Deck 10: Advanced Pricing Decisions

Question 1

If Sail Away Cruises offers customers a free cruise ticket with each full priced cruise ticket purchased, this is an example of .

A)zero- degree price discrimination
B)second- degree price discrimination
C)third- degree price discrimination
D)first- degree price discrimination

Answer 1

B

Question 2

If Massage R Us, a spa chain specializing in massage, offers a lower price for a massage to senior citizens, this is an example of .

A)first- degree price discrimination
B)second- degree price discrimination
C)zero- degree price discrimination
D)third- degree price discrimination

Answer 2

D

Question 3

First- degree and second- degree price discrimination are similar in each of the following ways except which one?

A)In both practices, firms earn greater economic profit than if they charged a single price for every unit.
B)They both convert all possible consumer surplus into additional economic profit.
C)In both practices, firms produce more than if they charged a single price.
D)In both practices, consumers pay higher prices for the first units that they buy.

Answer 3

B

Question 4

If a firm is practicing third- degree price discrimination and is charging a price of $8 per unit to consumers in Group A and a price of $10 to consumers in Group B, which of the following is true?

A)Group A consumers are less responsive to price changes than Group B consumers.
B)Group B consumers have a greater price elasticity than Group A consumers.
C)Group A consumers have a lower price elasticity than Group B consumers.
D)Group A consumers have a greater price elasticity than Group B consumers.

Question 5

The managers of Movies Plus, a large movie theater, want to practice third- degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 1.5 for tickets at Movies Plus and adults have an own price elasticity of 1.2. If the managers have correctly determined the third- degree profit- maximizing price for adults is $15, what is the third- degree profit- maximizing price to charge students?

A)$7.50
B)$13.50
C)$10.00
D)$8.50

Question 6

If a firm is practicing third- degree price discrimination and is charging a price of $5 per unit to consumers in Group A and a price of $9 to consumers in Group B, which of the following is true?

A)Group A consumers have a lower price elasticity than Group B consumers.
B)Group A consumers are less responsive to price changes than Group B consumers.
C)Group B consumers have a greater price elasticity than Group A consumers.
D)Group A consumers have a greater price elasticity than Group B consumers.

Question 7

The managers of Movies Plus, a large movie theater, want to practice third- degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 4.0 for tickets at Movies Plus and adults have an own price elasticity of 2.0. If the managers have correctly determined the third- degree profit- maximizing price for adults is $10, what is the third- degree profit- maximizing price to charge students?

A)$12.00
B)$5.50
C)$15.00
D)$6.67

Question 8

If Big Lumber Company offers customers a lower price per unit of lumber if the customer purchases more than 100 pieces of lumber, this is an example of _ .

A)third- degree price discrimination
B)zero- degree price discrimination
C)second- degree price discrimination
D)first- degree price discrimination

Question 9

In third- degree price discrimination, to determine the total quantity produced, the firm sets its equal to its .

A)overall marginal revenue; marginal cost
B)individual market marginal revenue; marginal cost
C)overall marginal revenue; average total cost
D)individual market marginal revenue; average total cost

Question 10

In third- degree price discrimination, markets with a larger price elasticity of demand are _ responsive to price changes and are charged prices than markets with a smaller price elasticity of demand.

A)more; higher
B)more; lower
C)less; higher
D)less; lower

Question 11

If Big Fitness, a large workout facility, offers a discounted membership to college students, this is an example of .

A)third- degree price discrimination
B)second- degree price discrimination
C)zero- degree price discrimination
D)first- degree price discrimination

Question 12

If a firm is practicing third- degree price discrimination and is charging a price of $15 per unit to consumers in Group A and a price of $10 to consumers in Group B, which of the following is true?

A)Group B consumers have a lower price elasticity than Group A consumers.
B)Group B consumers are less responsive to price changes than Group A consumers.
C)Group B consumers have a greater price elasticity than Group A consumers.
D)Group A consumers have a greater price elasticity than Group B consumers.

Question 13

In third- degree price discrimination, markets with a smaller price elasticity of demand are responsive to price changes and are charged prices than markets with a larger price elasticity of demand.

A)more; higher
B)less; lower
C)less; higher
D)more; lower

Question 14

Of the three types of price- discrimination, which yields the greatest profits to the firm?

A)second- degree price discrimination
B)third- degree price discrimination
C)first- degree price discrimination
D)zero- degree price discrimination

Question 15

Of the three types of price- discrimination, which is impossible to practice in any market in reality?

A)first- degree price discrimination
B)third- degree price discrimination
C)zero- degree price discrimination
D)second- degree price discrimination

Question 16

The existence of any consumer surplus in the market suggests that all of the following practices are possible in the market except which one?

