Question 1

What is odd pricing? Why do some merchants use odd pricing?

Accepted Answer

The answer of What is odd pricing? Why do some...

Question 2

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options: a. A single price scheme where the cocktail price equals the monopoly price.
B. A single price scheme where the cocktail price equals the competitive price.
C. A two-part tariff: a monopoly cocktail price and a cover charge that will generate total revenue equal to the area X.
D. A two-part tariff: a competitive cocktail price and whatever cover charge that will generate a total revenue equivalent to the area X + Y + Z.
Which pricing scheme(s) achieve the economically efficient outcome?
A) schemes a and c
B) scheme b
C) schemes b and d
D) scheme d only

Accepted Answer

The answer of Figure 16-7  The Lizard Lounge is...

Question 3

Many book publishers use cost-plus pricing to establish prices for some of their books. Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Accepted Answer

The answer of Many book publishers use cost-plus pricing to...

Question 4

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-An optimal two-part tariff pricing schedule maximizes consumer surplus.

Accepted Answer

An optimal two-part tariff pricing schedule maximizes profits for the seller, not consumer surplus.

Question 5

Assume a firm is able to use an optimal two-part tariff.
a. Is the outcome economically efficient? Why or why not?
b. What happens to consumer surplus?
c. Does this represent perfect price discrimination? Why or why not?

Accepted Answer

The answer of Assume a firm is able to use...

Question 6

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Accepted Answer

If marginal costs differ substantially from average total costs, using a cost-plus pricing method will not lead to the profit-maximizing price because the price will not accurately reflect the marginal cost of producing one additional unit, which is crucial for maximizing profits.

Question 7

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Accepted Answer

A two-part tariff includes a fixed fee and a per-unit price.

Question 8

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options: a. A single price scheme where the price of cocktails equals the monopoly price.
B. A single price scheme where the cocktail price equals the competitive price.
C. A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
D. A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Which scheme will earn the largest profit?
A) scheme a
B) scheme b
C) scheme c
D) scheme d

Accepted Answer

The answer of Figure 16-7  The Lizard Lounge is...

Question 9

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. With this pricing scheme-a competitive price for the classes and a one-time membership fee-what amount of producer surplus will Sensei earn?
A) the area A + B + C + D + E.
B) the area E + F.
C) the area H + G + F.
D) the area A + B + C + D + E + F + G + H

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 10

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price. What is the competitive price and what is the quantity demanded at this price?
A) P0, Q1
B) P0, Q0
C) P1, Q0
D) P1, Q1

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 11

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Accepted Answer

The Walt Disney Company uses dynamic pricing strategies to determine the prices it charges for admission and rides at Disneyland and Walt Disney World, which means that prices fluctuate based on demand, time of day, and other factors. Cost-plus pricing is a simpler pricing strategy that adds a predetermined markup to the cost of producing a product or service.

Question 12

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Accepted Answer

Cost-plus pricing involves adding a markup to the cost of a product to determine its price. This method is often used when it is difficult to estimate demand, as it ensures that the firm is at least recovering its costs and making a profit. When marginal cost and average cost are about the same, there is less risk of underestimating costs and pricing the product too low.

Question 13

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. If Sensei acts as a monopolist and charges the profit-maximizing price, what is his producer surplus?
A) the area B + D + G
B) the area A + B + C + D + H + G
C) the area C + D + H + G
D) the area A + C + H

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 14

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-In an optimal two-part tariff pricing schedule, consumer surplus is zero.

Accepted Answer

In a two-part tariff pricing schedule, the consumer pays a fixed fee (part 1) and a variable fee (part 2) for each unit consumed. By setting the fixed fee equal to the consumer surplus and charging a price equal to marginal cost for each unit consumed (part 2), the seller can extract all of the consumer surplus. Therefore, in an optimal two-part tariff pricing schedule, consumer surplus is zero.

