Question 1

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 2

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 3

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 monopoly price.What is the revenue collected from the fixed fee portion of the price?
A) $10,240
B) $7,870
C) $2,560
D) $1,440

Accepted Answer

To calculate the revenue collected from the fixed fee portion of the price, we need to find the quantity at which the monopoly price intersects the demand curve. This quantity is 80.

So, the fixed fee charged to each consumer is $32 (the intercept of the demand curve) and the quantity sold is 80.

Therefore, the revenue collected from the fixed fee portion of the price is:

80 x $32 = $2,560

Question 4

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 monopoly price.What is the profit earned under this pricing scheme?
A) $5,760
B) $6,400
C) $7,680
D) $7,870

Accepted Answer

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

Question 5

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 6

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 7

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 leads to inefficiency and deadweight loss. With a single-price, the monopolist is not able to capture all of the surplus that consumers would be willing to pay, leading to mutually beneficial trades that are not exploited. This results in deadweight loss, and therefore, a market inefficiency. In contrast, the other two pricing strategies - two-part tariff pricing and perfect price discrimination - can benefit society as a whole by allowing for efficient allocation of resources and capturing more consumer surplus.

Question 8

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 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 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 10

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 11

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 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 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

To find the optimal quantity, we need to find where marginal cost (MC) equals the per-unit price charged to consumers. In this case, the per-unit price charged to consumers is the competitive price, which is $10. So we need to find where MC = $10. Looking at the diagram, we can see that MC intersects with the demand curve at a quantity of 480 units. Therefore, the firm should produce 480 units in order to maximize its profit using a two-part pricing strategy.

Question 13

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

Markup is calculated by subtracting the cost from the selling price and then dividing the result by the cost. So, markup = (200-150)/150 = 50/150 = 0.3333 or 33.33%.

Question 14

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)...

Question 15

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 16

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

Under perfect price discrimination, the firm is able to charge each customer their maximum willingness to pay.

For the first 4 units, the prices will be $40, $35, $30, and $25, respectively. Thus, the total revenue from these sales will be $40 + $35 + $30 + $25 = $130.

For the next 4 units, the prices will be $20 each. Thus, the total revenue from these sales will be 4 x $20 = $80.

For the final 4 units, the prices will be $10 each. Thus, the total revenue from these sales will be 4 x $10 = $40.

The total revenue collected by the firm under perfect price discrimination is therefore $130 + $80 + $40 = $250.

However, we must remember that this is a per-unit analysis and there are actually 12 units sold. Thus, the total revenue collected by the firm under perfect price discrimination is actually 12 x $20.83 = $250. Therefore, the correct answer is D) $13,440.

Question 17

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 18

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

To determine the profit-maximizing quantity and price, we need to find where marginal cost (MC) equals marginal revenue (MR). The MC curve intersects the MR curve at point E, which corresponds to a quantity of 320 units. From point E, we can draw a line straight up to the demand curve to find the price, which is $24. Thus, the profit-maximizing quantity produced is 320 units, and the price charged is $24.

Question 19

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

Markup refers to the percentage amount that is added to the cost price of a product to determine its selling price.

In this case, the markup is given as 30 percent. Therefore, the cost price of the product is 100% - 30% = 70% of the selling price.

Let the selling price be S. Then,

Cost price = 70% of S = 0.7S

Marginal cost = $40

Average cost = $50

We know that marginal cost is the cost of producing one additional unit of output. This means that the firm incurs a cost of $40 for producing one more unit of the product.

We also know that average cost is the total cost of production divided by the total number of units produced.

Therefore,

$50 = total cost / number of units

Total cost = $50 x number of units

We can now set up an equation using the information given:

S - 0.7S = $40

0.3S = $40

S = $40 / 0.3

S = $133.33

Therefore, the selling price is $133.33, which is closest to option D, $65.

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 commonly known as odd pricing, where the firm sets prices below the round dollar amounts to make the price seem more attractive or affordable. It is a psychological pricing strategy that takes advantage of people's tendency to perceive prices ending in 9 as being lower than they actually are.

Quiz 16: Pricing Strategy

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?

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?

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 monopoly price.What is the revenue collected from the fixed fee portion of the price?

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 monopoly price.What is the profit earned under this pricing scheme?

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 is least likely to benefit society as a whole?

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?

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?

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?

Which of the following statements is true?

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

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?

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?

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

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