Question 1

Where there is no external market for a transfer product, the profit maximizing condition for transfer product firms is MR_F = MC_F + MC_T.

Accepted Answer

This is the correct profit maximizing condition for transfer product firms in the absence of an external market. MR_F represents the marginal rate of substitution between the transfer product (1) and the final product (0) for buyers in the firm's own internal market. MC_F represents the marginal cost of producing the transfer product within the firm's own internal market. MC_T represents the marginal cost of producing the transfer product if it were to be sold in an external market, but since there is no external market, this term is not relevant.

Question 2

A firm produces two products, "f" and "g", and the production process is such that one unit of f is always obtained with one unit of "g". If the demand curves for "f" and "g" are estimated to be: Q_f = 300 - P_f so that MR_f = 300 - 2Q_f) and Q_g = 400 - 2P_g so that MR_g = 200 - Q_g) and the marginal cost of production is MC = 50 + 3Q_j, where Q_j consists of one unit of each product, the firm will maximize profits if it sells 100 units of "f" and 100 units of "j".

Accepted Answer

The given information does not provide a clear basis for calculating the exact quantity at which profits are maximized without further analysis involving the demand curves, marginal revenue, and marginal cost for each product. The statement assumes a specific outcome without showing the necessary calculations to determine profit maximization for the combined production of "f" and "g" (referred to as "j" in the marginal cost equation, which seems to be a typo for "g"). Profit maximization requires equating marginal revenue to marginal cost, and the provided equations need to be analyzed together to find the optimal production level.

Question 3

Where there is a perfectly competitive external market for a transfer product, and the final product division maximizes profit at a lower output level than that of the transfer product division, the transfer products division should force the final products division to sell the additional units of final product that would be needed to absorb the amount of output that the transfer product division is producing.

Accepted Answer

This statement is not true. In a perfectly competitive external market, the transfer product division and final product division should each independently maximize their own profits. If the final product division can profitably sell additional units of final product, it should do so without being forced by the transfer product division. The transfer product division should not interfere with the pricing and production decisions of the final product division.

Question 4

Markup on price is the proportion of the cost of goods sold that represents an amount added to that figure to arrive at the selling price.

Accepted Answer

The answer of Markup on price is the proportion of...

Question 5

Where there is a perfectly competitive external market for a transfer product, and the final product division maximizes profit at a lower output level than that of the transfer product division, the transfer products division should sell the quantity Q_T - Q_F of the transfer product in the external market at the prevailing market price.

Accepted Answer

If the final product division maximizes profit at a lower level of output, it means that the marginal cost of producing an additional unit of final product is higher than the market price. This implies that the transfer product division has a comparative advantage in producing the transfer product, as its marginal cost is lower than the market price. Therefore, it makes sense for the transfer product division to sell some of its output in the external market to maximize overall profit. The quantity to sell can be determined by equating the marginal cost of the transfer product to the external market price, which gives the expression Q_T - Q_F.

Question 6

Second-degree price discrimination is the practice of charging successively lower prices for block type increases in quantity purchased.

Accepted Answer

Second-degree price discrimination involves offering different prices for different quantities of a product or service, usually in the form of quantity discounts. The prices decrease as the quantity purchased increases, creating blocks or tiers of pricing. Therefore, the statement is true.

Question 7

Price discrimination allows different prices for the same product in different markets.

Accepted Answer

Price discrimination involves charging different prices for the same product in different markets or to different customers. This strategy is often used by businesses to maximize profits and can be done based on factors such as location, income, or willingness to pay.

Question 8

Markup on cost is the proportion of the selling price that represents an amount added to the cost of goods sold.

Accepted Answer

Markup on cost is the proportion of the cost that represents an amount added to the cost of goods sold to determine the selling price, not a proportion of the selling price.

Question 9

In the case of joint products produced in fixed proportions, each increment of output, Q, consists of a different ratio of the jointly produced products.

Accepted Answer

In the case of joint products produced in fixed proportions, each increment of output, Q, consists of the same ratio of the jointly produced products, not a different ratio.

Question 10

In the case of joint products produced in fixed proportions, each increment of output, Q, consists of a certain amount of each jointly produced product.

Accepted Answer

Joint products are produced in fixed proportions, meaning that each increment of output contains a certain amount of each jointly produced product.

Question 11

Where there is a perfectly competitive external market for a transfer product, the profit-maximizing condition for the transfer product division is met at MR_T = P_T = MC_T.

