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Exam 11: Pricing Strategies for Firms With Market Power

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Question 61

Multiple Choice

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Which of the following statements is true regarding a simple pricing rule for monopoly and monopolistic competition?

A) P[E_F / (1 + E_F) ] = MC
B) P = [(1 + E_F) / E_F]MC
C) P[(1 + E_F) / E_F] = MC
D) All of the statements associated with this question are correct.

E) C) and D)
F) All of the above

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Question 62

Multiple Choice

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One of the conditions under which price discrimination is profitable is:

A) ability to identify consumer types.
B) inability to resell the good.
C) differences in demand elasticities.
D) All of the statements associated with this question are correct.

E) A) and D)
F) B) and C)

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Question 63

Multiple Choice

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If your demand for renting videos is Q = 5 − 2P,should you purchase the annual membership from a video store that charges $0.5 per rental,plus an annual membership fee of $12?

Suppose two types of consumers buy suits.Consumers of type A will pay $100 for a coat and $50 for pants.Consumers of type B will pay $75 for a coat and $75 for pants.The firm selling suits faces no competition and has a marginal cost of zero.If the firm charges $100 for a suit (which includes both pants and a coat) ,the firm will sell a suit to:

Cinemas sometimes give senior citizens discounts.What is the possible privately motivated purpose for them to do so?

A monopoly produces X at a marginal cost of $10 per unit and charges a price of $20 per unit.Determine the elasticity of demand at the profit-maximizing price of $20.

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.

You run a golf course at a tourist resort.At your resort,there are two distinct groups of players.One group owns property at the resort and resides there most of the year.On average,each of these consumers has a monthly inverse demand for golf services of P = 100 - 0.5Q.The other group visits for one week at a time and has a total weekly demand curve of P = 40 - 0.1Q.What pricing strategy will maximize your profits?

The price elasticity of demand for senior citizens purchasing coffee from McDonald's is −5,while non-senior citizens have a price elasticity of demand equal to −1.25.If it costs McDonald's $0.02 to produce a coffee,the optimal price for a cup of coffee for senior citizens and the resultant marginal cost under third-degree price discrimination are,respectively:

If the profit-maximizing markup factor in a 10-firm Cournot oligopoly is −2,what is the corresponding market elasticity of demand?

Second-degree price discrimination:

Which of the following statements about a price-matching strategy is incorrect?

Suppose P = 20 − 2Q is the market demand function for a local monopoly.The marginal cost is 2Q.The firm currently uses a standard pricing strategy.Which of the following will allow the firm to enhance the profits?

Which of the following pricing strategies is NOT used in markets with special cost and demand structures?

A local dentist read an article published by the American Dental Association estimating that the elasticity of demand for the representative dentist's services is −2.5.How much should the dentist mark up her price over marginal cost?

As manager of the only video store in town,you have noticed that on Thursday through Sunday the demand for renting your movies is much higher than it is on Monday through Wednesday.You therefore conducted a study that revealed two different market demand curves.On weekends,your inverse demand curve is P = 10 - 0.001Q; on weekdays,it is P = 5 - 0.01Q.The marginal cost of renting a movie is $.50 (50 cents).Your average customer never rents more than one movie at a time.What pricing strategy will maximize your profits?

What price should a firm charge for a package of two shirts given a marginal cost of $4 and an inverse demand function P = 8 − 2Q by the representative consumer?

A firm with market power has an individual consumer demand of Q = 20 − 4P and costs of C = 4Q.What is optimal price to charge for a block of 20 units?

Firms will often implement randomized pricing in an attempt to reduce:

Revenues when a firm engages in peak-load pricing based on the figure below will be: