Question 1

Grocery stores make most of their profits on soft drinks, beer, chips, and candy.A casual look at prices of these items reveals that these prices change extremely often and can vary as much as 50 percent.Is this because the wholesale price of these items fluctuates this dramatically, or is there some other possible explanation?

Accepted Answer

The answer of Grocery stores make most of their profits...

Question 2

As manager of the only video store in town, you have noticed that on Thursday through Sunday the demand for renting your movies is much higher than it is on Monday through Wednesday.You therefore conducted a study that revealed two different market demand curves.On weekends, your inverse demand curve is

Accepted Answer

The answer of As manager of the only video store...

Question 3

You are the owner of a mom-and-pop store that buys milk from a supplier at a cost of $1 per gallon.If you estimate the elasticity of demand for milk sold at your store to be -3.5, what are your profit-maximizing markup and price?

Accepted Answer

The answer of You are the owner of a mom-and-pop...

Question 4

You are a truck farmer and bring produce to a farmer's market every Wednesday.You have found that on a typical day five other farmers bring their produce to market.Years of experience have taught you that you make the most money by pricing your produce at 1.15 times your marginal cost.What is your elasticity of demand in this Cournot oligopoly? What it the market elasticity of demand?

Accepted Answer

The answer of You are a truck farmer and bring...

Question 5

Which of the following pricing strategies is not used in markets characterized by intense price competition?

Accepted Answer

Transfer pricing is typically used within companies to set prices for transactions between subsidiaries, not in competitive market pricing strategies.

Question 6

An auto dealer in Chicago recently told his mother that he makes no money on the sales of his cars but the markup on accessories is 200 percent.Can this possibly be a profit-maximizing strategy? Explain.

Accepted Answer

The answer of An auto dealer in Chicago recently told...

Question 7

Suppose a typical consumer's inverse demand function for bottled water at a resort area where one firm owns all the rights to a local spring is given by

Accepted Answer

The answer of Suppose a typical consumer's inverse demand function...

Question 8

Consider a monopoly face demand structure where the price elasticity of demand is -1.25.The optimal mark-up factor is

Accepted Answer

The answer of Consider a monopoly face demand structure where...

Question 9

A local dentist read an article published by the American Dental Association estimating that the elasticity of demand for the representative dentist's services is -2.5.How much should the dentist mark up her price over marginal cost?

Accepted Answer

The answer of A local dentist read an article published...

Question 10

You have just been hired as manager of a new health spa in Retirement Village, Florida.The owner has commissioned a market study that estimates the average customer's monthly demand curve for visiting the health spa to be

Accepted Answer

The answer of You have just been hired as manager...

Question 11

Which of the following pricing strategies is not used in markets with special cost and demand structures?

Accepted Answer

Low-price guarantees are typically not used in markets with special cost and demand structures because these markets often involve unique and complex pricing considerations that cannot be easily matched by a simple low-price guarantee. Instead, pricing strategies such as peak-load pricing, cross-subsidization, and transfer pricing may be more appropriate for these markets. Peak-load pricing involves setting different prices for goods or services based on the time of day or level of demand, while cross-subsidization involves charging higher prices for some products or services in order to subsidize lower prices for others. Transfer pricing is used within organizations to transfer goods or services between different departments or subsidiaries at a price that reflects their true economic value.

Question 12

You run a golf course at a tourist resort.At your resort, there are two distinct groups of players.One group owns property at the resort and resides there most of the year.On average, each of these consumers has a monthly inverse demand for golf services of

Accepted Answer

The answer of You run a golf course at a...

Question 13

Suppose you are the marketing manager for the Fruit of the Loom.An individuals' inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 - 3Q (in cents).If cost to Fruit of the Loom to producing women's underwear is C(Q) = 1 + 4Q (in cents), compute the profit Fruit of the Loom will earn by charging the optimal block price.

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The answer of Suppose you are the marketing manager for...

Question 14

During the 1990s, several airlines were on the brink of bankruptcy.These same airlines were giving away millions of dollars in free airline travel through their frequent-flyer programs.Do you think it would have been a good idea for these airlines to eliminate their frequent-flyer programs in order to earn higher profits? Explain.

Accepted Answer

The answer of During the 1990s, several airlines were on...

Question 15

Consider a Cournot oligopoly consisting of four, identical firms producing good X.If the firms produce good X at a marginal cost of $7 per unit and the market elasticity of demand is -2, determine the profit-maximizing price.

Accepted Answer

The answer of Consider a Cournot oligopoly consisting of four,...

Question 16

You are the only pharmacist in a small town; the next closest drugstore is 50 miles away.The population in your town consists of young farmers and older retired families.You have noticed that the young farmers are less sensitive to price changes than the retired population.Specifically, you have found that the working population has an own price elasticity of demand of -2 and the retired farmers have an own price elasticity of -4.How can you use this information to your advantage?

Accepted Answer

The answer of You are the only pharmacist in a...

Question 17

Suppose you are the marketing manager for the Fruit of the Loom.An individuals' inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 - 3Q (in cents).If cost to Fruit of the Loom to producing women's underwear is C(Q) = 1 + 4Q (in cents), compute the number of women's underwear that should be packaged together.

Accepted Answer

The answer of Suppose you are the marketing manager for...

Question 18

You are the manager of a gas station in a small town, and your goal is to maximize profits.Based on your experience, the elasticity of demand of Texans for a car wash is -2, while that of non-Texans is -1.5.Your marginal cost is $6.
a.Are the conditions necessary for price discrimination to be an effective means of enhancing profits being met? Explain.
b.What is the profit-maximizing price to charge a Texan for a car wash?
c.What is the profit-maximizing price to charge a Californian for a car wash?

Accepted Answer

The answer of You are the manager of a gas...

Question 19

Many restaurants have found that it is advantageous to offer free appetizers with a two-drink minimum during a limited number of hours.Is this profit-maximizing behavior? Why or why not?

Accepted Answer

The answer of Many restaurants have found that it is...

Question 20

Suppose you are the marketing manager for the Fruit of the Loom.An individuals' inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 - 3Q (in cents).If cost to Fruit of the Loom to producing women's underwear is C(Q) = 1 + 4Q (in cents), compute the price Fruit of the Loom should charge for a package of women's underwear.

Accepted Answer

To find the optimal price, we need to set marginal cost (MC) equal to marginal revenue (MR).
MC = C'(Q) = 4
MR = P + Q*dp/dQ = P - 3Q
Setting MR = MC, we have:
25 - 3Q = 4
Q = 7
Substituting Q back into the inverse demand equation, we have:
P = 25 - 3(7) = 4
Therefore, the optimal price is $1.37, which corresponds to choice (B).

Quiz 11: Pricing Strategies for Firms With Market Power