Question 1

When firms adopt successful dynamic pricing strategies, typically
A)all consumers gain by paying lower prices.
B)all consumers lose by paying higher prices.
C)some consumers gain and some lose, but as a group, consumers gain.
D)some consumers gain and some lose, but as a group, consumers lose.

Accepted Answer

The answer of When firms adopt successful dynamic pricing strategies,...

Question 2

Which of the following is not a requirement for a successful price discrimination strategy?
A)A firm must have market power.
B)The firm must be able to prevent consumers who buy a product at a low price from reselling it to other consumers at a high price.
C)Managers must practice yield management.
D)Some consumers must have greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.

Accepted Answer

Yield management is a practice that can enhance a firm's ability to price discriminate, but it is not a requirement for a successful price discrimination strategy. The other three options (A, B, and D) are all essential for effective price discrimination.

Question 3

Which of the following is a reason why a firm would not engage in price discrimination?
A)Price discrimination is illegal in some western states and the owners of firms in these states face civil or criminal prosecution if they engage in price discrimination.
B)Some firms are not able to segment the market for the products they sell.
C)Some firms do not want to violate the law of one price.
D)The transactions costs associated with selling the product exceed the price of the product.

Accepted Answer

Some firms may not engage in price discrimination because they are unable to effectively segment the market, which is necessary to charge different prices to different groups.

Question 4

Which of the following is not a requirement for a successful price discrimination strategy?
A)A firm must have the ability to charge a price greater than marginal cost.
B)Some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.
C)The firm must be able to prevent arbitrage.
D)Transactions costs must be the same for all consumers.

Accepted Answer

Transactions costs must be the same for all consumers is not a requirement for a successful price discrimination strategy. The other three requirements - ability to charge a price greater than marginal cost, differential willingness to pay among consumers, and ability to prevent arbitrage - are essential for effective price discrimination.

Question 5

Price discrimination is a rational strategy for a profit-maximizing firm when
A)it is possible to engage in arbitrage across market segments.
B)it is not possible to segment consumers into identifiable markets.
C)there is no opportunity for arbitrage across market segments.
D)firms want to increase the amount of consumer surplus received by its customers.

Accepted Answer

Price discrimination is effective when a firm can prevent arbitrage, meaning consumers cannot resell products between segments, allowing the firm to charge different prices to different groups.

Question 6

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because
A)college students and faculty members have a more elastic demand for computers than the general public.
B)Apple can deduct from its federal taxes some of the costs of the computers it sells to college students and faculty members.
C)college students and faculty members have a more inelastic demand for computers than the general public.
D)college students and faculty members typically buy more supplies from Apple (print cartridges, paper, etc.,)than the general public.

Accepted Answer

College students and faculty members have a more elastic demand for computers, meaning they are more sensitive to price changes. Offering lower prices helps Apple capture this market segment.

Question 7

Suppose Dublin Electronics charges regular customers $60 for a Blu-ray player but allows senior citizens to purchase the same item for $45.Is this likely to be a successful price discriminating strategy?
A)Yes, firms price discriminate to maximize profits.
B)No, price discrimination will not be effective because the store cannot prevent senior citizens from buying large quantities of Blu-ray players and reselling them for a profit.
C)Yes, because senior citizens are likely to have a more elastic demand and therefore will be willing to pay a lower price compared to regular customers.
D)No, because there are many different brands of Blu-ray players and consumers will shop around.

Accepted Answer

The answer of Suppose Dublin Electronics charges regular customers $60...

Question 8

Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.All else equal, customers who arrive by public transportation to take advantage of Bubba's Hula Shack discount have a ________ for the services of the establishment than customers who drive to the establishment.
A)higher price elasticity of demand
B)lower price elasticity of demand
C)higher price elasticity of supply
D)lower price elasticity of supply

Accepted Answer

Customers who arrive by public transportation may have a higher price elasticity of demand because they may be more price-sensitive and are actively seeking discounts to save money on their transportation costs. Therefore, the discount may incentivize them to visit the establishment more frequently than customers who drive and may be less price-sensitive.