A)a single price is charged to all consumers
B)second- degree price discrimination
C)first- degree price discrimination
D)third- degree price discrimination

Question 17

If a firm is able to practice first- degree price discrimination, the firm will produce than if they charged a single price to all consumers and the firm will earn profit than if they charged a single price to all consumers.

A)more; less
B)more; more
C)less; less
D)less; more

Question 18

If Mario's Pizza offers consumers who purchase one medium sized pizza a second pizza at half price, this is an example of .

A)third- degree price discrimination
B)second- degree price discrimination
C)zero- degree price discrimination
D)first- degree price discrimination

Question 19

All of the following are true for first- degree price discrimination except which one?

A)Each consumer pays the maximum price they are willing to pay for every unit purchased.
B)Consumers pay less for the first units that they purchase.
C)Consumers receive no consumer surplus.
D)In reality, it is impossible to practice.

Question 20

First- degree and second- degree price discrimination are similar in each of the following ways except which one?

A)In both practices, consumers pay higher prices for the first units that they buy.
B)In both practices, firms earn greater economic profit than if they charged a single price for every unit.
C)They both yield the greatest possible profits to the firm.
D)They both convert consumer surplus into additional economic profit.

Question 21

The managers of Movies Plus, a large movie theater, want to practice third- degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 1.75 for tickets at Movies Plus and adults have an own price elasticity of 1.25. If the managers have correctly determined the third- degree profit- maximizing price for adults is $20, what is the third- degree profit- maximizing price to charge students?

A)$15.67
B)$9.33
C)$18.25
D)$12.50

Question 22

In third- degree price discrimination, consumer groups with the largest price elasticity of demand will pay the lowest price compared to the consumer groups with smaller price elasticities.

Question 23

If Angelo's Pizza Restaurant has a constant marginal cost of $75 for each additional table in the restaurant and a constant marginal cost of $5 for operating each additional table, what is Angelo's long- run marginal cost per table?

A)$75
B)$80
C)$70
D)$5

Question 24

If High Tech Tablets brings a new personal tablet at a price of $200 for the first three months and then reduces the price of the tablet to $125, this is an example of .

A)second- degree price discrimination
B)arbitrage
C)first- degree price discrimination
D)market segmentation

Question 25

If Angelo's Pizza Restaurant has a constant marginal cost of $50 for each additional table in the restaurant and a constant marginal cost of $12 for operating each additional table, what is Angelo's long- run marginal cost per table?

A)$38
B)$62
C)$12
D)$50

Question 26

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

A)short- term off- peak quantity
B)short- term peak quantity
C)short- term peak price
D)long- term off- peak price

Question 27

In third- degree price discrimination, the price markup is smaller in the markets that are less responsive to price changes.

Question 28

If Angelo's Pizza Restaurant has a constant marginal cost of $100 for each additional table in the restaurant and a constant marginal cost of $40 for operating each additional table, what is Angelo's long- run marginal cost per table?

A)$140
B)$40
C)$100
D)$60

Question 29

To practice third- degree price discrimination, each of these market conditions must be met except which one?

A)All consumers must have the same own price elasticity of demand.
B)The firm must have market power.
C)The firm must be able to determine in which group each customer belongs.
D)No arbitrage opportunities can exist between customer groups.

Question 30

If the own price elasticity of demand for a firm's product is the same across all consumers, it is not possible for the firm to practice third- degree price discrimination.

Question 31

If Gorgeous Sands Resort has a constant marginal cost of $20,000 for each resort unit and a constant marginal cost of $500 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

A)$19,500
B)$500
C)$20,500
D)$20,000

Question 32

The long- run capacity decision depends on the period marginal revenue and the marginal cost.

A)off- peak; long- run
B)peak- ; short- run
C)peak- ; long- run
D)off- peak; short- run

Question 33

To maximize overall profit in peak- load pricing, managers must determine _ capacity that maximizes season profit.

A)short- run; peak-
B)long- run; off- peak
C)short- run; off- peak
D)long- run; peak-

Question 34

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

A)short- term peak price
B)long- term peak quantity
C)short- term off- peak price
D)long- run capacity

Question 35

In first- degree price discrimination, the firm's marginal revenue curve is equal to its demand curve.

Question 36

If Deluxe Fruits offers a $1.00 coupon for their fruit cups, this is an example of .

A)market segmentation
B)first- degree price discrimination
C)arbitrage
D)second- degree price discrimination

Question 37

To practice third- degree price discrimination, each of these market conditions must be met except which one?

