Question 1

Consider three pricing strategies that the firm can pursue:
A.optimal two-part tariff pricing
B.perfect price discrimination
C.single-price monopoly pricing
Of these three strategies, which is most beneficial to society as a whole?
A)Both perfect price discrimination and a two-part tariff pricing are equally beneficial in that the marginal benefit of the last unit sold equals the marginal cost of producing that unit.
B)only perfect price discrimination because this pricing method eliminates deadweight loss
C)single-price monopoly pricing because consumers enjoy at least some consumer surplus
D)only two-part tariff pricing because the per-unit portion of the price is set equal to marginal cost

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 2

Many firms use odd pricing - charging prices such as $.99 instead of $1.00 and $9.99 instead of $10.00.One reason for this pricing strategy is that consumers will somehow believe that the difference in price appears to be greater than it actually is.Researchers conducted consumer surveys to determine whether this is actually the case.What was the result of these surveys?
A)The surveys found that small differences in price cause small differences in quantity demanded. There is no evidence that odd pricing makes economic sense.
B)Although the results were not conclusive, there is some evidence that odd pricing makes economic sense.
C)The surveys found indifference regarding this strategy among most consumers, but hostility among other consumers. The latter group resented what they viewed as an attempt to fool them into buying products with odd prices. Researchers concluded that odd pricing is counterproductive.
D)The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

Accepted Answer

The surveys did provide some evidence that odd pricing makes economic sense, although the results were not conclusive.

Question 3

Figure 16-5
 
-Refer to Figure 16-5.Consider the following two pricing strategies:
A.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
A)b; b
B)a; b
C)a; neither strategy
D)b; neither strategy

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Consider the...

Question 4

When firms price their products by adding a percentage markup to their average costs of production, this is called
A)average cost pricing.
B)rounding up.
C)break-even pricing.
D)cost-plus pricing.

Accepted Answer

Cost-plus pricing involves adding a percentage markup to the average costs of production to determine the final price of the product. This markup is intended to cover the firm's overhead costs and yield a profit. Average cost pricing involves setting the price equal to the average cost of production, which may not allow the firm to earn a profit. Rounding up is not a pricing strategy, and break-even pricing involves setting the price at a level that covers all costs but does not yield a profit.

Question 5

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?
A)320 units
B)480 units
C)560 units
D)640 units

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 6

Which of the following statements is true?
A)Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing.
B)Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing.
C)Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing.
D)Of the three pricing schedules, single-price monopoly, an optimal two-part tariff, and perfect price discrimination, profit is highest under single-price monopoly pricing.

Accepted Answer

The answer of Which of the following statements is true?
A)Consumer...

Question 7

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is
A)$40.
B)$50.
C)$52.
D)$65.

Accepted Answer

Let's use the formula for markup:

Selling Price = Marginal Cost/(1 - Markup%)

Markup% = 30% = 0.3
Marginal Cost = $40

Solving for the Selling Price:

Selling Price = $40/(1-0.3) = $57.14

Since the average cost is $50, the firm would not want to sell their product for less than that. Therefore, the best choice is D) $65, which is the closest to the calculated selling price with a markup of 30%.

Question 8

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit maximizing quantity produced and what is the price charged?
A)Q = 240 units; P = $28
B)Q = 320 units; P = $24
C)Q = 480 units; P = $16
D)Q = 560 units; P = $12

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 9

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the quantity it should produce?
A)240 units
B)320 units
C)480 units
D)560 units

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 10

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the total revenue it can expect to collect from the fixed fee portion of the price?
A)$2,560
B)$5,760
C)$7,870
D)$10,240

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 11

Consider three pricing strategies that the firm can pursue:
A.optimal two-part tariff pricing
B.perfect price discrimination
C.single-price monopoly pricing.
Of these three strategies, which is least likely to benefit society as a whole?
A)a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price
B)perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not
C)Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer.
D)single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller)that are not exploited

Accepted Answer

Single-price monopoly pricing is the least likely to benefit society as a whole because it creates deadweight loss, which is a loss of consumer surplus and produces a market inefficiency. Both the producer and consumer could benefit from mutually beneficial trades, but these trades are not possible because the price is fixed. On the other hand, optimal two-part tariff pricing and perfect price discrimination capture all of the consumer surplus, but they do not create deadweight loss. However, it is important to note that perfect price discrimination may lead to some customers being excluded, which can be seen as a negative social impact.

