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Homework answers / question archive / International Management Institute – ECON 1) Which of the following strategies are used by business firms to capture consumer surplus? A) Price discrimination B) Bundling C) Two-part tariffs D) all of the above 2) An electric power company uses block pricing for electricity sales
International Management Institute – ECON
1) Which of the following strategies are used by business firms to capture consumer surplus?
A) Price discrimination
B) Bundling
C) Two-part tariffs
D) all of the above
2) An electric power company uses block pricing for electricity sales. Block pricing is an example of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) Block pricing is not a type of price discrimination.
3) When a firm charges each customer the maximum price that the customer is willing to pay, the firm
A) engages in a discrete pricing strategy.
B) charges the average reservation price.
C) engages in second-degree price discrimination.
D) engages in first-degree price discrimination.
4) The maximum price that a consumer is willing to pay for each unit bought is the __________ price.
A) market
B) reservation
C) consumer surplus
D) auction
E) choke
5) Second-degree price discrimination is the practice of charging
A) the reservation price to each customer.
B) different prices for different quantity blocks of the same good or service.
C) different groups of customers different prices for the same products.
D) each customer the maximum price that he or she is willing to pay.
6) A firm is charging a different price for each unit purchased by a consumer. This is called
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) fourth-degree price discrimination.
E) fifth-degree price discrimination.
7) A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) fourth-degree price discrimination.
E) fifth-degree price discrimination.
8) Discrimination based upon the quantity consumed is referred to as __________ price discrimination.
A) first-degree
B) second-degree
C) third-degree
D) group
9) A doctor charges two different prices for medical services, and the price level depends on the patients' income such that wealthy patients are charged more than poorer ones. This pricing scheme represents a form of
A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) pricing at each consumer's reservation price.
10) Third-degree price discrimination involves
A) charging each consumer the same two part tariff.
B) charging lower prices the greater the quantity purchased.
C) the use of increasing block rate pricing.
D) charging different prices to different groups based upon differences in elasticity of demand.
11) In 1994, the Walt Disney Corporation ran a special promotion on tickets to Disneyland. Residents of southern California who lived near the amusement park were offered admission at the special price of $22. Other visitors to Disneyland were charged about $30. This practice is an example of:
A) collusion.
B) price discrimination.
C) two-part tariff.
D) bundling.
E) tying.
12) Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:
A) intertemporal price discrimination.
B) third-degree price discrimination.
C) a two-part tariff.
D) bundling.
E) none of the above
13) Which of the following is NOT a condition for third degree price discrimination?
A) Monopoly power
B) Different own price elasticities of demand
C) Economies of scale
D) Separate markets
14) Suppose a firm produces identical goods for two separate markets and practices third-degree price discrimination. In the first market the firm charges $30 per unit, and it charges $22 per unit in the second market. Which of the following represents the ratio of price elasticities of demand in the two markets?
A) E2 = (21/29)E1
B) E2 = (29/21)E1
C) E2 = E1
D) E2 = (22/30)E1
E) none of these
15) Bindy, an 18-year-old high school graduate, and Luciana, a 40-year-old college graduate, just purchased identical hot new sports cars. Acme Insurance charges a higher rate to insure Bindy than Luciana. This practice is an example of:
A) collusion.
B) price discrimination.
C) two-part tariff.
D) bundling.
E) none of the above
16) Under perfect price discrimination, consumer surplus
A) is less than zero.
B) is greater than zero.
C) equals zero.
D) is maximized.
17) Your local grocery store offers a coupon that reduces the price of milk during the coming week. The regular retail price of milk in the store is $3.00 per gallon, and the coupon price is $2.00 per gallon for the next week. If the store maximizes profits and the price elasticity of demand for milk is -2 for coupon users, what is the price elasticity of demand for non-users?
A) -0.67
B) -1.0
C) -1.5
D) We do not have enough information to answer the question.
18) When a company introduces new audio products, it often initially sets the price high and lowers the price about a year later. This is an example of
A) a two-part tariff.
B) second-degree price discrimination.
C) intertemporal price discrimination.
D) first-degree price discrimination.
19) Club Med, which operates a number of vacation resorts, offers vacation packages at a lower price in the winter (i.e., the "off season") than in the summer. This practice is an example of:
A) peak-load pricing.
B) intertemporal price discrimination.
C) two-part tariff.
