Question 1

​Firms should begin their pricing decisions by:
A) ​assessing total marginal cost of the product
B) ​identifying the value drivers in each customer segment
C) ​researching the market price of competitors
D) ​none of the above

Accepted Answer

A

Question 2

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

Accepted Answer

Price discrimination is a strategy where a business charges different prices for the same product or service to different groups of customers based on their willingness to pay. If barbers give a price discount to kids, it indicates that they have recognized that demand for haircuts by kids is more elastic, which means that kids are more sensitive to changes in price than adults. Therefore, by offering discounts to kids, barbers can attract more customers from this group and increase their revenue.

Question 3

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:
A) Spoilage increases
B) Spillage increases
C) Overbooking increases

Accepted Answer

If restaurants buy a lot more fish than what is necessary to match the expected demand, they run the risk of spoilage, which means that the excess fish may go bad before being consumed. This could lead to waste and losses for the restaurant.

Question 4

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting
A) universal access price discrimination
B) declining block price discrimination.
C) mixed bundling price discrimination.
D) two-part price discrimination.
E) uniform pricing

Accepted Answer

Firms that have both a cover charge and charge customers for each item they purchase are practicing two-part price discrimination. The cover charge is the fixed fee and the charge per item is the variable fee. Two-part price discrimination involves charging customers a fixed fee and then charging them a different price for each unit consumed.

Question 5

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:
A) the preference rankings of vacationers travelling together are negatively correlated.
B) a preference for cities is always higher than preferences for mountain vistas.
C) preference rankings of vacationers travelling together are positively correlated.
D) preference for the seaside is always higher than preferences for city excursions.
E) no one wants to take a European vacation package to cities,mountains,and the seaside.

Accepted Answer

Bundling is most profitable when the preference rankings of vacationers traveling together are negatively correlated, as it allows the seller to sell packages that include a variety of options appealing to different tastes within the group, maximizing the value each individual gets from the package.

Question 6

Which of the statements about price discrimination is (are)false?
A) It must be possible to segment the market.
B) It must be difficult to transfer the seller's product from one market segment to another.
C) Public utilities practice first-degree price discrimination.
D) There must be differences in the elasticity of demand from one segment to another.
E) c and d

Accepted Answer

Public utilities do not practice first-degree price discrimination, as they typically charge all consumers the same price for a given service. They may engage in second-degree price discrimination by offering volume discounts or different rates for peak and off-peak usage. Choice A, B, and D are true statements about price discrimination, and E is not a valid answer as it combines two true statements.

Question 7

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:
A) spillage and spoilage both increase.
B) spillage decreases,but spoilage increases.
C) spillage and spoilage both decrease.
D) spoilage decreases,but spillage increases.

Accepted Answer

Spoilage refers to the loss when a service capacity goes unused (e.g., empty seats on a flight), and spillage refers to the lost opportunity when demand exceeds capacity. By using smaller jets, the airline reduces the likelihood of empty seats (reducing spoilage), but increases the chance that not all demand can be accommodated (increasing spillage).

Question 8

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:
A) first-degree price discrimination
B) market penetration
C) third-degree price discrimination
D) second-degree price discrimination
E) none of the above

Accepted Answer

This is an example of third-degree price discrimination, where different prices are charged to different customer groups based on their distinct characteristics or segments, such as household, institutional, commercial, and industrial users.

Question 9

Second-degree price discrimination:
A) is also known as block rate setting
B) is imperfect in the eyes of a monopolist
C) is regularly practiced by public utilities
D) is effective only in the case of services or products which are sold in easily metered units
E) all of the above

Accepted Answer

All of the above statements are true regarding second-degree price discrimination. Second-degree price discrimination involves charging different prices based on the quantity consumed or purchased. This is also known as block rate setting, and it is regularly practiced by public utilities such as water and electricity companies. However, this method is imperfect for a monopolist as it may not capture all of the consumer surplus. It is also effective only in the case of services or products that can be easily metered, such as electricity or water.

