Deck 16: Pricing Strategy

Question 1

According to the law of one price,identical products should sell for the same price everywhere if

A)consumers have knowledge of the prices charged for products in different markets.
B)transactions costs are zero.
C)firms can prevent consumers from engaging in arbitrage.
D)there are no tariffs or other restrictions on imports or exports.

Answer 1

transactions costs are zero.

Question 2

When Disneyland opened in 1955,what prices were charged for admission and rides?

A)Admission was free; customers paid for rides.
B)All customers paid the same price for admission; rides were free.
C)Admission prices varied by your age,home address and occupation; rides were free.
D)All customers paid the same low price for admission; customers were also charged prices for rides.

Answer 2

All customers paid the same low price for admission; customers were also charged prices for rides.

Question 3

Harvey Morris bought dishes and pitchers made of blue glass during the Great Depression at a flea market.He later resold these items on eBay.The profits Harvey earned from these sales are

A)subject to a retail profits tax.
B)are not economic profits because Harvey did not add value to the items but took advantage of the buyers who were not aware of how much Harvey paid for the items.
C)the result of arbitrage.
D)accounting profits but not economic profits.

Answer 3

the result of arbitrage.

Question 4

According to the law of one price,

A)if transaction costs are zero,identical goods should sell for the same price everywhere.
B)if transactions costs are zero,firms must sell a product at a price equal to its marginal cost.
C)if transactions costs are zero,all firms must earn the same profit margin.
D)there must be no differences in the cost of producing identical goods by different producers.

Question 5

The price of admission to Walt Disney World

A)can vary by your age and address.
B)is the same for everyone.
C)is kept low to attract customers,but Disney earns most of its profits by selling tickets to rides and attractions inside the park.
D)is kept low to attract customers,but prices of rides and attractions inside the park vary by your age,address and other factors.

Question 6

Walt Disney began planning for Disneyland in the early 1950s.When he began to consider how the amusement park would be funded

A)he decided to use the profits earned from his company's cartoons and motion pictures.
B)he had trouble raising the required funds.Eventually,he convinced a television network to fund the amusement park in exchange for providing a weekly television program.
C)he decided to borrow money from Hollywood banks.The banks quickly agreed to loan Disney the money because of Disney's reputation and previous success.
D)he had trouble raising the required funds from banks,so he decided to issue "Disney bonds." He had no trouble paying the interest and principal on the bonds with profits from Disneyland.

Question 7

Today,Walt Disney World charges different customers different prices for admission.This pricing strategy is called

A)arbitrage.
B)odd pricing.
C)cost-price pricing.
D)price discrimination.

Question 8

The law of one price holds exactly only if there are transactions costs associated with buying a product in one location and selling it in another location.

Question 9

The process of rapidly adjusting prices based on information gathered on consumers' preferences and their responsiveness to changes in price is called

A)yield management.
B)elasticity management.
C)brand management.
D)marketing.

Question 10

Transactions costs refer to

A)the implicit costs of production.
B)the costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services.
C)the raw material cost of production.
D)the cost of transporting goods from one destination to another.

Question 11

The costs in time and other resources that parties incur in the process of agreeing to and carrying out an exchange of goods or services are called

A)exchange costs.
B)implicit costs.
C)transactions costs.
D)selling costs.

Question 12

Harry attended a baseball card show in New York City where he bought a number of rookie cards of Pittsburgh Pirates baseball players from the 1950s and 1960s.Harry then sold the cards in Pittsburgh,Harry's hometown,where he knew the cards sold for higher prices.The profits Harry earned from these transactions are called

A)arbitrage profits.
B)normal profits.
C)accounting profits.
D)implicit profits.

Question 13

Many people sell goods through eBay at prices that are higher than the prices they paid for these goods.Economists consider these transactions as

A)examples of zero sum games,since the value of the goods sold is exactly equal to the prices paid for them.
B)unproductive since the goods sold have been produced in the past.
C)examples of exploitation of buyers of the goods by the sellers.
D)examples of arbitrage.

