above.

Offering lower prices for children, students, and seniors is correct This method of price discrimination assumes that children, students, and seniors have a lower WTP, rather than relying on self-selection by the customers.

Which of the following price discrimination methods does not rely on self-selection? Offering a discount to consumers who buy in bulk Offering lower prices for children, students, and seniors Releasing a 3D version of a movie first, and then releasing it in 2D Mailing coupons to prospective customers