Question 1

Consider an increase in freight rates that adds 50 cents to the average cost of goods at a sporting goods store. How should the store adjust the price of tennis rackets?
A) Do not change the price.
B) Raise price by 25 cents per item.
C) Raise price by 50 cents per item.
D) None of the above.

Accepted Answer

D

Question 2

Consider an airline using uniform pricing. How should it adjust its pricing as the demand for air travel become more inelastic in the weeks leading up to Thanksgiving?
A) Raise the incremental margin percentage.
B) Raise the price.
C) Raise the marginal cost.
D) All of the above.

Accepted Answer

A

Question 3

Google continuously auctions slots for advertisements on its own and third-party websites. An advertiser may pay different prices for each slot, depending on the competition among the bids. What type of pricing policy is Google approximating?
A) Complete price discrimination.
B) Direct segment discrimination.
C) Indirect segment discrimination.
D) Uniform pricing.

Accepted Answer

Google's approach approximates complete price discrimination because it charges different prices for each advertisement slot based on the specific competition for that slot, tailoring prices to the individual circumstances of each auction.

Question 4

A manufacturer of Covid-19 vaccines sets higher prices in China than Indonesia. Under what conditions does this pricing policy increase profit?
A) Demand in China is less price elastic than in Indonesia.
B) Chinese consumers must not be able to buy from Indonesia.
C) a and b.
D) None of the above.

Accepted Answer

The pricing policy increases profit when demand in China is less price elastic than in Indonesia, meaning Chinese consumers are less sensitive to price changes and still buy the vaccine. Additionally, to maintain higher prices in China, it's crucial that Chinese consumers cannot bypass the higher prices by purchasing the vaccine from Indonesia, where it's cheaper. This prevents arbitrage, where goods are bought in a lower-priced market to be sold in a higher-priced one.

Question 5

Why is price discrimination more common in personal services such as career counselling and financial advice than other types of services?
A) Demand for personal services is less price elastic.
B) It is more difficult to resell personal services.
C) a and b.
D) None of the above.

Accepted Answer

The answer of Why is price discrimination more common in...

Question 6

Many movie studios stagger the release of movies - first in theaters, next streaming and cable TV, and then free-to-air TV. What type of pricing policy are they applying?
A) Complete price discrimination.
B) Direct segment discrimination.
C) Indirect segment discrimination.
D) Uniform pricing.

Accepted Answer

This is an example of indirect segment discrimination, where different versions or timings of a product are offered at different prices to indirectly segment the market and capture more consumer surplus. By staggering the release across different platforms, movie studios are able to charge different prices to different groups of consumers based on their willingness to pay for earlier access.

Question 7

Why is direct segment discrimination more profitable than indirect segment discrimination?
A) The seller can set prices according to some characteristic of the buyers.
B) Buyers cannot choose to purchase the cheaper product.
C) a and b.
D) None of the above.

Accepted Answer

Direct segment discrimination allows sellers to set prices based on characteristics of buyers and prevents buyers from choosing cheaper alternatives, making it more profitable.

Question 8

Since complete price discrimination is the most profitable pricing policy, would you recommend that all businesses apply it rather than direct and indirect segment discrimination?
A) It depends on the available information about buyers.
B) The seller must be able to prevent resale of the product.
C) Under some circumstances, it yields the same profit as direct segment discrimination.
D) a and b.
E) All of the above.

Accepted Answer

Complete price discrimination requires detailed information about buyers and the ability to prevent resale, making it not always feasible for all businesses.

Question 9

Consider a publisher that delivers news through the Internet. Using technology, it can easily customize the news according to the reader's preference. How would this help in pricing?
A) It differentiates the product and helps to segment customers.
B) It reduces the marginal cost of the product.
C) a and b.
D) None of the above.

Accepted Answer

Customizing news according to reader preferences differentiates the product, allowing the publisher to segment customers and potentially charge different prices based on the value perceived by different segments.

Question 10

Why do airlines limit the number of cheap fares as compared with more expensive fares?
A) Raises profit.
B) Limits cannibalization of more expensive fares.
C) Reduces the marginal cost.
D) All of the above.

Accepted Answer

The answer of Why do airlines limit the number of...

Question 11

Consider an increase in freight rates which adds 50 cents to the average cost of goods at a sporting goods store. How should the store adjust its prices?

