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Price discrimination exists when: A) prices of different
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Price discrimination exists when: A) prices of different goods vary. B) markups are constant among customers. C) costs vary among customers. D) monopolies charge high prices for their unique products. E) markups vary among customers. 2. With price discrimination, higher prices are charged when customer's: A) price elasticity of demand is low. B) crossprice elasticity of demand is low. C) crossprice elasticity of demand is high. D) price elasticity of demand is high. E) profits are high. 3. Successful price discrimination requires: A) identical price elasticities among submarkets. B) constant marginal costs. C) inelastic demand in each submarket. D) the ability to prevent transfers among customers in different submarkets. E) perfect competition. 4. Which is NOT an example of demandbased price discrimination? A) Supersaver fares on airlines. B) Student prices for opera tickets. C) Cheap haircuts for balding men. D) “Earlybird specials” at restaurants. E) Higher prices in rush hour on the Washington DC Metro. 5. Bill Barriers, the president of MightySoft, is trying to decide how to price a new piece of software called DoorKnobs. MightySoft spent $100,000 to develop this software and is the only firm that can sell it. The marginal cost of producing and distributing a copy of DoorKnobs is $10 per customer. Each demander will buy at most one copy of DoorKnobs. There are three types of demanders in this market. Type A demanders are willing to pay up to $210 for a copy of DoorKnobs, Type B demanders are willing to pay up to $110 for a copy of DoorKnobs, and Type C demanders are willing to pay up to $60 for a copy of DoorKnobs. In this market, there are 1,500 Type A demanders, 500 Type B demanders, and 1,000 Type C demanders.If MightySoft must charge the same price to all buyers, what price will maximize its profits? A) $210 B) $200 C) $110 D) $100 E) $60 6. Now suppose that MightySoft's market research team discovers that all Type B and Type C demanders own copies of a competing software product, and none of the Type A demanders own this competing product. MightySoft can reliably determine who owns a copy of the competing product, but this is the only information it has regarding the type of each demander. Therefore, MightySoft can charge different prices for DoorKnobs to those who do and do not own copies of the competing product. In addition, MightySoft is able to prevent resale of DoorKnobs from one seller to another. Under these circumstances, what should MightySoft do to maximize its profits? A) Set a price of $210 for DoorKnobs, but offer a $50 discount to anyone who owns a copy of the competing product. B) Set a price of $210 for DoorKnobs and offer no discounts. C) Set a price of $210 for DoorKnobs, but offer a $150 discount to anyone who owns a copy of the competing product. D) Set a price of $160 for DoorKnobs and offer no discounts. E) Set a price of $160 for DoorKnobs, but offer a $100 discount to anyone who owns a copy of the competing product. 7. The FunLand Amusement Park is a 40acre fun park full of rides, shows, and shops. FunLand's marketing department segments its customer base into two parts: local patrons and tourists. FunLand assumes local patrons are more price sensitive than outoftown tourists. Yearly demand and marginal revenue relations for the park services, Q, are as follows: Locals PL= $40 $0.0005QL Tourists PT= $50 $0.0004QT Average variable costs for labor and materials are constant at $20 per unit. Assuming the company can discriminate in pricing between locals and tourist customers through coupons distributed to locals via local shops, calculate what prices for locals and tourists the park should set. A) local P = $40, tourist P = $25. B) local P = $25, tourist P = $50. C) local P = $20, tourist P = $25. D) local P = $30, tourist P = $35. E) local P = $25, tourist P = $45. 8. You are the manager of a Mom and Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe the elasticity of demand for milk by customers at your store is 4, then your profitmaximizing price is A) $2.50. B) $2.00. C) $4.00. D) $5.00. E) $7.00. 9. During spring break, students have an elasticity of demand for a trip to Florida of 3. How much should an airline charge students for a ticket if the price it charges the general public is $360? Assume the general public has an elasticity of 2. A) $270. B) $250. C) $230. D) $210. E) $290. 10. Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using? A) Commodity bundling. B) Cross subsidization. C) Twopart pricing. D) Price discrimination. E) Threat point. 11. Nice Bicycles, Inc., recently offered rebates of $10 off the regular $400 price on Triath model bikes. Sales responded, rising 5% over the previous month's level.Calculate the point price elasticity of demand for Triath bicycles. If marginal cost per unit is $200, was the original $400 price optimal? (hint: find price from MR = MC) A) Elasticity = 2. Optimal price. B) Elasticity = 2. Price is too high. C) Elasticity = 2.5. Price is too low. D) Elasticity = 2.5. Optimal price. E) We do not have enough information to answer this question. 12. Which group of policies aims at discouraging rivals to enter a price war? A) Poadpeak pricing, twopart pricing, and price matching. B) Pandomized pricing, price discrimination, and cross subsidization. C) Price matching, brand loyalty, and commodity bundling. D) Price matching, beatorpay, and randomized pricing. E) Zero pricing, dumping. 13. Which group of policies aims at extracting all consumer surplus? A) Price matching and randomized pricing. B) Twopart pricing and commodity bundling. C) Cross subsidization and brand loyalty. D) Price discrimination and peak load pricing. E) Bailmeout pricing. 14. Which of the following pricing policies enhances profits by creating brandloyal consumers? A) Trigger strategies. B) Beatorpay strategies. C) Twopart pricing. D) Frequent flyer programs. E) Price gouging. 15. A local video store estimates their average customer's demand per year is Q = 7  2P, and knows the marginal cost of each rental is $0.5. How much should the store charge for an annual membership in order to extract the entire consumer surplus via an optimal twopart pricing strategy? A) $9. B) $10. C) $11. D) $12. E) $20. 16. The average consumer at a firm with market power has an inverse demand function of P = 10  Q. The firm's cost function is C = 2Q. If the firm engages in optimal twopart pricing, it will earn profits of A) $2. B) $8. C) $16. D) $32. E) $64. 17. Suppose that the demand for a monopolist's product is estimated to be Qd = 100  2P and it's total costs are C(Q) = 10Q. Under firstdegree price discrimination the optimal price(s), number of total units exchanged, profit and consumer surplus are A) P = $30; Q = 40, profit = $600; CS = $0. B) 10 18. Suppose that Verizon Wireless has hired you as a consultant to determine what price it should set for calling services. Suppose that an individuals' inverse demand for wireless services in your area is estimated to be P = 100  33Q and the marginal cost of providing wireless services to the area is $1 per minute. What is the optimal twopart price that you would suggest to Verizon? A) Charge a fixed fee = $3 and a usage fee of $3 per minute. B) Charge a fixed fee = $3 and a usage fee of $0.33 per minute. C) Charge a fixed fee = $95.5 and a usage fee of $1 per minute. D) Charge a fixed fee = $148.50 and a usage fee of $1 per minute. E) Charge a fixed fee = $30 and a usage fee of $0.10 per minute. 19. What price should a firm charge for a package of two shirts given a marginal cost of $2 and an inverse demand function P = 6  2Q by the representative consumer? A) $6. B) $8. C) $10. D) $12. E) $14. 20. Suppose you are the marketing manager for the Fruit of the Loom. An individuals' inverse demand for Fruit of the Loom underwear is estimated to be P = 25  3Q (in cents). If cost to Fruit of the Loom to producing underwear is C(Q) = 1 + 4Q (in cents), compute the number of underwear that should be packaged together. What price should Fruit of the Loom charge for a package? A) 3, $1.09. B) 4, $5.49. C) 5, $5.25. D) 7, $1.37. E) 8, $6.99. Optional Information: Level/Year: college
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