Question 9

One reason why airlines charge business travelers and leisure travelers different prices is
A)business travelers fly according to schedules that are planned months in advance. Many leisure travelers buy their tickets at the last minute.
B)business travelers usually travel alone. Leisure travelers often fly with friends and family members; therefore, they have a more inelastic demand for airline tickets than business travelers.
C)business travelers fly more often than most leisure travelers. As a result, their employers are able to bargain with airlines for lower fares than leisure travelers pay.
D)business travelers often have inflexible schedules and have to travel on a particular day. The opposite is true for leisure travelers.

Accepted Answer

Business travelers often have specific travel requirements and less flexibility in their travel plans, so airlines can charge higher prices for their tickets. Leisure travelers, on the other hand, often have more flexibility in their travel plans and can shop around for the best deals. Therefore, airlines charge different prices for business and leisure travelers based on their respective travel patterns and demand.

Question 10

Which of the following is not an example of price discrimination?
A)Adobe Systems offers software at discounted prices to students and faculty at K-12 and university levels.
B)Unlike foreign tourists, citizens of Cambodia are exempted from paying an admission fee to the temples of Angkor.
C)Senior citizens may purchase special fare tickets for public transportation that are not available to others.
D)Buyers at an automotive parts store receive a discount for bulk buying because the store is able to pass on to its customers some of the lower average cost for producing large quantities.

Accepted Answer

Price discrimination involves charging different prices to different groups for the same product or service based on their willingness to pay. Option D is not price discrimination because it involves a discount based on the quantity purchased, which is a bulk discount, not based on consumer characteristics.

Question 11

College students and faculty members have a more elastic demand than the general public for Apple's MacBook Pro laptop computers.From this we can conclude that
A)Apple will charge college students and faculty members higher prices than it charges the general public.
B)Apple will charge college students and faculty members lower prices than it charges the general public.
C)the general public will earn arbitrage profits by buying MacBook Pro Laptop computers from Apple and reselling them to college students and faculty members.
D)Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.

Accepted Answer

Since college students and faculty members have a more elastic demand, it means they are more sensitive to changes in price. Therefore, Apple is likely to offer these groups lower prices in order to capture their business. This is a common pricing strategy used by companies to increase sales to price-sensitive customers.

Question 12

Erin and Deidre, two residents of Ithaca, New York, are planning a trip to Boston.Erin, the sales manager for a large retailer, has to attend a business meeting.Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives.Which of the following statements is true?
A)An airline that price discriminates will most likely charge Erin a higher price.
B)An airline that price discriminates will most likely charge Deidre a higher price.
C)Since there is no difference in the cost of producing air travel, airlines will not charge different prices to Erin and Deidre.
D)An airline cannot price discriminate because buyers can resell their tickets through the Internet.

Accepted Answer

Airlines often price discriminate based on the purpose of travel. Business travelers like Erin are less price-sensitive and often book closer to the departure date, leading to higher prices compared to leisure travelers like Deidre.

Question 13

Which of the following products allows the seller to identify different groups of consumers (segment the market)and practice price discrimination?
A)clothing items sold through Macy's Department Store
B)a hamburger sold at Burger King
C)a cafe latte sold at Starbucks
D)tickets to matinee shows at a movie theatre

Accepted Answer

Tickets to matinee shows at a movie theatre can be sold at different prices to different groups of consumers. For example, seniors and students may be offered discounted prices while regular adults pay the full price. This is a form of price discrimination and requires the seller to segment the market by identifying different groups of consumers.

Question 14

In which market structure is it not possible to practice price discrimination?
A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly

Accepted Answer

In perfect competition, all firms sell identical products at the same price, making it impossible to practice price discrimination.

Question 15

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?
A)No, because, on average, women have better driving records than men and the costs of insuring men are greater than the costs of insuring women.
B)Yes, because the costs of selling insurance to men and women are the same.
C)Yes, because insurance companies can prevent arbitrage; that is, women cannot transfer their insurance coverage to men.
D)No, because there are too many insurance companies for any one company to have market power. A firm must possess market power in order to practice price discrimination.

Accepted Answer

The price difference is justified based on statistics indicating that women have better driving records than men, and thus the costs of insurance are higher for men. This is not an example of price discrimination since the cost of insuring men and women are not the same. It is based on data indicating the differences in the risk profile of men and women drivers.

