Question 1

The XYZ Steel Company produces its own coal for use in its production facility.The demand for steel is given by P_s = 500 - 2Q_s and the total cost of producing steel is given by TC_s = 175Q_s,where Q_s is tons of steel per week.The price of coal in a perfectly competitive market outside the firm is $250 per ton,and the total cost of producing coal is given by TC_c = 40 + 5Q_c²,where Q_c is tons of coal per week.How much should XYZ steel charge itself for coal? A) $250 per ton. B) $350 per ton. C) $500 per ton. D) $750 per ton. E) $1,000 per ton.

Accepted Answer

The correct charge for coal should be its market price, $250 per ton, since this is the opportunity cost of using the coal in production instead of selling it in the market.

Question 2

The transfer price of an upstream product should always equal the market price when:
A) there is an outside market for the upstream product.
B) the price elasticity of demand for the upstream product is greater than 1 (in absolute value).
C) there is a perfectly competitive market for the downstream product.
D) the marginal cost of the downstream product is greater than 1.
E) the firm is a monopolist in its downstream market.

Accepted Answer

When there is an outside market for the upstream product, the transfer price should equal the market price to ensure that the company does not incur any opportunity cost by selling internally. This is because the company could easily sell the product for the same price in the external market, and therefore would not want to lose out on potential profits. Therefore, when there is an outside market for the upstream product, the transfer price should match the market price.

Question 3

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for three restaurants (1,2,and 3)are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the three restaurants? 
A) $46.
B) $52.
C) $63.
D) $72.
E) $84.

Accepted Answer

D

Question 4

If Chip and Cathy have different valuations on dancing and dinner as in the following table,what is the maximum profit Sammy can extract from Chip and Cathy for an evening's entertainment at Sammy's dinner theater if Sammy's marginal cost is $25 for dinner and $5 for dancing per person? 
A) $60.
B) $70.
C) $80.
D) $90.
E) $100.

Accepted Answer

The answer of If Chip and Cathy have different valuations...

Question 5

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for two restaurants (1 and 2)are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each restaurant? 
A) $49.
B) $45.
C) $36.
D) $34.
E) $30.

Accepted Answer

The answer of The reservation prices,in dollars,for three classes of...

Question 6

There are 12,000 fans attending a basketball tournament featuring three regional powerhouses in Charlotte,North Carolina.There are 4,000 of each of three types of fans,identified by the school for which they cheer.The fans value a ticket to see a game according to which teams are competing as shown in the following table.The stadium holds 12,000,and the marginal cost of seating another viewer is zero.What is the change in the maximum profits that organizers can earn for the tourney if they sell the three games as a package instead of as individual games? 
A) $20,000.
B) $120,000.
C) $160,000.
D) $200,000.
E) $220,000.

Accepted Answer

The answer of There are 12,000 fans attending a basketball...

Question 7

When consumers can purchase a set of goods as a bundle or separately,then the seller is engaging in:
A) simple bundling.
B) complex bundling.
C) performance bundling.
D) mixed bundling.
E) engaged bundling.

Accepted Answer

The scenario described in the question is referring to mixed bundling, where the seller offers both a bundle of goods and the option to purchase the items separately. Simple bundling only offers the bundle option, while complex bundling involves bundling a large number of products together. Performance bundling involves bundling products with complementary features or benefits, and engaged bundling is not a recognized term in this context.

Question 8

If a firm uses optimal transfer pricing between production division A and marketing division B,and a competitive external market for the output of division A exists,then production division A will surely:
A) make positive economic profits.
B) make normal economic profits.
C) sell at marginal costs.
D) sell at the external price.
E) sell at less than the external price.

Accepted Answer

The answer of If a firm uses optimal transfer pricing...

Question 9

The Two Stage Photo Company has a division for each stage of photo processing.There is no external market for the first stage's output.For a fixed quantity of photo processing,the transfer price should depend on:
A) whatever management wants.
B) marginal costs at stage 1 only.
C) marginal costs at each stage.
D) average costs at stage 1 only.
E) average costs at each stage.

Accepted Answer

The answer of The Two Stage Photo Company has a...

Question 10

Play It Again Sam is a producer of high-end CD burners.It requires customers to purchase high-quality blank CDs from it in order to maintain warranty agreements.This is an example of a:
A) bundle.
B) two-part tariff.
C) tying contract.
D) transfer price.
E) joint product.

Accepted Answer

This is an example of a tying contract, where the producer requires customers to purchase additional products (high-quality blank CDs) in order to maintain warranty agreements on the main product (high-end CD burners).

Question 11

Transfer prices are needed when:
A) firms purchase raw materials from other firms.
B) consumers sell goods and services to one another.
C) markets must be simulated within firms.
D) products are bundled and sold as a package.
E) firms charge different prices to customers where there are no differences in production costs.

Accepted Answer

Transfer prices are used to simulate markets within a firm when different divisions or departments of the same firm engage in transactions with one another. This is necessary to ensure that each division is held accountable for its performance and that they are motivated to work towards the overall goals of the firm. This helps to align the incentives of different divisions and promotes efficiency and productivity.

Question 12

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for three restaurants (1,2,and 3)are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the three restaurants? 
A) $59.
B) $75.
C) $81.
D) $89.
E) None of the above.