A)The firm must have market power.
B)Different groups of customers with different own price elasticities of demand must exist.
C)No arbitrage opportunities can exist between customer groups.
D)Different groups of customers with equal own price elasticities of demand must exist.

Question 38

If Gorgeous Sands Resort has a constant marginal cost of $15,000 for each resort unit and a constant marginal cost of $750 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

A)$15,000
B)$750
C)$15,750
D)$14,250

Question 39

If no consumer surplus exists in a market, it is possible for a firm to earn greater profits.

Question 40

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

A)short- term off- peak price
B)long- run capacity
C)short- term peak quantity
D)long- term off- peak quantity

Question 41

In peak- load pricing, the capacity decision is determined by setting marginal revenue equal to long- run _ cost.

A)off- peak; marginal
B)peak; marginal
C)off- peak; average fixed
D)peak; average fixed

Question 42

In peak- load pricing, the capacity decision is only based on conditions during the peak period.

Question 43

The capacity decision in peak- load pricing is found by setting the peak marginal revenue equal to the long- run marginal cost.

Question 44

To maximize profits in the off- peak period, the marginal revenue is set equal to the marginal cost.

A)off- peak; long- run
B)off- peak; short- run
C)peak; long- run
D)peak; short- run

Question 45

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is the profit- maximizing number of resort units for Gorgeous Sands Resort during the off- peak period?

A)300
B)250
C)350
D)200

Question 46

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. If Gorgeous Sands Resort produces the profit- maximizing number of resorts and charges the profit- maximizing price, what is their profit during the peak- period?

A)$187,500
B)$300,000
C)$457,500
D)$500,000

Question 47

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is the profit- maximizing number of resort units for Gorgeous Sands Resort during the peak period?

A)350
B)200
C)300
D)250

Question 48

In peak- load pricing, the capacity decision is made in the short run.

Question 49

Off- peak demand influences the capacity decision in peak- load pricing.

Question 50

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is the profit- maximizing price for Gorgeous Sands Resort to charge during the off- peak period?

A)$2,500
B)$1,250
C)$1,750
D)$2,000

Question 51

In peak- load pricing, once capacity is reached, the firm's short- run marginal cost curve becomes .

A)vertical
B)downward sloping
C)horizontal
D)negative

Question 52

In peak- load pricing, the short- run marginal cost is equal to the marginal cost of providing capacity.

Question 53

In peak- load pricing, the off- peak profit- maximizing quantity is _ than the profit- maximizing quantity during the peak period and the profit- maximizing price during the off- peak period is than the profit- maximizing price during the peak period.

A)less; more
B)less; less
C)more; more
D)more; less

Question 54

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. If Gorgeous Sands Resort produces the profit- maximizing number of resorts and charges the profit- maximizing price, what is their profit during the off- peak- period?

A)$450,000
B)$255,500
C)$300,000
D)$187,500

Question 55

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is Gorgeous Sands Resort's long- run average cost?

A)$5,000
B)$6,000
C)$3,000
D)$1,000

Question 56

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What long- run capacity of resort units should Gorgeous Sands Resort select?

A)350
B)300
C)200
D)250

Question 57

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is Gorgeous Sands Resort's long- run marginal cost?

A)$6,000
B)$5,000
C)$1,000
D)$4,000

Question 58

In peak- load pricing, once capacity is reached, the firm's short- run marginal cost curve becomes .

A)horizontal
B)vertical
C)upward sloping
D)negative

Question 59

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. What is the profit- maximizing price for Gorgeous Sands Resort to charge during the peak period?

A)$8,000
B)$10,000
C)$7,800
D)$7,000

Question 60

The table above summarizes Gorgeous Sands Resort's marginal capacity cost, marginal operating cost, peak marginal revenue, off- peak marginal revenue, and its peak and off- peak demand for its resort units.
Refer to the table above. If Gorgeous Sands Resort produces the profit- maximizing number of resorts and charges the profit- maximizing price, what is their total profit?

A)$525,000
B)$285,700
C)$487,500
D)$300,000

Question 61

The demand for Healthy Bars, a health snack bar, is Qd = 10 - (2 × P)and Healthy Bars has a constant average cost of $3 per snack bar. If Healthy Bars wants to package their bars to create an all- or- nothing offer and puts the profit- maximizing number of bars into each package, what is the profit- maximizing price to charge for the package?

A)$16
B)$8
C)$12
D)$20

Question 62

If Health Spas charges an annual membership fee of $1,000 for the use of their facilities and charges a $20 fee each time a member uses their facilities, this is an example of .