Accepted Answer

The answer of Consider an increase in freight rates which...

Question 12

How would the price elasticity of the demand for air travel change in the weeks leading up to Thanksgiving? Consider an airline using uniform pricing. How should it adjust its pricing?

Accepted Answer

The answer of How would the price elasticity of the...

Question 13

Google continuously auctions slots for advertisements on its own and third-party websites. An advertiser may pay different prices for each slot, depending on the competition among the bids. What type of pricing policy is Google approximating?

Accepted Answer

The answer of Google continuously auctions slots for advertisements on...

Question 14

A manufacturer of Covid-19 vaccines sets higher prices in China than Indonesia. What conditions are necessary for this pricing policy to work?

Accepted Answer

The answer of A manufacturer of Covid-19 vaccines sets higher...

Question 15

Why is price discrimination more common in personal services such as career counselling and financial advice than other types of services?

Accepted Answer

The answer of Why is price discrimination more common in...

Question 16

Many movie studios stagger the release of movies - first in theatres, next streaming and cable TV, and then free-to-air TV. What type of pricing policy are they applying?

Accepted Answer

The answer of Many movie studios stagger the release of...

Question 17

Why is direct segment discrimination more profitable than indirect segment discrimination?

Accepted Answer

The answer of Why is direct segment discrimination more profitable...

Question 18

Since complete price discrimination is the most profitable pricing policy, would you recommend that all businesses apply it rather than direct and indirect segment discrimination?

Accepted Answer

The answer of Since complete price discrimination is the most...

Question 19

Consider a publisher that delivers news through the Internet. Using technology, it can easily customize the news according to the reader's preference. How would this help in pricing?

Accepted Answer

The answer of Consider a publisher that delivers news through...

Question 20

Why do airlines limit the number of cheap fares as compared with more expensive fares?

Accepted Answer

The answer of Why do airlines limit the number of...

Quiz 8: Pricing

Consider an increase in freight rates that adds 50 cents to the average cost of goods at a sporting goods store. How should the store adjust the price of tennis rackets?

Consider an airline using uniform pricing. How should it adjust its pricing as the demand for air travel become more inelastic in the weeks leading up to Thanksgiving?

Google continuously auctions slots for advertisements on its own and third-party websites. An advertiser may pay different prices for each slot, depending on the competition among the bids. What type of pricing policy is Google approximating?

A manufacturer of Covid-19 vaccines sets higher prices in China than Indonesia. Under what conditions does this pricing policy increase profit?

Why is price discrimination more common in personal services such as career counselling and financial advice than other types of services?

Many movie studios stagger the release of movies - first in theaters, next streaming and cable TV, and then free-to-air TV. What type of pricing policy are they applying?

Why is direct segment discrimination more profitable than indirect segment discrimination?

Since complete price discrimination is the most profitable pricing policy, would you recommend that all businesses apply it rather than direct and indirect segment discrimination?

Consider a publisher that delivers news through the Internet. Using technology, it can easily customize the news according to the reader's preference. How would this help in pricing?

Why do airlines limit the number of cheap fares as compared with more expensive fares?

Consider an increase in freight rates which adds 50 cents to the average cost of goods at a sporting goods store. How should the store adjust its prices?

How would the price elasticity of the demand for air travel change in the weeks leading up to Thanksgiving? Consider an airline using uniform pricing. How should it adjust its pricing?

Google continuously auctions slots for advertisements on its own and third-party websites. An advertiser may pay different prices for each slot, depending on the competition among the bids. What type of pricing policy is Google approximating?

A manufacturer of Covid-19 vaccines sets higher prices in China than Indonesia. What conditions are necessary for this pricing policy to work?

Why is price discrimination more common in personal services such as career counselling and financial advice than other types of services?

Many movie studios stagger the release of movies - first in theatres, next streaming and cable TV, and then free-to-air TV. What type of pricing policy are they applying?

Why is direct segment discrimination more profitable than indirect segment discrimination?

Since complete price discrimination is the most profitable pricing policy, would you recommend that all businesses apply it rather than direct and indirect segment discrimination?

Consider a publisher that delivers news through the Internet. Using technology, it can easily customize the news according to the reader's preference. How would this help in pricing?

Why do airlines limit the number of cheap fares as compared with more expensive fares?