Accepted Answer

To find the maximum revenue generated by setting a bundled price for the three restaurants, we need to add the highest reservation prices of each demand group for the three restaurants.

For demand group A: The highest reservation price is $26 (for restaurant 3)
For demand group B: The highest reservation price is $22 (for restaurant 2)
For demand group C: The highest reservation price is $27 (for restaurant 1)

Therefore, the total revenue generated by setting a bundled price would be $26 + $22 + $27 = $75 (Option B).

Question 13

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for three restaurants (1,2,and 3)are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each of the three restaurants? 
A) $46.
B) $52.
C) $63.
D) $72.
E) $84.

Accepted Answer

The answer of The reservation prices,in dollars,for three classes of...

Question 14

When a firm requires a customer to buy additional products in order to buy one of its products,this is known as a(n):
A) bundling contract.
B) price differentiation.
C) oligopolistic device.
D) two-part tariff.
E) maximizing device.

Accepted Answer

A bundling contract is a marketing strategy where a firm requires a customer to purchase additional products in order to buy its main product. This strategy is used to increase the sale of their other products and to make the customer feel that they are getting a better deal by buying more items. Therefore, the best choice in this scenario is option A, bundling contract. Options B, C, D, and E are incorrect as they do not accurately represent the given scenario.

Question 15

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for three restaurants (1,2,and 3)are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each of the three restaurants? 
A) $59.
B) $75.
C) $81.
D) $89.
E) None of the above.

Accepted Answer

The answer of The reservation prices,in dollars,for three classes of...

Question 16

Tying can sometimes be justified as helping consumers by:
A) brand-name quality protection.
B) different consumer evaluations of the main good.
C) transportation costs.
D) standard industry practice.
E) offsetting price reductions in the main good.

Accepted Answer

Tying can be justified as a means of protecting brand name quality. By combining the main good with complementary goods, the producer can ensure that the main good is used in conjunction with high-quality complementary goods, thus guaranteeing that the end consumer receives the full value of the product.

Question 17

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for two restaurants (1 and 2)are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each restaurant? 
A) $49.
B) $45.
C) $36.
D) $84.
E) $60.

Accepted Answer

The answer of The reservation prices,in dollars,for three classes of...

Question 18

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for two restaurants (1 and 2)are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the two restaurants? 
A) $49.
B) $45.
C) $36.
D) $34.
E) $30.

Accepted Answer

To maximize revenue, we need to find the highest total reservation price among all possible combinations of A, B, and C demanders for restaurants 1 and 2. One possible combination is A1 and B2, which gives a total reservation price of $45 ($25 + $20). None of the other combinations offer a higher total reservation price, so we can bundle these two restaurants together and charge $45 to maximize revenue.

Question 19

The reservation prices,in dollars,for three classes of demanders (A,B,and C)for two restaurants (1 and 2)are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the two restaurants? 
A) $49.
B) $45.
C) $36.
D) $84.
E) $60.

Accepted Answer

The answer of The reservation prices,in dollars,for three classes of...

Question 20

When the NCAA basketball tournament will only sell tickets to all three games held at a given site as a package,it is practicing:
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.

Accepted Answer

This practice is an example of tying, where the purchase of one product (a ticket to one game) is conditioned on the purchase of another product or set of products (tickets to all three games). This strategy can force consumers to buy products they may not have otherwise purchased.

Quiz 10: Bundling and Intrafirm Pricing

The transfer price of an upstream product should always equal the market price when:

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for three restaurants (1,2,and 3) are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the three restaurants?

If Chip and Cathy have different valuations on dancing and dinner as in the following table,what is the maximum profit Sammy can extract from Chip and Cathy for an evening's entertainment at Sammy's dinner theater if Sammy's marginal cost is $25 for dinner and $5 for dancing per person?

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for two restaurants (1 and 2) are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each restaurant?

When consumers can purchase a set of goods as a bundle or separately,then the seller is engaging in:

If a firm uses optimal transfer pricing between production division A and marketing division B,and a competitive external market for the output of division A exists,then production division A will surely:

The Two Stage Photo Company has a division for each stage of photo processing.There is no external market for the first stage's output.For a fixed quantity of photo processing,the transfer price should depend on:

Play It Again Sam is a producer of high-end CD burners.It requires customers to purchase high-quality blank CDs from it in order to maintain warranty agreements.This is an example of a:

Transfer prices are needed when:

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for three restaurants (1,2,and 3) are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the three restaurants?

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for three restaurants (1,2,and 3) are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each of the three restaurants?

When a firm requires a customer to buy additional products in order to buy one of its products,this is known as a(n) :

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for three restaurants (1,2,and 3) are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each of the three restaurants?

Tying can sometimes be justified as helping consumers by:

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for two restaurants (1 and 2) are given in the following table.What is the maximum revenue that can be generated by setting a separate price for each restaurant?

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for two restaurants (1 and 2) are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the two restaurants?

The reservation prices,in dollars,for three classes of demanders (A,B,and C) for two restaurants (1 and 2) are given in the following table.What is the maximum revenue that can be generated by setting a bundled price for the two restaurants?

When the NCAA basketball tournament will only sell tickets to all three games held at a given site as a package,it is practicing: