Question 1

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

Accepted Answer

The answer of If, at a firm's projected sales level,...

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 total revenue collected by the firm?

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 3

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?

Accepted Answer

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

Question 4

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

Accepted Answer

This pricing strategy is called cost-plus pricing, where a percentage markup is added to the cost of production to determine the final price of the product. This ensures that the firm is covering its costs and making a profit on each sale.

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 price it will charge?

Accepted Answer

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

Question 6

Which of the following is not an advantage of cost-plus pricing?

Accepted Answer

Cost-plus pricing does not necessarily ensure that the firm will maximize its profits as it only takes into account the cost of production and a markup. Other factors such as demand and competitor prices may need to be considered to truly maximize profits.

Question 7

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?

Accepted Answer

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

Question 8

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?

Accepted Answer

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

Question 9

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?

Accepted Answer

Optimal two-part tariff pricing and perfect price discrimination both allow the firm to capture the entire consumer surplus, leading to the highest possible profit, whereas single-price monopoly pricing does not.

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?

Accepted Answer

Perfect price discrimination and two-part tariff pricing both result in the marginal benefit equaling the marginal cost, eliminating deadweight loss and maximizing total welfare.

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 value of the consumer surplus from this pricing strategy?

Accepted Answer

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

Question 12

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?

Accepted Answer

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

Question 13

Which of the following statements is true?

Accepted Answer

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

Question 14

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

Accepted Answer

Selling price = (1 + markup)*cost
Markup = 30% = 0.3
Cost = Marginal cost = $40
Average cost = Total cost / Quantity = Selling price - Markup / Quantity 
$50 = Selling price - (0.3*Selling price) / Quantity
Quantity = Selling price / $40

Substituting Quantity in the average cost equation, we get:

$50 = Selling price - (0.3*Selling price) / (Selling price / $40)

$50 = Selling price - (0.3*40)

$50 = Selling price - $12

Selling price = $62

Therefore, the closest option is D) $65.

Question 15

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400, what is the firm's markup?

Accepted Answer

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

Question 16

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?

Accepted Answer

Single-price monopoly pricing is least likely to benefit society because it results in deadweight loss, where some mutually beneficial trades between consumers and the seller are not realized, leading to inefficiency.

Question 17

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

Accepted Answer

This is called odd pricing, where the price is set slightly below a whole number to make the product seem more affordable and attractive to consumers.

Question 18

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

Accepted Answer

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

Question 19

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?

Accepted Answer

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

Question 20

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 ________.

Accepted Answer

Under strategy b, the firm charges a competitive per-unit price, which maximizes consumer surplus and eliminates deadweight loss. Additionally, the fixed fee allows the firm to capture consumer surplus, leading to higher profits.

Quiz 16: Pricing Strategy

If, at a firm's projected sales level, the marginal cost is $125, the average cost is $150 and the markup is 20 percent, then its selling price is

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?

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?

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 price it will charge?

Which of the following is not an advantage of cost-plus pricing?

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?

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?

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?

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

If the selling price of a firm's product is $500 and the estimated average cost of producing this product is $400, what is the firm's markup?

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?

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

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?