D) bundling.
E) Both A and B are correct.
20) In peak-load pricing,
A) marginal revenue is equal in both periods.
B) marginal revenue in the peak period is greater than in the off-peak period.
C) marginal revenue in the peak period is less than in the off-peak period.
D) the sum of the marginal revenues is greater than the sum of the marginal costs.
21) When the movie "Jurassic Park" debuted in Westwood, California, the price of tickets was $7.50. After several months the ticket price had fallen to $4.00. This is an example of
A) peak-load pricing.
B) second-degree price discrimination.
C) a two-part tariff.
D) tying.
E) none of the above
22) A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM. This is an example of
A) peak-load pricing.
B) second-degree price discrimination.
C) a two-part tariff.
D) tying.
E) none of the above
23) A local theater charges $5.00 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of
A) peak-load pricing.
B) second-degree price discrimination.
C) a two-part tariff.
D) bundling.
E) none of the above
24) An amusement park charges an entrance fee of $75 per person plus $2.50 per ride. This is an example of
A) first-degree price discrimination.
B) a two-part tariff.
C) second-degree price discrimination.
D) bundling.
E) tying.
25) A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a
A) tying contract.
B) two-part tariff.
C) form of perfect price discrimination.
D) none of these.
26) A national chain of bookstores has initiated a frequent buyer program. If you buy a frequent buyer card for $10, you are entitled to a 10 percent discount on all purchases for 1 year. This practice is an example of:
A) peak-load pricing.
B) intertemporal price discrimination.
C) two-part tariff.
D) bundling.
E) Both A and B are correct.
27) A firm setting a two-part tariff with only one customer should set the entry fee equal to
A) marginal cost.
B) consumer surplus.
C) marginal revenue.
D) price.
28) The local cable TV company charges a "hook-up" fee of $30 per month. Customers can then watch programs on a "pay-per-view" basis (a fee is charged for every program watched). This is an example of
A) peak-load pricing.
B) second-degree price discrimination.
C) a two-part tariff.
D) intertemporal price discrimination.
E) none of the above
29) For a two-part tariff imposed on two consumers, the entry fee is based on the:
A) consumer surplus of the customer with lower willingness-to-pay.
B) consumer surplus of the customer with higher willingness-to-pay.
C) simple average of the consumer surplus for the two buyers.
D) none of the above
30) Many cellular phone rate plans are structured as a combination of __________ price discrimination.
A) first-degree and second-degree
B) first-degree and third-degree
C) second-degree and third-degree
D) peak-load pricing and third-degree
31) Season ticket holders for the St. Louis Rams received a surprise when they read the applications forms to renew their season tickets. In order to get their season ticket to the Rams' home games, they also had to buy tickets to the preseason games. Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders. This practice is an example of:
A) peak-load pricing.
B) intertemporal price discrimination.
C) two-part tariff.
D) bundling.
E) Both A and B are correct.
32) A local restaurant sells strawberry pie for $3.00 per slice. However, if you order the prime rib dinner, you can get a slice of pie for only a dollar. This is an example of
A) bundling.
B) second-degree price discrimination.
C) a two-part tariff.
D) tying.
E) none of the above
33) A local restaurant offers an "all-you-can-eat" salad bar for $3.49. However, with any sandwich, a customer can add the "all-you-can-eat" salad bar for $1.49. This is an example of
A) peak-load pricing.
B) second-degree price discrimination.
C) a two-part tariff.
D) tying.
E) none of the above
34) Bundling products makes sense for the seller when
A) consumers have heterogeneous demands.
B) the products are complementary in nature.
C) firms cannot price discriminate.
D) both A and C.
35) Albatross Software has two main products: WindSong is a program that can be used to edit audio files and SunBurst is a program that can be used to edit digital photos. The two major types of customers are small businesses and home users. The small business customers have a reservation price of $300 for WindSong and $450 for SunBurst. The home users have a reservation price of $100 for WindSong and $125 for SunBurst. Which of the following statements is true?
A) Bundling the two software products is not likely to be profitable because the marginal cost of producing software is positive by very small.
B) Bundling the two software products is not likely to be profitable because the consumer demands are homogeneous.
C) Bundling the two software products is likely to be profitable because the demands are negatively correlated.
D) Bundling the two software products is not likely to be profitable because the demands are positively correlated.
