Question 1

After running a promotional campaign,the owners of a local shoe store decided to decrease the prices for the shoes sold in their store.One can imply that
A)The promotional expenditures made the demand for their shoes more elastic
B)The promotional expenditures made the demand for their shoes more inelastic
C)The promotional expenditures has no effect on the shoe demand elasticity
D)The owners got it wrong.To cover the promotional expenses,they should have raised the prices.

Accepted Answer

Running a promotional campaign typically attracts customers who are price-sensitive, meaning they are more likely to change their demand for shoes in response to a change in price. This makes the demand for the shoes more elastic, and the owners' decision to decrease the prices after the promotional campaign suggests they recognized this increased price sensitivity among their customers.

Question 2

After massive promotion of Justin Bieber's latest music album,the producers reacted by raising prices for his albums.This implies that promotion expenditures made the album demand
A)Elastic
B)Unitary elastic
C)Vertical
D)Inelastic

Accepted Answer

The price increase shows that the album's demand is inelastic, meaning that even with an increase in price, the demand for the album remains relatively constant. This suggests that the promotion may have been effective in increasing the perceived value of the album, leading to fans being willing to pay a higher price for it.

Question 3

Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is 2.6.Holding other things constant,the acquiring firm should
A)Raise prices on both goods
B)Lower prices on both goods
C)Raise price on the acquired good only
D)Need more information

Accepted Answer

Since the cross price elasticity of demand is positive (2.6), the goods are substitutes. Raising the price of one good will increase the demand for the other, allowing the firm to raise prices on both goods to maximize revenue.

Question 4

Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because
A)They lose market power
B)There is an increase in the overall demand for their products
C)The bundle has a more elastic demand than individual goods
D)The bundle has a more inelastic demand than individual goods

Accepted Answer

When a firm acquires a firm that sells a substitute good, the bundle of goods becomes more inelastic because consumers may not have as many options for substitutes. Firms can take advantage of this by raising the price of the bundle without losing too many customers, resulting in higher profits.

Question 5

Acquiring a firm that sells a substitute good will
A)Make the demand curve more inelastic
B)Make the demand curve more elastic
C)Make MR>MC
D)Will have no effect on the demand curve

Accepted Answer

Acquiring a firm that sells a substitute good reduces competition, making the demand curve for the acquiring firm's product more inelastic, as consumers have fewer alternatives.

Question 6

All the below choices are examples of promoting a firm's product,except
A)Advertising
B)Pricing
C)Discount coupons
D)End-of-aisle displays

Accepted Answer

Pricing is not a direct promotional tool for a firm's product. It may indirectly affect promotion by influencing the perceived value of the product, but it is not a standalone promotional activity like advertising, discount coupons, or end-of-aisle displays.

Question 7

Firm A producing one good acquires another firm B producing another good.Price elasticity of demand for Firm A's good is -1.8 and Firm's B is -1.8.Holding other things constant and assuming both goods are complements,the acquiring firm should
A)lower prices on both goods with a larger decrease in Firm A's good
B)lower prices on both goods with a larger decrease in Firm B's good
C)Lower prices on both goods by the same amount
D)Lower prices on both goods

Accepted Answer

Since the two goods are complements, a decrease in the price of one good will increase the demand for the other good. Since both firms have the same price elasticity of demand, a decrease in the price of both goods by the same amount will result in an equal increase in demand for both goods. Therefore, the acquiring firm should lower the prices of both goods by the same amount.

Question 8

Firms that face capacity constraints can only increase output only up to the capacity,but no further.Therefore,firms
A)Should price to capacity as long as MR > MC
B)Should price to capacity as long as MR = MC
C)Should price to capacity as long as MR < MC
D)Should not take capacity into consideration in pricing decisions

Accepted Answer

Firms that face capacity constraints cannot increase output beyond the capacity. Therefore, they should aim to price their products to capacity as long as the marginal revenue (MR) is greater than or equal to the marginal cost (MC) to maximize revenue and profit. In this case, choice A is the best answer as it suggests pricing to capacity as long as MR is greater than MC.

Question 9

Firm A producing one good acquires another firm B producing another good.Price elasticity of demand for Firm A's good is -1.8 and Firm's B is -1.8.Holding other things constant and assuming both goods are substitutes,the acquiring firm should
A)Raise prices on both goods with a larger increase in Firm A's good
B)Raise prices on both goods with a larger increase in Firm B's good
C)Raise prices on both goods by the same amount
D)Lower prices on both goods

Accepted Answer

Since the goods are substitutes, raising prices on both goods will increase demand for both goods. However, since the price elasticity of demand for Firm A's good is greater than that of Firm B's good, raising prices on Firm A's good will have a larger impact on demand than raising prices on Firm B's good. Therefore, the acquiring firm should raise prices on both goods by the same amount.

Question 10

A shoe producing firm decides to acquire a firm that produces shoe laces.This implies that
A)The firm's aggregate demand will be less elastic than the individual demand
B)The firm's aggregate demand will be more elastic than the individual demand
C)The firm's aggregate demand will be of the same elasticity as the individual demand
D)None of the above

Accepted Answer

Acquiring a firm that produces shoe laces will lead to an increase in the firm's product offerings and may attract a wider range of customers. This will increase the firm's aggregate demand elasticity as consumers have more choices and substitutes. Therefore, the firm's aggregate demand will be more elastic than the individual demand.

Question 11

Firm's should raise the price of their goods
A)If the demand for the product is elastic
B)If it acquires a firm selling a complement good
C)If it acquires a firm selling a substitute good
D)Both a and c

Accepted Answer

If a firm acquires a firm selling a substitute good, it can raise prices because it has more control over the market for similar products, reducing competition.

