Question 1

Dental services would be an example of a product that is not a good candidate for price discrimination.

Accepted Answer

Dental services can vary greatly in terms of complexity, customization, and patient needs, allowing dentists to charge different prices for different types of services, levels of care, or even based on the patient's ability to pay, which makes it a candidate for price discrimination.

Question 2

In first degree price discrimination, each buyer pays according to his ability to pay for the product.

Accepted Answer

In first degree price discrimination, each buyer pays the maximum price they are willing to pay for the product, not according to their ability to pay.

Question 3

The deadweight loss under price discrimination in which markets are segmented is greater than that under first degree price discrimination.

Accepted Answer

In first-degree price discrimination, each unit is sold at its individual reservation price, so there is no deadweight loss. In segmented markets, however, some consumers may be charged a higher price than their reservation price, resulting in deadweight loss.

Question 4

Suppose Masqat Cement Company charges the same price per ton of cement to consumers regardless of their location, hence absorbing all transportation costs. This implies that the company is engaging in price discrimination.

Accepted Answer

The answer of Suppose Masqat Cement Company charges the same...

Question 5

A pharmaceutical company manufactures an arthritis drug that can be prescribed for humans and for dogs. A month's supply of the drug sells for $150 when prescribed for humans and $48 when prescribed for dogs. One can conclude that demand for human consumption is more price elastic than the demand for pet consumption.

Accepted Answer

The difference in price does not directly indicate the price elasticity of demand. Price elasticity of demand is determined by how much the quantity demanded changes in response to a change in price. The price difference could be due to factors other than elasticity, such as production costs, insurance coverage, or market segmentation strategies.

Question 6

Suppose a firm knows that potential customers of its product belong to different groups but cannot identify their membership in a group until after a transaction has taken place. In this situation, it is not possible for the firm to engage in price discrimination.

Accepted Answer

The firm can still engage in price discrimination after the transaction by using strategies such as offering rebates, coupons, or loyalty programs that effectively differentiate prices among groups based on their post-purchase behavior or characteristics revealed after the sale.

Question 7

The price elasticity of demand for shampoo for two groups of customers, users and non -users of coupons are as follows: Group I: -1.04 and Group II: -0.84. The information indicates that Group I are the users of coupons.

Accepted Answer

The price elasticity of demand is more elastic for Group I (-1.04) compared to Group II (-0.84), indicating that Group I is more responsive to price changes, which is typical for coupon users.

Question 8

Car rental companies use yield management when they set rental prices based on time of the week (weekday as opposed to weekend) and length of the rental (weeklong versus one day).

Accepted Answer

Yield management, also known as revenue management, is a pricing strategy used by businesses, including car rental companies, to maximize revenue based on predicting consumer behavior. Adjusting prices based on the time of the week and the length of the rental is a common application of this strategy, aiming to optimize occupancy and revenue.

Question 9

All of the following are disadvantages of cost -plus pricing except

Accepted Answer

B) is not a disadvantage of cost-plus pricing. It suggests a scenario where cost-plus pricing could lead to uniform pricing among identical firms, which is not inherently a disadvantage of the pricing strategy itself.

Question 10

The ability of Dream Park to charge for admission to the park and also to charge for each ride is an example of

Accepted Answer

A two-part tariff is a pricing strategy where a firm charges a fixed fee for access to a service or product and then an additional variable fee for the actual consumption of the service or product. In this case, Dream Park charges an admission fee for entry into the park (fixed fee) and then charges separately for each ride (variable fee), which is characteristic of a two-part tariff.

Question 11

A firm using a two -part tariff faces a tradeoff because

Accepted Answer

The two-part tariff involves a fixed fee and a per-unit price. Increasing the fixed fee often necessitates lowering the per-unit price to maintain attractiveness to consumers, balancing revenue from the fixed fee with volume sold.

Question 12

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 13

The Egyptian and Jordanian governments charge a higher electricity and gas fee for energy intensive industries. They can do so because they are the only providers of these services. The Jordanian and Egyptian governments are trying to

Accepted Answer

The governments are applying price discrimination by charging different prices to different consumers (energy intensive industries) based on their consumption levels.

Question 14

When the Egyptian and Jordanian governments engage in price discrimination against energy intensive industries these industries have no choice but to accept the status quo and pay the high price. This is because

Accepted Answer

The Egyptian and Jordanian governments have a complete natural monopoly in the electricity market, meaning they are the sole providers of electricity in their respective countries. This gives them the power to set prices without competition, forcing energy-intensive industries to accept the prices they set.

Quiz 12: Pricing Strategy