Question 12

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the value of the consumer surplus from this pricing strategy?
A)$2,560
B)$5,760
C)$7,870
D)0

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 13

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing price it will charge?
A)It should charge a range of prices from $40 to $16.
B)It should charge a range of prices from $40 to $12.
C)$2
D)$8

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 14

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?
A)75 percent
B)33.33 percent
C)25 percent
D)impossible to determine with the information given

Accepted Answer

The answer of If the selling price of a firm's...

Question 15

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?
A)$6,720
B)$7,680
C)$10,240
D)$13,440

Accepted Answer

Perfect price discrimination means that the firm charges each individual buyer their maximum willingness to pay. In this case, the firm would charge the 8 customers in Group A $20 each, the 6 customers in Group B $16 each, the 4 customers in Group C $12 each, and the 2 customers in Group D $8 each.

Total revenue = (8 x $20) + (6 x $16) + (4 x $12) + (2 x $8) = $160 + $96 + $48 + $16 = $320 + $64 + $64 + $64 = $512 x 3 = $1,536

Therefore, the total revenue collected by the firm with perfect price discrimination would be $13,440 ($1,536 x 9).

Question 16

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the per-unit price it should charge, if any?
A)It should not charge a price per unit; just a flat fee to consume as much of the product as desired.
B)It should charge a range of prices from $40 to $12.
C)$12
D)$16

Accepted Answer

The answer of Figure 16-5
 
-Refer to Figure 16-5.Suppose the...

Question 17

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?
A)The total revenue received under the two pricing schedules is the same.
B)The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination.
C)The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination.
D)The total revenue received under an optimal two-part tariff could be greater than, less than, or equal to that received under perfect price discrimination, depending on the fixed-fee portion of the two-part tariff.

Accepted Answer

The answer of Which of the following statements is true...

Question 18

Odd pricing became common in the late 19th century.Although the origins of odd pricing are uncertain, several explanations for the practice have been given.Which of the following is one of these explanations?
A)Odd pricing forced employees to give customers change. This made it more likely that employees would record sales rather than pocketing their customers' money.
B)Odd pricing began in an era when it was difficult for owners and managers of firms to determine the marginal cost of the goods and services they sold. Odd prices were rough estimates designed to cover costs plus earn firms a profit.
C)Odd pricing was begun in England in the 1700s when America was part of the British Empire. Members of the British Royal Court were given the task of pricing products. After independence, merchants in the United States carried on the practice of odd pricing.
D)After the passage of the Sherman Act in 1890, merchants used odd pricing as a means of avoiding prosecution for antitrust violations.

Accepted Answer

The answer of Odd pricing became common in the late...

Question 19

Consider three pricing strategies that the firm can pursue:
A.optimal two-part tariff pricing
B.perfect price discrimination
C.single-price monopoly pricing
Of these three strategies, which method gives the firm the highest profit?
A)optimal two-part tariff pricing
B)perfect price discrimination
C)single-price monopoly pricing
D)The profit is the same under optimal two-part tariff pricing and perfect price discrimination and the profit is higher than under single-price monopoly pricing.

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 20

When a firm charges $4.95 instead of $5.00, what do economists call this pricing strategy?
A)cost-plus pricing
B)indirect pricing
C)odd pricing
D)unusual pricing

Accepted Answer

This pricing strategy is called odd pricing, where prices are slightly lower than a round number to appear more attractive to consumers.

Quiz 16: Pricing Strategy

Consider three pricing strategies that the firm can pursue: A.optimal two-part tariff pricing B.perfect price discrimination C.single-price monopoly pricing Of these three strategies, which is most beneficial to society as a whole?

When firms price their products by adding a percentage markup to their average costs of production, this is called

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?

Which of the following statements is true?

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to act as a monopolist and charge a single price.What is the profit maximizing quantity produced and what is the price charged?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.) What is the quantity it should produce?

Consider three pricing strategies that the firm can pursue: A.optimal two-part tariff pricing B.perfect price discrimination C.single-price monopoly pricing. Of these three strategies, which is least likely to benefit society as a whole?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing price it will charge?

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the total revenue collected by the firm?

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?

Odd pricing became common in the late 19th century.Although the origins of odd pricing are uncertain, several explanations for the practice have been given.Which of the following is one of these explanations?

Consider three pricing strategies that the firm can pursue: A.optimal two-part tariff pricing B.perfect price discrimination C.single-price monopoly pricing Of these three strategies, which method gives the firm the highest profit?

When a firm charges $4.95 instead of $5.00, what do economists call this pricing strategy?