A)an all- or- nothing offer
B)a single pricing scheme
C)two- part pricing
D)commodity bundling

Question 63

Big Pools is large swimming complex. Suppose senior citizens have a demand for entrance into Big Pools that is more than half of the adults demand for entrance and there are an equal number of senior citizens and adults. If Big Pools practices two- part pricing, to earn greater profit, Big Pools adjust the membership fee to include .

A)should not; adults
B)should not; senior citizens
C)should; only adults
D)should; senior citizens

Question 64

All of the following practices increase a firm's profit by extracting more consumer surplus than can be obtained by simple monopoly pricing except which one?

A)linear pricing
B)all- or- nothing offers
C)two- part pricing
D)commodity bundling

Question 65

If Happy Chickens sells its eggs only in 12 carton packages, this is an example of .

A)commodity bundling
B)linear pricing
C)two- part pricing
D)an all- or- nothing offer

Question 66

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves practices two- part pricing and requires a membership fee and then a separate entrance fee, what is the profit- maximizing membership fee?

A)$200
B)$125
C)$50
D)$400

Question 67

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves practices two- part pricing and charges the profit-maximizing membership fee and entrance fee, what is the profit per consumer?

A)$400
B)$200
C)$500
D)$50

Question 68

If Health Spas charges an annual membership fee of $1,000 for the use of their facilities and charges a $20 fee each time a member uses their facilities, the $1,000 charge is a(n)fee and the $20 charge is a(n)fee.

A)fixed; user
B)fixed; fixed
C)user; fixed
D)user; user

Question 69

If a firm has consumers with different demands practices two- part pricing and it is profitable for the firm to sell to all consumer types, the profit- maximizing user fee will be the firm's marginal cost of use.

A)equal to
B)less than
C)double
D)greater than

Question 70

If Big Pools charges an annual membership fee of $500 per person for the use of their pool and charges a $4 fee each time a member uses the pool, this is an example of _.

A)an all- or- nothing offer
B)two- part pricing
C)commodity bundling
D)a single pricing scheme

Question 71

If Good Tissue sells its toilet paper only in packages of six rolls, this is an example of .

A)two- part pricing
B)linear pricing
C)commodity bundling
D)an all- or- nothing offer

Question 72

Big Pools is large swimming complex. Suppose senior citizens have a demand for entrance into Big Pools that is less than half of the adults demand for entrance and there are an equal number of senior citizens and adults. If Big Pools practices two- part pricing, to earn greater profit, Big Pools adjust the membership fee to include .

A)should; all consumers
B)should not; adults
C)should; senior citizens
D)should not; senior citizens

Question 73

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves practices two- part pricing and requires a membership fee and then a separate entrance fee, what is the profit- maximizing entrance fee?

A)$50
B)$5
C)$200
D)$10

Question 74

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves charges the profit- maximizing single entry price to each consumer and offers the profit- maximizing number of entries, what is Big Waves profit per consumer?

A)$200
B)$300
C)$100
D)$250

Question 75

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves charges a single entry price to each consumer, what is the profit- maximizing number of entries per consumer?

A)50
B)25
C)20
D)10

Question 76

Big Waves is a large water park. Suppose the individual demand for entrance into Big Waves is Qd = 50 - (2 × P)and each consumer has the same demand. Big Waves has a constant marginal cost of
$5 per consumer. If Big Waves charges a single entry price to each consumer, what is the profit- maximizing price per consumer?

A)$25
B)$10
C)$15
D)$20

Question 77

If Best Dogs sells its hot dogs only in packages of eight, this is an example of _ .

A)linear pricing
B)two- part pricing
C)commodity bundling
D)an all- or- nothing offer

Question 78

If Lake Boats charges an annual membership fee of $1,200 for the use of a boating slip (a place to store a boat)and charges a $50 fee each time a member docks their boat, this is an example of .

A)a single pricing scheme
B)commodity bundling
C)two- part pricing
D)an all- or- nothing offer

Question 79

Big Pools is large swimming complex. Suppose adults have a demand for entrance into Big Pools that is less than half of the teenagers demand for entrance and there are an equal number of adults and teenagers. If Big Pools practices two- part pricing, to earn greater profit, Big Pools adjust the membership fee to include .

A)should not; teenagers
B)should; all consumers
C)should not; adults
D)should; adults

Question 80

The demand for Healthy Bars, a health snack bar, is Qd = 10 - (2 × P)and Healthy Bars has a constant average cost of $3 per snack bar. If Healthy Bars wants to package their bars to create an all- or- nothing offer, what is the profit- maximizing number of bars to put into a package?

A)6
B)10
C)2
D)4