Question 15

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. If Sensei charges the competitive price for his classes, what is the maximum amount of admission fee that he can collect from his customers?
A) the area A + B
B) the area A + B + C + D
C) the area A + B + C + D + E
D) the area A + C + D + G + H

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 16

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. Sensei's friend, Marcel, suggests that he charge a one-time membership fee to use the martial arts school, in addition to a per-class charge. Suppose Sensei charges the monopoly price for each class and also imposes a one-time membership fee. What is the maximum amount of revenue from the membership fee he can collect from all his customers?
A) an amount equal to the area A + B
B) an amount equal to the area E + F
C) an amount equal to the area H + G
D) an amount equal to the area A + C + H

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 17

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Refer to Figure 16-7. The owners of the Lizard Lounge are considering the following four pricing options: a. A single price scheme where the cocktail price equals the monopoly price.
B. A single price scheme where the cocktail price equals the competitive price.
C. A two-part tariff: a monopoly price for cocktails and a cover charge that will generate total revenue equal to the area X.
D. A two-part tariff: a competitive price for cocktails and a cover charge that will generate total revenue equal to the area X + Y + Z.
Under which scheme are the Lounge customers better off?
A) scheme a
B) scheme b
C) scheme c
D) scheme d

Accepted Answer

The answer of Figure 16-7  The Lizard Lounge is...

Question 18

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. With a two-part pricing scheme-a monopoly price for classes and a one-time membership fee-what is the amount of producer surplus Sensei will earn?
A) an amount equal to the area A + B + C + D
B) an amount equal to the area E + F
C) an amount equal to the area A + C + H
D) an amount equal to the area A + B + C + D + H + G

Accepted Answer

The answer of Figure 16-6  Watanabe Sensei operates the...

Question 19

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-Movie theaters often charge different people different prices for admission. Why don't theaters charge different prices for popcorn and other food items?
A) Although the elasticity of demand for admission differs among customers, most people have the same the elasticity of demand for food items.
B) Concession stand personnel are too busy to ensure that different people pay different prices for food items.
C) Once people are in the theater, concession stands have monopoly power and can charge everyone the same high prices for food.
D) It is difficult to limit the resale of food items from those who pay low prices to those who would have to pay high prices from the concession stand.

Accepted Answer

The answer of Figure 16-7  The Lizard Lounge is...

Question 20

Figure 16-7  The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails.
-There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.

Accepted Answer

The statement is unrelated to the information provided about the Lizard Lounge's estimated demand curve for cocktails. Additionally, there is actually evidence that odd pricing (ending prices with .99 or .95) can be effective in convincing consumers that prices are lower than they really are.

Quiz 16: Pricing Strategy

What is odd pricing? Why do some merchants use odd pricing?

Many book publishers use cost-plus pricing to establish prices for some of their books. Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you determine if a publishing company actually does use cost-plus pricing for all its books?

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -An optimal two-part tariff pricing schedule maximizes consumer surplus.

Assume a firm is able to use an optimal two-part tariff. a. Is the outcome economically efficient? Why or why not? b. What happens to consumer surplus? c. Does this represent perfect price discrimination? Why or why not?

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -If marginal costs differ quite substantially from average total costs, then using a cost-plus pricing schedule will not lead to the profit maximizing price.

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -A two-part tariff refers to a pricing schedule under which a buyer must pay a fixed fee for the right to purchase the product, in addition to a per-unit price.

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

Economists believe that cost-plus pricing may be the best way for a firm to determine its optimal product price when the firm's marginal cost and average cost are about the same and when it is difficult to estimate the product's demand curve.

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -In an optimal two-part tariff pricing schedule, consumer surplus is zero.

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -Movie theaters often charge different people different prices for admission. Why don't theaters charge different prices for popcorn and other food items?

Figure 16-7 The Lizard Lounge is well known for its exotic cocktails. Figure 16-7 shows its estimated demand curve for cocktails. -There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.