Question 14

In the 1950s,Walt Disney began to plan the development of a theme park that would eventually become Disneyland.Disney hired an economist to help determine whether the park would be a financial success.This economist surveyed managers of existing amusement parks for advice.Many of these managers

A)believed that a theme park would be very successful because the Disney name created a market among children and parents who had watched Disney cartoons and movies such as Snow White.
B)recommended that the theme park be located in California because population in the state would increase greatly in the future.Disney followed this advice.
C)recommended that Disney not build the park and leave the amusement park business to those who knew what they were doing.
D)recommended that Disney first build an audience for his park by offering the ABC television network a weekly program that would feature Disney movies,cartoons and original programming.Walt Disney followed this advice.Both the television program and Disneyland were financial successes.

Question 15

Many firms use technology to gather information on the preferences of consumers and their responses to changes in prices.This information is then used to adjust prices of the firms' goods and services.This practice is called

A)price discovery.
B)empirical research.
C)yield management.
D)econometrics.

Question 16

Which of the following will prevent firms from engaging in price discrimination?

A)yield management
B)arbitrage
C)transactions costs
D)odd pricing

Question 17

The law of one price

A)states that consumers can only buy one good or service at a time.
B)is a law passed by Congress that prohibits firms from selling a product at two different prices in the same market at the same time.
C)states that consumers will pay any price for a product that has a perfectly inelastic demand curve.
D)states that identical products should sell for the same price everywhere.

Question 18

Arbitrage refers to the act of

A)resolving a dispute in front of an arbitrator instead of a court of law.
B)buying a product in one market at a low price and reselling in another market at a higher price.
C)trading in the foreign exchange market.
D)suing a producer for illegal business practices.

Question 19

Charging different prices to different consumers for the same product when the price differences are not due to differences in cost is called arbitrage.

Question 20

What is meant by the "law of one price"?

A)Identical products should sell for the same price everywhere.
B)A law was passed in 1913 that made it illegal to sell the same good or service to different people for different prices.
C)This is a section of the Sherman Act that forced trusts (for example,the Standard Oil Company)to charge the same price for the same good or service in different states.
D)Foreign companies should not be allowed to sell a product in the United States for prices different from prices these companies charge in other countries.

Question 21

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.

Question 22

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.

Question 23

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop 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 iMac desktop 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.

Question 24

Price discrimination is the practice of

A)charging different prices for the same good when the price differences are not due to differences in cost.
B)charging different prices for the same good when the price differences arise because of differences in cost.
C)charging different prices for different qualities of a product.
D)charging higher prices for brand named goods and lower prices for generic versions of the goods.

Question 25

Entrepreneurs who earn arbitrage profit are able to do so by extracting the total consumer surplus from buyers.

Question 26

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.

Question 27

Arnold Marion,a first-year economics student at Fazer College,was given an assignment to find an example of price discrimination and present it to his class.When asked for his example Arnold said "I went to a Milwaukee Brewers baseball game with my cousin last week.We paid $25 each for our seats in left field.My aunt and uncle paid $50 each for their tickets; they sat five rows behind the first base dugout.This is an example of price discrimination since we paid different prices for the same product,and the differences were not due to differences in costs." How would Arnold's economics instructor assess Arnold's example?

A)He would agree with Arnold that he had found an example of price discrimination,but would add that arbitrage would occur if ticket scalpers sold Brewers tickets for more than the prices Arnold and his uncle paid.
B)He would disagree with Arnold's example because the $25 seats and the $50 seats were not the same products.
C)He would agree with Arnold that he had found an example of price discrimination and would explain that the elasticity of demand for Brewers tickets is different for Arnold and his uncle.
D)He would disagree with Arnold's example because there were differences in transactions costs for the $50 tickets and the $25 tickets.

Question 28

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.

Question 29

If Mort's House of Flowers sells one dozen roses to different customers at different prices,economists would consider this an example of

A)price gouging.
B)rational ignorance.
C)arbitrage.
D)price discrimination.

Question 30

The following table contains the actual prices charged by four Websites for the PlayStation 3 game Batman: Arkham City in December 2011.
Explain whether the information in this table contradicts the law of one price.

Question 31

"Buy low and sell high is advice given to people who want to make a profit by buying and selling shares of stock.Arbitrage is defined as buying a product in one market at a low price and reselling it in another market at a high price.Therefore,when stock brokers buy and sell stocks to earn a profit they are engaging in arbitrage." Evaluate this statement; state whether it is true or false and explain your answer.

Question 32

The prices college students and faculty members pay for Apple computers are lower than the prices Apple charges on its Website 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.

Question 33

Which of the following is necessary in order for a firm to successfully practice price discrimination?

A)The firm must practice product differentiation.
B)The demand for the firm's product is inelastic.
C)The firm must be able to segment the market for the product.
D)The firm's transactions costs must be zero.

Question 34

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.

Question 35

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

Question 36

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.

Question 37

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meets a consumer's preference allows Dell to extract more consumer surplus.

Question 38

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.

Question 39

Perfect price discrimination is also known as

A)monopoly.
B)first-degree price discrimination.
C)third-degree price discrimination.
D)yield management.

Question 40

What is meant by the "law of one price"? In discussing the law of demand,Hubbard and O'Brien claim there has been no evidence of an exception to the law (that is,no evidence of an upward-sloping demand curve).Are there exceptions to the law of one price?

Question 41

Assume that a monopolist practices perfect price discrimination.The firm will produce an output rate

A)that is less than the efficient level of output.
B)that is greater than the efficient level of output.
C)that is equal to the efficient level of output.
D)that converts consumers surplus into a deadweight loss.

Question 42

If a monopolist practices perfect price discrimination,

A)the firm will break even in the long run.
B)consumers surplus will be equal to the deadweight loss.
C)producer surplus will equal consumer surplus.
D)consumer surplus will be zero.

Question 43

Figure 16-1 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community,and other residents in the neighborhood.Figure 16-1 shows the demand curves for the residents of the retirement community,labeled Market A,and other residents in the neighborhood,labeled Market B.The demand curves are not identical.
Refer to Figure 16-1.Suppose Chantal practices price discrimination.Which of the following statements is true?

A)Chantal's profits will be higher if she has uniform pricing instead of different prices for different groups of customers.
B)By charging a higher price in market B,Chantal has transferred some of the consumer surplus from customers in market B to customers in market A.
C)By charging different prices in markets A and B,Chantal can transfer some producer surplus into economic profit.
D)By charging a higher price in market B,Chantal can convert some consumer surplus into economic profit.

Question 44

Many colleges and universities practice yield management to maximize the revenue they receive from tuition and

A)to maximize the amount of aid they receive from the federal government.
B)to maximize the amount of their student loans.
C)to maximize the size of their endowments.
D)to increase the academic quality of the students who enroll in their schools.

Question 45

Figure 16-1 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community,and other residents in the neighborhood.Figure 16-1 shows the demand curves for the residents of the retirement community,labeled Market A,and other residents in the neighborhood,labeled Market B.The demand curves are not identical.
Refer to Figure 16-1.What prices are charged in the two markets?

A)price in market A = price in market B = $15
B)price in market A = $10; price in market B = $15
C)price in market A = price in market B = $5
D)price in market A = price in market B = $10

Question 46

Assume that a monopolist practices perfect price discrimination.The firm's marginal revenue curve will

A)be perfectly elastic.
B)be equal to its demand curve.
C)will be perfectly inelastic.
D)will lie below its demand curve.

Question 47

Suppose Dublin Electronics charges regular customers $90 for a Blu-ray player but allows senior citizens to purchase the same item for $75.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.

Question 48

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.

Question 49

Which of the following statements about perfect price discrimination is false?

A)There is no consumer surplus if a firm engages in perfect price discrimination.
B)Perfect price discrimination occurs when the seller charges the highest price each consumer would be willing to pay for the product.
C)A condition for perfect price discrimination is that it must be costlier to service some customers than others.
D)For the price-discriminating firm,its marginal revenue curve coincides with its demand curve.