Accepted Answer

This is the profit-maximizing condition in a perfectly competitive market for a transfer product, where MRS (marginal rate of substitution) between the upstream division and downstream division is equal to the price of the transfer product (PS) and the marginal cost of producing the transfer product (MC).

Question 12

A firm produces two products, "r" and "s", and the production process is such that one unit of "r" is always obtained with one unit of "s". If the demand curves for "r" and "s" are estimated to be: Q_r = 75 - P_r so that MR_r = 75 - 2Q_r) and Q_s = 100 - .5P_s so that MR_s = 200 - 4Q_s) and the marginal cost of production is MC = 75 + 4Q_j, where Q_j consists of one unit of each product, the firm will maximize profits if it sells 20 units of "r" and 20 units if "j".

Accepted Answer

The firm will maximize profits if it sells 20 units of "r" and 20 units of "s" because at this point, MR = MC for both products.

Question 13

Where there is no external market for a transfer product, the profit maximizing condition for transfer product firms is MR_F = MC_F - MC_T.

Accepted Answer

This is the correct profit maximizing condition for transfer product firms in the absence of an external market. MR_F represents the marginal rate of substitution between the transfer product (1) and the final product (0) for buyers in the firm's own internal market. MC_F represents the marginal cost of producing the transfer product within the firm's own internal market. MC_T represents the marginal cost of producing the transfer product if it were to be sold in an external market, but since there is no external market, this term is not relevant.

Question 14

In order to practice third-degree price discrimination, the price elasticities of demand must be different in the various market segments.

Accepted Answer

Third-degree price discrimination involves charging different prices in different market segments based on the price elasticity of demand in each segment. To successfully implement this strategy, the price elasticity of demand must be different in the various market segments.

Question 15

In a joint product problem with products produced in fixed proportions, profit would be maximized where MR_A + MR_B = MC, provided that neither MR_A nor MR_B is negative.

Accepted Answer

This statement is true. In a joint product problem where products are produced in fixed proportions, the marginal rate of substitution (MRS) of one product for another will determine the relative profitability of that product. The optimal production quantities for each product will occur where the MRS of one product for another is equal to the marginal cost (MC) of producing an additional unit of that product. Therefore, the condition MR_A + MR_B = MC represents the optimal production condition for both products, assuming that both MRS values are positive.

Question 16

Markup pricing is a pricing technique whereby a certain percentage of cost of goods sold or of price is added to the cost of goods sold in order to obtain the market price.

Accepted Answer

Markup pricing is a commonly used pricing technique where the cost of goods sold is marked up by a certain percentage to calculate the selling price. This markup price covers the cost of goods sold and also includes the profit margin for the seller.

Question 17

First-degree price discrimination is a theoretical concept that refers to charging a different amount, specifically the maximum amount that a consumer is willing and able to pay, for each unit purchased.

Accepted Answer

First-degree price discrimination involves charging each consumer a price based on their willingness and ability to pay, which may differ for each unit purchased.

Question 18

Where there is a perfectly competitive external market for a transfer product, the final product division should not pay the transfer product division a price in excess of that at which the transfer product can be obtained from outside suppliers.

Accepted Answer

This is because in a perfectly competitive external market, there are many suppliers offering the transfer product at a competitive price. Therefore, the final product division should not pay more than the market price for the transfer product from the internal transfer product division.

Question 19

In a joint product problem with products produced in fixed proportions, profit would be maximized where MR_A = MR_B = MC, provided that the total of MR_A and MR_B is positive.

Accepted Answer

In a joint product problem with fixed proportions, profit is maximized when the combined marginal revenue (MR_A + MR_B) equals the marginal cost (MC), not when each individual marginal revenue equals the marginal cost.

Question 20

Third-degree price discrimination is the practice of dividing groups of purchasers into separate markets and charging different prices in each market.

Accepted Answer

Third-degree price discrimination involves charging different prices to different groups of purchasers, based on their willingness to pay. This can be achieved by dividing the purchasers into separate markets, such as by age, income, location, or other characteristics. This allows the seller to extract more revenue from those buyers who are willing to pay higher prices, while still making sales to those who are less willing to pay.

Quiz 11: Topics in Pricing and Profit Analysis

Where there is no external market for a transfer product, the profit maximizing condition for transfer product firms is MRF = MCF + MCT.