Question 1

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 ________.
A)b;b
B)a;b
C)a;neither strategy
D)b;neither strategy

Accepted Answer

The answer of Figure 16-5 
-Refer to Figure 16-5.Consider the...

Question 2

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?
A)a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price
B)perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not
C)Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer.
D)single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller)that are not exploited

Accepted Answer

Single-price monopoly pricing is the least likely to benefit society as a whole because it does not allow for mutually beneficial trades between consumers and the seller. The monopolist sets a single price that may be too high for some consumers to afford, resulting in lost surplus for both the consumers and society as a whole. In comparison, two-part tariff pricing can benefit society if the fixed fee is low enough to encourage consumer participation and perfect price discrimination can also potentially benefit society by allowing the producer to maximize total surplus.

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?
A)75 percent
B)33.33 percent
C)25 percent
D)impossible to determine with the information given

Accepted Answer

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

Question 4

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?
A)Odd pricing forced employees to give customers change.This made it more likely that employees would record sales rather than pocketing their customers' money.
B)Odd pricing began in an era when it was difficult for owners and managers of firms to determine the marginal cost of the goods and services they sold.Odd prices were rough estimates designed to cover costs plus earn firms a profit.
C)Odd pricing was begun in England in the 1700s when America was part of the British Empire.Members of the British Royal Court were given the task of pricing products.After independence,merchants in the United States carried on the practice of odd pricing.
D)After the passage of the Sherman Act in 1890,merchants used odd pricing as a means of avoiding prosecution for antitrust violations.

Accepted Answer

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

Question 5

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 per-unit price it should charge,if any?
A)It should not charge a price per unit;just a flat fee to consume as much of the product as desired.
B)It should charge a range of prices from $40 to $12.
C)$12
D)$16

Accepted Answer

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

Question 6

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?
A)320 units
B)480 units
C)560 units
D)640 units

Accepted Answer

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

Question 7

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?
A)Both perfect price discrimination and a two-part tariff pricing are equally beneficial in that the marginal benefit of the last unit sold equals the marginal cost of producing that unit.
B)only perfect price discrimination because this pricing method eliminates deadweight loss
C)single-price monopoly pricing because consumers enjoy at least some consumer surplus
D)only two-part tariff pricing because the per-unit portion of the price is set equal to marginal cost

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 8

When firms price their products by adding a percentage markup to their average costs of production,this is called
A)average cost pricing.
B)rounding up.
C)break-even pricing.
D)cost-plus pricing.

Accepted Answer

Cost-plus pricing refers to a pricing strategy in which firms add a percentage markup to their average costs of production to determine the final price of their products. This is done to ensure that the firm can cover all of its costs and earn a profit on each unit sold. It is a popular pricing method in industries where costs can vary significantly from one product to another or where there is significant uncertainty regarding demand.

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?
A)optimal two-part tariff pricing
B)perfect price discrimination
C)single-price monopoly pricing
D)The profit is the same under optimal two-part tariff pricing and perfect price discrimination and the profit is higher than under single-price monopoly pricing.

Accepted Answer

The answer of Consider three pricing strategies that the firm...

Question 10

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?
A)The surveys found that small differences in price cause small differences in quantity demanded.There is no evidence that odd pricing makes economic sense.
B)Although the results were not conclusive,there is some evidence that odd pricing makes economic sense.
C)The surveys found indifference regarding this strategy among most consumers,but hostility among other consumers.The latter group resented what they viewed as an attempt to fool them into buying products with odd prices.Researchers concluded that odd pricing is counterproductive.
D)The survey results were inconclusive because most consumers gave unreliable responses to the survey questions.

Accepted Answer

The passage states that the results of the surveys were not conclusive, but there was some evidence that odd pricing makes economic sense. Therefore, option B is the best choice. The other options are either not supported by the passage or are incorrect.

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 quantity it should produce?
A)240 units
B)320 units
C)480 units
D)560 units

Accepted Answer

With a two-part pricing strategy, the firm charges a fixed fee and a per-unit price equal to the competitive price. In this case, the fixed fee is $20 and the per-unit price is $10. To maximize profit, the firm should produce the quantity where marginal cost equals the per-unit price, which is 60 units. Then, it should charge the fixed fee plus the per-unit price to customers, resulting in a total revenue of (480 x $10) + $20 = $4,820. This is the highest revenue the firm can earn given the market conditions.