Question 10

Third-degree price discrimination exists whenever:
A) the seller knows exactly how much each potential customer is willing to pay and will charge accordingly.
B) different prices are charged by blocks of services.
C) the seller can separate markets by geography,income,age,etc.,and charge different prices to these different groups.
D) the seller will bargain with buyers in each of the markets to obtain the best possible price.

Accepted Answer

Third-degree price discrimination means charging different prices to different groups of customers based on factors such as geography, income, age, etc. It does not require the seller to know exactly how much each individual customer is willing to pay (option A), nor does it involve bargaining with buyers (option D). Option B refers to quantity discounts, which is a different form of price discrimination.

Question 11

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.
A) ratio of price to marginal cost
B) ratio of marginal cost to marginal utility
C) ratio of price to elasticity
D) marginal revenue
E) none of the above

Accepted Answer

A monopolist engaging in price discrimination maximizes profits by equating marginal revenue across all markets, ensuring that the additional revenue from selling one more unit is the same in each market.

Question 12

The optimal mark-up is: m = -1/ (E+1).When the mark-up on cookware equals 50%,then demand elasticity (E)for cookware is:
A) -1
B) -1.5
C) -2
D) -3

Accepted Answer

Using the formula for optimal mark-up:

m = -1/(E+1)

If the mark-up on cookware is 50%, then m = 0.5.

0.5 = -1/(E+1)

Multiplying both sides by (E+1) gives:

0.5(E+1) = -1

0.5E + 0.5 = -1

0.5E = -1.5

E = -3

So the demand elasticity for cookware is -3.

Therefore, the best choice is C) -2 as it is not listed.

Question 13

____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.
A) Incremental price
B) Marginal price
C) Full-cost price
D) Transfer price
E) none of the above

Accepted Answer

Transfer price is the price at which goods or services are transferred from one division to another division within the same firm. It is used to determine the profitability of each division and to ensure that the goods or services are transferred at a fair market value. Transfer pricing is an important issue in multinational companies, as it affects tax liabilities and can be used to shift profits between subsidiaries based in different countries.

Question 14

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production).
A) first-degree
B) second-degree
C) third-degree
D) a and b
E) none of the above

Accepted Answer

First-degree price discrimination, also known as perfect price discrimination, occurs when a monopolist charges each consumer the highest price they are willing to pay for each unit purchased. This allows the monopolist to capture all consumer surplus and maximize profits. However, first-degree price discrimination requires the monopolist to have complete information about each consumer's willingness to pay, which is often difficult to obtain in practice.

Question 15

Electricity pricing that varies in its billing expense throughout the day is called​
A) marginal cost pricing
B) variable pricing
C) full cost pricing pricing
D) ​marginal pricing
E) ​dynamic pricing

Accepted Answer

The answer of Electricity pricing that varies in its billing...

Question 16

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:
A) make them reduce the amount of overbooking.
B) cause them to increase the amount of overbooking.
C) let them keep the same amount of overbooking.

Accepted Answer

When airlines notice an increase in no-shows, they may opt to increase overbooking to maximize the utilization of their flights. This strategy helps ensure that flights are as full as possible, compensating for the higher number of passengers who do not show up.

Question 17

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.
A) Prestige pricing
B) Price lining
C) Skimming
D) Incremental pricing
E) None of the above

Accepted Answer

Skimming is a pricing strategy where the product is initially priced high to capture early adopters and those willing to pay a premium price. As demand at the higher price is satisfied, the price is gradually reduced to attract more price-sensitive customers. This strategy is often used for innovative or technologically advanced products where there is little competition and a high level of consumer demand.

Question 18

The following are possible examples of price discrimination,EXCEPT:
A) prices in export markets are lower than for identical products in the domestic market.
B) senior citizens pay lower fares on public transportation than younger people at the same time.
C) a product sells at a higher price at location A than at location B,because transportation costs are higher from the factory to A.
D) subscription prices for a professional journal are higher when bought by a library than when bought by an individual.

Accepted Answer

This is an example of price differentiation based on location and transportation costs. Prices in different locations can vary based on factors such as transportation costs, taxes, and competition. The other options are all examples of price discrimination.