Question 50

Figure 16-1 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community,and other residents in the neighborhood.Figure 16-1 shows the demand curves for the residents of the retirement community,labeled Market A,and other residents in the neighborhood,labeled Market B.The demand curves are not identical.
Refer to Figure 16-1.Which group of customers is likely to have a more elastic demand curve (more sensitive to price)?

A)the other residents of the neighborhood - market B
B)There is no difference in the elasticity of demand between the two groups.
C)the customers from "The Chateau" - market A
D)There is insufficient information to answer this question.

Question 51

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

A)perfect competition
B)monopolistic competition
C)oligopoly
D)monopoly

Question 52

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.

Question 53

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

Question 54

Why might a producer practice price discrimination?

A)to make its products more affordable to those with low incomes
B)to maximize economic efficiency
C)to maximize profits
D)to maximize quantity demanded

Question 55

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.

Question 56

Which of the following pricing strategies allows a firm to earn economic profit?

A)price discrimination
B)charging a price equal to marginal cost
C)charging a price equal to the average total cost of production
D)charging a price equal to the average variable cost of production

Question 57

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 charge Erin a higher price.
B)An airline that price discriminates will 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.

Question 58

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.

Question 59

Figure 16-1 Chantal owns a hairdressing salon which caters to two main groups of customers: residents of "The Chateau," a retirement community,and other residents in the neighborhood.Figure 16-1 shows the demand curves for the residents of the retirement community,labeled Market A,and other residents in the neighborhood,labeled Market B.The demand curves are not identical.
Refer to Figure 16-1.Suppose Chantal charges all her customers a uniform price of $10 for a haircut.Which of the following statements is true?

A)Chantal is selling more than the profit-maximizing quantity of haircuts in market B.
B)Chantal is selling less than the profit-maximizing quantity of haircuts in market B.
C)Chantal is maximizing revenue in market B.
D)Chantal will earn a greater profit through uniform pricing than if she practices price discriminates.

Question 60

Many colleges and universities practice yield management.As a result,they offer different financial aid packages to different students.One result of yield management is that colleges often

A)offer a less generous financial aid package to students who apply for an early admission decision.
B)offer a more generous financial aid package to students who apply for an early admission decision.
C)offer a less generous financial aid package to students with relatively high family incomes.
D)offer a less generous financial aid package to students who don't participate in many extracurricular activities when they are in high school.

Question 61

One requirement for a firm pursuing a price-discrimination strategy is the ability to segment the market for its product.This means that

A)the firm must set different prices for different regions where the product is sold.
B)the firm must be willing to offer price discounts for senior citizens and children.
C)the firm must be able to divide the market in a way that makes arbitrage impossible.
D)the firm must choose a marketing strategy that appeals to different segments of the economy.

Question 62

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers?

A)$39
B)$28
C)$11
D)$0

Question 63

Netflix,an online DVD rental service,engages in price discrimination by separating its customers into two groups: those who have a relatively elastic demand and those who have a relatively inelastic demand for DVD rentals.Those who have a relatively elastic demand are customers who

A)pay a monthly subscription fee; customers with a relatively inelastic demand pay for each DVD they rent.
B)pay for each DVD they rent; customers with a relatively inelastic demand pay a monthly subscription fee.
C)rent only a few DVDs per month; customers who rent many DVDs per month have a relatively inelastic demand.
D)rent many DVDs per month; customers who rent only a few DVDs per month have a relatively inelastic demand.

Question 64

The term "early adopters" refers to

A)firms that are the first to implement a new technology that is used to produce new goods or services.
B)book clubs that are first to recommend best-selling books to their members.
C)consumers who respond quickly to fads,seasonal changes,etc.
D)consumers who are willing to pay high prices to be among the first to own new products.

Question 65

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.If Julie charges $10 per hour,what is the value of the consumer surplus received by Dawn?

A)$2
B)$10
C)$12
D)$22

Question 66

Which of the following antitrust laws forbade firms to engage in price discrimination if the effect would lessen competition or create a monopoly?