Question 12

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
A)$40.
B)$50.
C)$52.
D)$65.

Accepted Answer

Since the markup is 30%, the cost markup percentage is 100%+30% = 130%. Thus, the cost is 100% or 1, while the selling price is 130% or 1.3. Let S be the selling price, we have:

S = 1.3(average cost)

S = 1.3($50) = $65

Therefore, the selling price is $65.

Question 13

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?
A)It should charge a range of prices from $40 to $16.
B)It should charge a range of prices from $40 to $12.
C)$2
D)$8

Accepted Answer

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

Question 14

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?
A)$2,560
B)$5,760
C)$7,870
D)0

Accepted Answer

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

Question 15

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?
A)$6,720
B)$7,680
C)$10,240
D)$13,440

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 16

When a firm charges $4.95 instead of $5.00,what do economists call this pricing strategy?
A)cost-plus pricing
B)indirect pricing
C)odd pricing
D)unusual pricing

Accepted Answer

This pricing strategy is called odd pricing, where a firm prices their product just below a round number to make it appear more attractive to customers. It creates a perception of a better deal or a discount, even though it is only a few cents difference.

Question 17

Which of the following statements is true?
A)Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing.
B)Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing.
C)Although consumers reap some consumer surplus under a single-price monopoly,society is better off with optimal two-part tariff pricing.
D)Of the three pricing schedules,single-price monopoly,an optimal two-part tariff,and perfect price discrimination,profit is highest under single-price monopoly pricing.

Accepted Answer

The answer of Which of the following statements is true?
A)Consumer...

Question 18

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 total revenue it can expect to collect from the fixed fee portion of the price?
A)$2,560
B)$5,760
C)$7,870
D)$10,240

Accepted Answer

To calculate the total revenue from the fixed fee portion, we need to find out how many units will be sold at the optimal per-unit price. From the graph, we can see that at the competitive price, the firm will sell 640 units. So, at the optimal per-unit price, it will sell less than that. Let's say it sells x units at the per-unit price, then its total revenue will be:

Total revenue = Fixed fee + Per-unit price × Number of units sold
Total revenue = Fixed fee + Competitive price × x

To maximize its profit, the firm should choose the fixed fee such that it extracts all the consumer surplus. From the graph, we can see that the consumer surplus at the competitive price is equal to the area of the triangle with vertices (0, 8), (640, 0), and (640, 8). This area is:

Consumer surplus = (1/2) × 640 × 8 = 2,560

So, the fixed fee should be equal to the consumer surplus, which is $2,560. Now, we can find out how many units will be sold at the optimal per-unit price. At the competitive price, the total revenue is:

Total revenue = Competitive price × Quantity sold
Total revenue = $8 × 640 = $5,120

At the optimal per-unit price, the firm wants to extract as much consumer surplus as possible, while still selling some units. So, it will set the per-unit price equal to the competitive price, and the number of units sold at this price will be:

x = (Total consumer surplus) ÷ (Per-unit price)
x = $2,560 ÷ $8 = 320

Therefore, the total revenue from the fixed fee portion will be:

Total revenue = Fixed fee + Competitive price × x
Total revenue = $2,560 + $8 × 320
Total revenue = $5,760

Question 19

Which of the following statements is true about optimal two-part tariff and perfect price discrimination for a given demand curve?
A)The total revenue received under the two pricing schedules is the same.
B)The total revenue received under an optimal two-part tariff exceeds that received under perfect price discrimination.
C)The total revenue received under an optimal two-part tariff is less than that received under perfect price discrimination.
D)The total revenue received under an optimal two-part tariff could be greater than,less than,or equal to that received under perfect price discrimination,depending on the fixed-fee portion of the two-part tariff.

Accepted Answer

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

Question 20

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?
A)Q = 240 units;P = $28
B)Q = 320 units;P = $24
C)Q = 480 units;P = $16
D)Q = 560 units;P = $12

Accepted Answer

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

Quiz 16: Pricing Strategy

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?

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?

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?

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 is most beneficial to society as a whole?

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

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?

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 quantity it should produce?

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

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?

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?

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

Which of the following statements is true?

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

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?