Multiple Choice

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Chapter 11

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Multiple Choice

Multiple Choice
This activity contains 20 questions.

The practice of charging different prices per unit for different quantities of the same good or service is called:
First-degree price discrimination. Block pricing. Second-degree price discrimination. Third-degree price discrimination.

If a firm practices first-degree price discrimination, then which of the following is true?
consumer surplus is maximized. a deadweight loss is generated. output is the same as that of a single-price monopolist. consumer surplus equals zero.

Johnny operates a used car dealership. He spends $5,000 per month to rent the lot and office space. He obtains used cars for $1,000 each. The demand for used cars can be written as P = 6,000 1,000Q where P is measured as $ per used car and Q is measured as used cars per month. If Johnny can perfectly price discriminate, his monthly profit will equal
$20,000. $7,500. $0. $25,000.

A third-degree price discriminator sells the same cologne under two different labels. The price elasticity of demand for "High Class" is 2. The price elasticity of demand for "Splash-This-Stuff -On" is 5. Which one of the following statements is true?
The price of "High Class" will be 5/2 times the price of "Splash-This-Stuff-On". The price of "High Class" will be 8/5 times the price of "Splash-This-Stuff-On". The price of "High Class" will be 2/5 times the price of "Splash-This-Stuff-On". The price of "High Class" will be 5/8 times the price of "Splash-This-Stuff-On".

Suppose the demand for a movie ticket can be written as P = 10 - QS for senior citizens and P = 12 - QG for all other consumers. If the movie theater can offer tickets to a movie at zero marginal cost and can verify the purchaser's age, what prices will be charged?

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Everyone pays $5.50. Seniors pay $5; everyone else pays $6. Seniors get in for free; everyone else pays $12. Seniors pay $6; everyone else pays $5.

At a local theater, the general public pays $5 for a movie ticket while college students receive a $1 discount when they show a college ID card. What does this practice say about the theater's perception of price elasticity of demand?
College students' price elasticity of demand is 20% of that of the general public. College students' price elasticity of demand is 80% of that of the general public. College students' demand for movie tickets is more price elastic than that of the general public. College students' demand for movie tickets is less price elastic than that of the general public.

XYZ Publishers introduces a new hardback spy novel at a price of $35 each. A year later, a paperback version of the same book is released at a price of $12 each. This behavior by the publisher reflects
a smaller price elasticity of demand among buyers of new-release hardback books than that of people who wait. a lower cost of producing a paperback book relative to the cost of producing a hardback book. a larger price elasticity of demand among buyers of new-release hardback books than that of people who wait. an increase in the popularity of the book's author over time.

Suppose that golfers have identical demand functions that can be expressed as P = 100 Q where P is $ per round of golf and Q is the number of rounds of golf played per year. A local country club incurs a $20 marginal cost for each round played due to repairing the course. If the club charges $20 per round of golf, what annual membership fee maximizes the country club's profit?
$1,600 $20 $6,400 $3,200

When does bundling make more sense?

When customers have homogeneous demands and when the firm cannot price discriminate. When customers have homogeneous demands and when the firm can price discriminate. When customers have heterogeneous demands and when the firm cannot price discriminate. When customers have heterogeneous demands and when the firm can price discriminate.

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Spring water flows at a local county park at zero marginal cost. Residents have identical demand for spring water that can be expressed as P = 5 (.01)Q where P is $ per gallon and Q is gallons per year. The county government is considering fencing off the spring with a padlocked gate and selling keys to local residents to access the spring. Each person needs her own key. What price for keys will maximize the county government's amount collected?
$625 $0 $2,500 $1,250

A famous fast food restaurant sells burgers, fries, and sodas separately, or jointly as an "Extra Value Meal" at a slightly reduced price. This pricing strategy is known as
pure bundling. mixed bundling. second-degree price discrimination. two-part tariff.

Consumer A's reservation price is $4 for a sandwich and $1 for a bowl of soup. Consumer B's reservation price for a sandwich is $3 and $2 for a bowl of soup. Assuming all reservation prices are above marginal cost, which of the following pricing strategies maximizes the restaurant's profit?
A $5 soup and sandwich special. Selling sandwiches for $3 and soup for $1. Selling sandwiches for $4 and soup for $2. Selling sandwiches for $3 and soup for $2

Consumer A's reservation price is $5 for a sandwich and $1 for a bowl of soup. Consumer B's reservation price for a sandwich is $4 and $3 for a bowl of soup. Consumer C's reservation price is $1 for a sandwich and $5 for a bowl of soup. If the marginal cost of soup is $1.50 per bowl and the marginal cost of a sandwich is $2.50, which of the following pricing strategies maximizes our restaurant's profit?
$6 soup and sandwich combo; no individual pricing. $4 for a sandwich, $5 for a bowl of soup, $6 for a soup and sandwich combo. $5 for a sandwich, $5 for a bowl of soup, $7 for a combo. $4 for a sandwich, $3 for soup, no combos.

Consumer A's reservation price is $4 for a sandwich and $1 for a bowl of soup. Consumer B's reservation price for a sandwich is $6 and $3 for a bowl of soup. Assuming all reservation prices are above marginal cost, is there an advantage to a pure bundling strategy of a $5 soup/sandwich lunch?

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Yes, because consumer A would not buy soup otherwise. No, because consumer B would not buy a sandwich otherwise. No, because revenue cannot be increased through bundling. Yes, because bundling always generates more sales.

Consumer A's reservation price is $5 for a sandwich and $1 for a bowl of soup. Consumer B's reservation price for a sandwich is $4 and $3 for a bowl of soup. Consumer C's reservation price is $1 for a sandwich and $5 for a bowl of soup. Assuming all reservation prices are above marginal cost, which of the following strategies maximizes profit?
$4 for a sandwich, $3 for soup, no combos. $4 for a sandwich, $5 for a bowl of soup, $6 for a soup and sandwich combo. $6 soup and sandwich combo; no individual pricing. $5 for a sandwich, $5 for a bowl of soup, $7 for a combo.

When a firm is interested in metering demand and thereby practice price discrimination more effectively it should use:
Tying. Bundling. Advertising. The two-part tariff.

The full marginal cost of an additional dollar of advertising is equal to

zero only when the firm is maximizing profit. $1 plus the change in cost associated with the change in output to meet the new demand. zero, since the expenditure is offset by extra sales. $1.

Suppose the demand for a certain brand of jeans is Q = 30 P + A0.5 where P is measured as $/pair, Q as thousands of pairs per year, and A as thousands of dollars spent on advertising per year. If the marginal cost of producing jeans is constant at $10, what level of advertising maximizes the firm's profit?
$1,000 $2,000 $4,000 $3,000

In the market for trading cards, a 10% increase in advertising expenditures yields a 3% increase in quantity sold. If the price elasticity of demand for trading cards is -1.5, then the profit maximizing advertising budget as a percent of sales is

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30%. 5%. 20%. 3%

When buyers are unlikely to change their buying habits, the advertising elasticity of demand is ___________ and advertising ______________.
high...not worthwhile. low...not worthwhile. high...worthwhile. low...worthwhile.

Answer choices in this exercise appear in a different order each time the page is loaded.

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