A)the Sherman Act
B)the Clayton Act
C)the Robinson-Patman Act
D)the Cellar-Kefauver Act

Question 67

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is Julie's total revenue and how many hours of service will be purchased?

A)4 hours and her total revenue = $39
B)4 hours and her total revenue = $28
C)1 hour and her total revenue = $7
D)5 hours and her total revenue = $35

Question 68

Netflix,an online DVD rental service,engages in price discrimination by

A)charging customers who rent the fewest movies per month a higher rental price than customers who rent the most movies per month.
B)providing customers who rent the fewest movies per month better service than customers who rent the most movies per month.
C)charging customers who rent the fewest movies per month a lower rental price than customers who rent the most movies per month.
D)providing customers who rent the most movies per month better service than customers who rent the fewest movies per month.

Question 69

If price discrimination occurs in a market,

A)the law of one price does not hold.
B)the firm earns arbitrage profits.
C)consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic.
D)the marginal cost of production is constant.

Question 70

Suppose that a price-discriminating producer divides its market into two segments.If the firm sells its product at a price of $34 in the market segment with relatively less-elastic customer demand,the price in the market segment with more-elastic customer demand will be

A)greater than $34.
B)less than $34.
C)less than marginal revenue in that market segment.
D)equal to marginal revenue in that market segment.

Question 71

Early adopters are consumers who will pay a high price to be among the first to own new products.

Question 72

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.If Julie charges $10 per hour,how many hours of pet sitting services will be purchased and by whom?

A)2 hours (1 hour by Cara and 1 hour by Dawn)
B)1 hour by Cara only
C)1 hour by Dawn only
D)3 hours (1 hour each by Arun,Bernice and Cara)

Question 73

Consumers who will pay high prices to be among the first to own certain new products are called

A)savvy consumers.
B)naive consumers.
C)gullible.
D)early adopters.

Question 74

Clarissa Kessler operates a store that sells recorded music.Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost.Is this evidence of illegal price discrimination on the part of the discount store chain?

A)Yes,it is clearly a violation of the Robinson-Patman Act.
B)No,because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa.
C)Yes,the discount store chain is engaging in predatory pricing.
D)No,even if the price discrimination is based on differences in cost,the law states that it is not illegal.

Question 75

Publishers practice price discrimination when they sell books at high prices to

A)early adopters.
B)local bookstores.
C)large chain bookstores.
D)online book sellers.

Question 76

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.How many hours will be purchased and what is her total revenue?

A)5 hours; total revenue = $35
B)4 hours; total revenue = $28
C)3 hours; total revenue = $21
D)2 hours; total revenue = $14

Question 77

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges each customer according to his or her willingness to pay instead of a uniform price of $7.Which of the following statements is true?

A)Julie is worse off because the demand for her services is reduced.
B)Julie has converted the consumer surplus (from a uniform price)into economic profit.
C)Julie's customers are better off because their consumer surplus has increased.
D)Julie's has converted the producer surplus (from a uniform price)into consumer surplus.

Question 78

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7 per hour.What is her marginal revenue?

A)It is $7 for the first hour and starts declining thereafter.
B)It is $7 for the first hour and starts increasing thereafter.
C)It is constant at $7.
D)It coincides with the figures in the table; $12 for the first hour,$10 for the second,$9 for the third and $8 for the fourth.

Question 79

Table 16-1
Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-1 below shows a portion of her survey results.
Refer to Table 16-1.Suppose Julie's marginal cost of providing this service is constant at $7 and she charges $7.What is the value of the consumer surplus enjoyed by her customers?

A)$39
B)$28
C)$11
D)$0

Question 80

A perfectly competitive firm cannot practice price discrimination because

A)a firm that breaks even in the long run cannot afford to engage in yield management.
B)it does not advertise; this prevents the firm from marketing its product to different segments of the market.
C)each consumer in a perfectly competitive market has the same willingness to pay.
D)the firm can only charge the market price.