Chp 12 - Pricing & Advertising

Question 1

Alexx’s monopoly currently sells its product at a single price. What conditions must be met so that he can profitably price​ discriminate?

The firm must​ have:
A) the ability to set​ price, consumers with different price​ elasticities, and the ability to prevent or limit resales.
B) the ability to set​ price, consumers with different price​ elasticities, the ability to identify the different types of​ consumers, and the ability to prevent or limit resales.
C) the ability to set price and the ability to identify each​ consumer’s willingness to pay.
D) consumers with different price​ elasticities, the ability to identify the different types of​ consumers, and the ability to prevent or limit resales.

Answer 1

B) the ability to set​ price, consumers with different price​ elasticities, the ability to identify the different types of​ consumers, and the ability to prevent or limit resales.

Question 2

Which of the following conditions must be true so that a firm can price​ discriminate?

A) The good is a​ non-durable.
B) The good cannot be easily resold.
C) There are no other firms in the market.
D) All of the above must be true.

Answer 2

B) The good cannot be easily resold.

Question 3

Which of the following is not an example of price​ discrimination?

A) Charging young men more than young women for auto insurance.
B) Charging women more than men for an identical haircut.
C) Senior citizen discounts.
D) Charging children less for a ticket to the movies.

Answer 3

A) Charging young men more than young women for auto insurance.

Question 4

If the monopoly can charge a single market​ price, does the​ concert’s failure to sell out prove that the monopoly set too high a​ price?

That the concert does not sell out

A) does not indicate the monopoly set price too high because the​ monopoly's higher price minimizes production costs.
B) does not indicate the monopoly set price too high because the monopoly increases profit by restricting quantity.
C) indicates the monopoly set price too high because the monopoly could have charged a lower price.
D) does not indicate the monopoly set price too high because the​ monopoly's higher price maximizes costs.
E) indicates the monopoly set price too high because the monopoly lost potential sales.

Answer 4

B) does not indicate the monopoly set price too high because the monopoly increases profit by restricting quantity.

Question 5

If two identifiable markets differ with respect to their price elasticity of demand and resale is​ impossible, a firm with market power will

A) set price equal to marginal cost in both markets.
B) set a higher price in the market that is more price elastic.
C) set a lower price in the market that is more price elastic.
D) set price so as to equate the elasticity of demand across markets.

Answer 5

C) set a lower price in the market that is more price elastic.

Question 6

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger​ quantities, then

A) the​ monopoly's profits are larger than under perfect price discrimination. 
B) the​ monopoly's profits are larger than under​ single-price monopoly. 
C) social welfare is larger than under perfect competition.
D) consumer surplus is larger than under​ single-price monopoly.

Answer 6

B) the​ monopoly’s profits are larger than under​ single-price monopoly.

Question 7

Bundling sales are most advantageous to the seller when

A) the demands for the two goods are negatively correlated. 
B) there are economies of scope.
C) the demands for the two goods are unrelated. 
D) the demands for the two goods are positively correlated.

Answer 7

A) the demands for the two goods are negatively correlated.

Question 8

What is the​ profit-maximizing amount of​ advertising?

A) The point where the additional gross profit from advertising is equal to the marginal cost of production.
B) The point where the marginal benefit of advertising is equal to the marginal cost of advertising.
C) The output level that minimizes the marginal cost of advertising.
D) The point where gross profit as a function of advertising is maximized.

Answer 8

B) The point where the marginal benefit of advertising is equal to the marginal cost of advertising.

Question 9

Each​ week, a department store places a different item of clothing on sale. Which of the following is an explanation based on price discrimination for why the store conducts such regular​ sales?

A) The store attempts to sell the item to customers with high reservation prices​ first, and then sells to customers with lower reservation prices later.
B) The store attempts to sell the item to customers with relatively elastic demand​ first, and then sells to customers with relatively inelastic demand later.
C) The store attempts to sell the item to customers with relatively inelastic demand​ first, and then sells to customers with relatively elastic demand later.
D) Both A and C.
E) Both A and B.

Answer 9

D) Both A and C.