Question 1

Firms tend to lower the price of their goods after acquiring a firm that sells a complementary good because
A)They gain 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 complementary good, it can offer both goods as a bundle at a lower price. This leads to an increase in the overall demand for their products, as consumers are more likely to buy the bundle at a lower price. However, the demand for the bundle is more elastic than the demand for individual goods, as consumers have more substitutes for the bundle than for individual goods. Therefore, firms tend to lower the price of their goods after acquiring a complementary good to attract more customers and increase overall demand.

Question 2

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

The answer of Firm A producing one good acquires another...

Question 3

A firm started promoting its product through advertising.This changed the product's elasticity from -1.08 to -0.99.The firm should
A)Lower prices as the demand is more elastic
B)Lower prices as the demand is more inelastic
C)Raise prices as the demand is more elastic
D)Raise prices as the demand is more inelastic

Accepted Answer

The demand has become more inelastic (from -1.08 to -0.99), meaning consumers are less sensitive to price changes. Therefore, the firm can raise prices to increase revenue.

Question 4

After firm A producing one good acquired another firm B producing another good,it raised the prices for the bundle of goods.One can conclude that the goods were
A)substitutes
B)complements
C)not related
D)None of the above

Accepted Answer

The goods are substitutes because when the price of one good increases, the demand for the other good increases.

Question 5

After firm A producing one good acquired another firm B producing another good,it lowered the prices for the bundle of goods.One can conclude that the goods were
A)substitutes
B)complements
C)not related
D)None of the above

Accepted Answer

When two goods are complements, the price decrease of one good leads to increased demand for the other good as consumers now find it cheaper to purchase the bundle of goods. Hence, the fact that firm A lowering prices for the bundle of goods after acquiring firm B suggests that the two goods are complements.

Question 6

For products like parking lots and hotels,costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.Therefore,
A)If SRMR>SRMC at capacity,then the firms should price to fill capacity
B)If SRMR<SRMC at capacity,then the firms should price to fill capacity.
C)If LRMR>LRMC at capacity,then the firms should price to fill capacity
D)If LRMR>LRMC at capacity,then the firms should price to fill capacity.

Accepted Answer

CFor products like parking lots and hotels, where costs are mostly fixed or sunk and there are capacity constraints, firms should aim to fill their capacity to maximize revenue. When Short-Run Marginal Revenue (SRMR) is greater than Short-Run Marginal Cost (SRMC) at capacity, it means that the firm can still make a profit by filling up its capacity, hence pricing to fill capacity makes sense (A). Similarly, if Long-Run Marginal Revenue (LRMR) is greater than Long-Run Marginal Cost (LRMC) at capacity, it indicates that in the long run, filling capacity is profitable, so firms should also price to fill capacity in the long run (C).

Question 7

For products like parking lots and hotels,the relevant costs and benefits for setting price are
A)LRMR and LRMC
B)LRMR and SRMC
C)SRMR and SRMC
D)SRMR and LRMC

Accepted Answer

The answer of For products like parking lots and hotels,the...

Question 8

All of the following are true,except
A)Some consumers may infer high prices of a good to signal high quality
B)Low prices can also signal high quality
C)Promotional campaigns do not affect consumer's perception on quality
D)It makes more sense to raise price when advertising makes demand less elastic

Accepted Answer

Promotional campaigns can significantly affect consumer perception of quality, as they can communicate information about factors such as features, benefits, and endorsements. The other statements are true, as consumers may associate high prices with high quality (A), low prices may signal high value or efficiency (B), and raising prices can be more profitable when demand is less elastic and consumers are less likely to be deterred by price increases (D).

Question 9

On average,if demand is unknown and costs of underpricing are _______ than the costs of overpricing,then _________.
A)Smaller;overprice
B)Smaller;underprice
C)Larger;underprice
D)None of the above

Accepted Answer

If the costs of underpricing are smaller than the costs of overpricing, it is better to underprice because it will not result in as much loss as overpricing could result in. Additionally, this strategy may attract more customers and improve brand loyalty.

Quiz 12: More Realistic and Complex Pricing

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

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 firm started promoting its product through advertising.This changed the product's elasticity from -1.08 to -0.99.The firm should

After firm A producing one good acquired another firm B producing another good,it raised the prices for the bundle of goods.One can conclude that the goods were

After firm A producing one good acquired another firm B producing another good,it lowered the prices for the bundle of goods.One can conclude that the goods were

For products like parking lots and hotels,costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.Therefore,

For products like parking lots and hotels,the relevant costs and benefits for setting price are

All of the following are true,except

On average,if demand is unknown and costs of underpricing are _ than the costs of overpricing,then ___.