Question 16

Perfect price discrimination is also known as
A)monopoly.
B)first-degree price discrimination.
C)third-degree price discrimination.
D)yield management.

Accepted Answer

Perfect price discrimination is also known as first-degree price discrimination. In this scenario, the seller charges each customer the maximum price they are willing to pay for a product or service. This allows the seller to capture all of the consumer surplus and maximize profits. However, this type of price discrimination is difficult to implement in practice, as it requires the seller to know each customer's willingness to pay.

Question 17

If a firm knew every consumer's willingness to pay and could prevent arbitrage, it could charge every consumer a different price.This practice is known as
A)first-degree exploitation, or perfect price discrimination.
B)maximization of producer surplus, or perfect price discrimination.
C)first-degree price discrimination, or perfect price discrimination.
D)first-degree transfer of consumer surplus, or perfect price discrimination.

Accepted Answer

The practice described is first-degree price discrimination, also known as perfect price discrimination. This occurs when a firm charges each consumer the maximum price they are willing to pay, resulting in the firm capturing all consumer surplus. It is only possible if the firm has perfect information about each consumer's willingness to pay and can prevent resale or arbitrage.

Question 18

Erin and Deidre, two residents in Ithaca, New York, are planning a trip to Boston.Erin, the sales manager for a large retailer, has to attend a business meeting.Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives.Whose demand curve for air travel is likely to be more elastic?
A)Erin
B)Deidre
C)There is no difference in their price elasticities of demand.
D)The elasticity of the demand curves for Erin and Deidre cannot be determined without more information.

Accepted Answer

Deidre's demand curve for air travel is likely to be more elastic. This is because as a college student on vacation, she is likely more price-sensitive and has more flexible travel plans compared to Erin, who has to attend a business meeting and may be less price-sensitive. Deidre may be able to adjust her travel plans or choose a different mode of transportation if the prices for air travel increase, while Erin may be willing to pay a higher price due to the necessity of attending the business meeting.

Question 19

A price-discriminating firm charges the highest price to
A)the group with the largest demand.
B)the group with the most elastic demand.
C)the group with the least elastic demand.
D)the group with demand that is unit elastic.

Accepted Answer

A price-discriminating firm will charge the highest price to the group with the least elastic demand since these consumers are less likely to be deterred by a price increase and more willing to pay the premium price.

Question 20

Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of
A)arbitrage.
B)two-part tariff pricing.
C)price discrimination.
D)odd pricing.

Accepted Answer

This is an example of price discrimination, specifically third-degree price discrimination, as the establishment is offering different prices to different groups of customers based on their method of arrival. Customers who arrived by public transportation are offered a discounted price compared to those who arrived via other methods.

Quiz 16: Pricing Strategy

When firms adopt successful dynamic pricing strategies, typically

Which of the following is not a requirement for a successful price discrimination strategy?

Which of the following is a reason why a firm would not engage in price discrimination?

Which of the following is not a requirement for a successful price discrimination strategy?

Price discrimination is a rational strategy for a profit-maximizing firm when

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Web site and in retail stores.Apple charges lower prices to college students and faculty members because

Suppose Dublin Electronics charges regular customers $60 for a Blu-ray player but allows senior citizens to purchase the same item for $45.Is this likely to be a successful price discriminating strategy?

One reason why airlines charge business travelers and leisure travelers different prices is

Which of the following is not an example of price discrimination?

College students and faculty members have a more elastic demand than the general public for Apple's MacBook Pro laptop computers.From this we can conclude that

Which of the following products allows the seller to identify different groups of consumers (segment the market) and practice price discrimination?

In which market structure is it not possible to practice price discrimination?

Insurance companies typically charge women lower prices than men for automobile insurance.Is this an example of price discrimination?

Perfect price discrimination is also known as

If a firm knew every consumer's willingness to pay and could prevent arbitrage, it could charge every consumer a different price.This practice is known as

A price-discriminating firm charges the highest price to

Bubba's Hula Shack Bar and Bistro has begun giving customers who can show proof that they arrived at the establishment by public transportation a 10 percent discount on their total bill.This is an example of