Question 19

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?
A) full-cost pricing policy
B) target-pricing policy
C) marginal-pricing policy
D) market-share pricing policy
E) markup pricing policy

Accepted Answer

Marginal-pricing policy focuses on the additional costs of producing one more unit of a product. This approach helps in determining whether the production of additional units is financially viable, which can inform decisions on whether to expand, maintain, or discontinue a product based on its marginal costs and revenues.

Question 20

[Appendix: Advanced Material] Cross functional revenue management examines capacity,pricing,and customer account management in order to maximize revenue.If the MegaPlex Movie Theater finds that too often they have to turn customers away from their theaters at peak movie times for blockbusters creating too much slippage,cross functional revenue management suggests:
A) They could consider increasing the capacity of each theater to be able to seat more customers.
B) They could lower the price at the peak times to reduce the problem of spoilage.
C) They could stop showing blockbuster movies and select more critically acclaimed art films to decrease spoilage.
D) They could stop showing movies at night.

Accepted Answer

Increasing the capacity of each theater would allow the MegaPlex to seat more customers and reduce the problem of turning customers away during peak times, ultimately maximizing revenue. Lowering the price may lead to an increase in demand, but it may also result in a decrease in revenue due to decreased profitability. Stopping the showing of blockbuster films would also decrease spoilage but may not be a viable long-term solution as these films tend to generate the highest revenue. Stopping shows at night is not a feasible option as it would significantly reduce revenue opportunities.

Quiz 14: Pricing Techniques and Analysis

Firms should begin their pricing decisions by:

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:

Which of the statements about price discrimination is (are) false?

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:

Second-degree price discrimination:

Third-degree price discrimination exists whenever:

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

The optimal mark-up is: m = -1/ (E+1) .When the mark-up on cookware equals 50%,then demand elasticity (E) for cookware is:

____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production) .

Electricity pricing that varies in its billing expense throughout the day is called

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.

The following are possible examples of price discrimination,EXCEPT:

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?

Quiz 14: Pricing Techniques and Analysis

​Firms should begin their pricing decisions by:

Barbers give a price discount to kids.According to price discrimination,if barbers use price discrimination,this implies demand for hair cuts by kids is more elastic.

[Appendix; Advanced Material] Restaurants try to buy just enough fish to match the expected walk-ins and reservations.If they buy a lot more fish,in the language of revenue management:

Firms that have a cover charge for their customers and charge for each item they purchase as well are exhibiting

Vacation tours to Europe invariably package visits to disparate regions: cities,mountains,and the seaside.Bundling,a type of second degree price discrimination,is most profitable when:

Which of the statements about price discrimination is (are) false?

[Appendix; Advanced Material] If an airline company decides to buy smaller jets with fewer seats,then the problem of:

The segmenting of customers into several small groups such as household,institutional,commercial,and industrial users,and establishing a different rate schedule for each group is known as:

Second-degree price discrimination:

Third-degree price discrimination exists whenever:

To maximize profits,a monopolist that engages in price discrimination must allocate output in such a way as to make identical the ____ in all markets.

The optimal mark-up is: m = -1/ (E+1) .When the mark-up on cookware equals 50%,then demand elasticity (E) for cookware is:

____ is the price at which an intermediate good or service is transferred from the selling to the buying division within the same firm.

In ____ price discrimination,the monopolist charges each consumer the highest price that purchaser is willing to pay for each unit purchased (provided that this price exceeds the marginal cost of production) .

Electricity pricing that varies in its billing expense throughout the day is called​

[Appendix; Advanced Material] If airlines found that the number of no-shows starts to increase,then its policy for optimal overbooking would tend to:

____ is a new product pricing strategy which results in a high initial product price.This price is reduced over time as demand at the higher price is satisfied.

The following are possible examples of price discrimination,EXCEPT:

Which of the following pricing policies best identifies when a product should be expanded,maintained,or discontinued?

Firms should begin their pricing decisions by:

Electricity pricing that varies in its billing expense throughout the day is called