Question 12

Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is -1.4.Holding other things constant,the acquiring firm should
A)Raise prices on both goods
B)Lower prices on both goods
C)Raise price on the acquired good only
D)Need more information

Accepted Answer

A cross price elasticity of -1.4 indicates that the goods are complements. Lowering the price of one good will increase the demand for the other, potentially increasing overall revenue.

Question 13

Cannibalization is:
A)Reducing the sales of own firm
B)Improving quality over a rival's product
C)Reducing costs
D)Increasing one's output to reduce sales of another firm

Accepted Answer

The answer of Cannibalization is:
A)Reducing the sales of own firm
B)Improving...

Question 14

Promotion is one dimension to competition.It represents
A)The designing of a firm's product
B)Firm's product distribution decisions
C)Any expenditure that assist in increasing the demand for a firm's product
D)None of the above

Accepted Answer

Promotion refers to any expenditure or effort made by a firm to increase the demand for its products. This can include advertising, sales promotions, and personal selling, among others. The designing of a firm's product and product distribution decisions are not considered promotion, although they may be other dimensions of competition. Therefore, option C is the best choice.

Question 15

The four P's are
A)Price,Product,Psychological,Promotion
B)Price,Placement,Psychological,Promotion
C)Price,Product,Placement,Promotion
D)Price,Product,Psychological,Placement

Accepted Answer

The four P's of marketing are Price, Product, Placement, and Promotion. Choice C is the only option that includes all four of these elements. Choice A includes the erroneous term "Psychological," and Choice B includes "Placement" instead of "Product." Choice D includes an erroneous term "Psychological Placement." Therefore, the best choice is C.

Question 16

If advertising makes demand of a product less elastic,it makes sense for a firm to
A)Decrease the price of the product
B)Increase the price of the product
C)Leave the price unchanged
D)None of the above

Accepted Answer

If advertising makes demand of a product less elastic, it means that consumers are less responsive to changes in price. Therefore, the firm can increase the price of the product without seeing a significant drop in demand. This allows the firm to increase revenue and potentially offset the costs of advertising.

Question 17

The pricing rule MR=MC hold for
A)All firms
B)Single product firms
C)Multiple product firms
D)None of the above

Accepted Answer

The pricing rule MR=MC holds for single product firms because it is the profit-maximizing condition for a firm that produces a single product.

Question 18

Firm's should lower the price of their goods
A)If the demand for the product is elastic
B)If it acquires a firm selling a complement good
C)If it acquires a firm selling a substitute good
D)Both a and b

Accepted Answer

If the demand for the product is elastic, lowering the price will increase total revenue. If the firm acquires a firm selling a complement good, lowering the price of the original good will increase the demand for the complement good, which will increase the demand for the original good.

Question 19

A firm that acquires a substitute product can try and reduce inter-product cannibalization by
A)Doing nothing
B)Repositioning its product or the substitute so that they do not directly compete with each other
C)Pricing each product at the same level
D)Raising prices on the low-margin products

Accepted Answer

Repositioning its product or the substitute so that they do not directly compete with each other is the best choice to reduce inter-product cannibalization. This strategy can involve targeting different customer segments, emphasizing different product features or benefits, or focusing on different distribution channels. This approach can help preserve market share for both products and prevent them from directly competing with each other. Doing nothing (A) can lead to increased cannibalization, while pricing each product at the same level (C) may not address the underlying issue of competition between the two products. Raising prices on low-margin products (D) can also be risky, as it may lead to decreased demand and loss of market share.

Question 20

If advertising makes demand of a product more elastic,it makes sense for a firm to
A)Decrease the price of the product
B)Increase the price of the product
C)Leave the price unchanged
D)None of the above

Accepted Answer

When advertising makes demand more elastic, it means consumers are more price-sensitive and responsive to changes in price. Therefore, decreasing the price of the product will likely result in an increase in demand, which can offset any potential decrease in revenue from the lower price.

Quiz 12: More Realistic and Complex Pricing

After running a promotional campaign,the owners of a local shoe store decided to decrease the prices for the shoes sold in their store.One can imply that

After massive promotion of Justin Bieber's latest music album,the producers reacted by raising prices for his albums.This implies that promotion expenditures made the album demand

Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is 2.6.Holding other things constant,the acquiring firm should

Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because

Acquiring a firm that sells a substitute good will

All the below choices are examples of promoting a firm's product,except

Firm A producing one good acquires another firm B producing another good.Price elasticity of demand for Firm A's good is -1.8 and Firm's B is -1.8.Holding other things constant and assuming both goods are complements,the acquiring firm should

Firms that face capacity constraints can only increase output only up to the capacity,but no further.Therefore,firms

Firm A producing one good acquires another firm B producing another good.Price elasticity of demand for Firm A's good is -1.8 and Firm's B is -1.8.Holding other things constant and assuming both goods are substitutes,the acquiring firm should

A shoe producing firm decides to acquire a firm that produces shoe laces.This implies that

Firm's should raise the price of their goods

Firm A producing one good acquires another firm B producing another good.The cross price elasticity of demand for the goods owned by each firm is -1.4.Holding other things constant,the acquiring firm should

Cannibalization is:

Promotion is one dimension to competition.It represents

The four P's are

If advertising makes demand of a product less elastic,it makes sense for a firm to

The pricing rule MR=MC hold for

Firm's should lower the price of their goods

A firm that acquires a substitute product can try and reduce inter-product cannibalization by

If advertising makes demand of a product more elastic,it makes sense for a firm to