Clayton State University - ECON 6100

1)Acquiring a firm that sells a substitute good would make the demand curve for your original product

1. 1. More inelastic
   2. More elastic
   3. Unchanged
   4. None of the above

2. You own two different energy drink brands: “Blue Cow” and “600 minute energy.” If you reduce the price on “Blue Cow”,
   1. Sales of “Blue Cow” would increase, without any changes in sales for “600 minute energy.”
   2. Sales of both “Blue Cow” and “600 minute energy.” would increase
   3. Sales of “Blue Cow” would increase, but the sales of “600 minute energy” would be cannibalized
   4. Neither “Blue Cow” nor “600 minute energy” would see an increase in sales.

3. You own two different energy drink brands: “Blue Cow” and “600 minute energy.” If you reduce the price on “Blue Cow”, sales of “600 minute energy” would
   1. Increase
   2. Decrease
   3. Not change
   4. None of the above

4. You own two different energy drink brands with similar elasticities: “Blue Cow” and “600 minute energy.” If you reduce the price on “Blue Cow”, you can only increase your total sales if
   1. Prices for “600 minute energy” are increased
   2. Prices for “600 minute energy” are reduced
   3. Prices for “600 minute energy” stay constant
   4. None of the above

5. The general rule to increase profits when two close substitute brands are jointly owned is
   1. Increase prices for both brands
   2. Decrease prices for both brands
   3. Increase prices on one brand, decreasing it for the other
   4. Increase prices on one brand, keeping the prices of the second brand constant

6. After acquiring closely substitutable product brands, a firm can successfully raise prices on both of the brands without losing much of its total sales because
   1. Customers are insensitive to price changes

1. 2. None of these sales would be captured by its other brand
   3. Some of these sales lost by one brand would be captured by the other
   4. All of the above

7. After acquiring a close substitute, to increase profits the firm must Raise prices on all the products equally

a.

2. Raise the prices only on products with high margins, while reducing prices on products with low margins
3. Raise prices only on products with high margins, while keeping prices constant on products with low margins
4. Raise prices on both the products, but raise the prices more for products with higher margins

8. In a multi-product firm, cannibalization is
   1. An increase in the quality of both the brand’s products
   2. A decrease in the quality of both the brands products
   3. An increase in both the brand’s sales
   4. An increase in one of the brand’s sales due to the decrease in sales of the other.

9. If an ice-cream manufacturer acquires a frozen yogurt producer, you would likely see
   1. Lower prices for both the ice cream and the frozen yogurt
   2. Higher prices for both the ice cream and the frozen yogurt
   3. Higher prices for ice cream, but lower prices for frozen yogurt
   4. Higher prices for frozen yogurt but lower prices for ice cream

10. If a hot dog manufacturer acquires a bakery that primarily bakes hot dog buns, you would likely see
    1. Higher prices for the hot dogs but lower prices for the buns
    2. Higher prices for the buns but lower prices for the hot dogs
    3. Higher prices for both the hot dogs and the buns
    4. Lower prices for both the hot dogs and the buns

11. Which of the following is true?
    1. To reduce cannibalization among products, reposition a product so that it does not directly compete with the other
    2. After acquiring a substitute product, raise prices on both the products
    3. After acquiring a complementary product, lower prices on both the products

1. 4. All of the above

12. Which of the following is true?
    1. To reduce cannibalization among products, reposition a product so that it does not directly compete with the other
    2. After acquiring a substitute product, lower prices on both the products
    3. After acquiring a complementary product, raise prices on both the products
    4. All of the above

13. Which of the following is FALSE?
    1. To reduce cannibalization among products, reposition a product so that it does not directly compete with the other
    2. After acquiring a substitute product, raise prices on both the products
    3. After acquiring a complementary product, raise prices on both the products
    4. All of the above

14. Which of the following is FALSE?
    1. To reduce cannibalization among products, reposition a product so that it does not directly compete with the other
    2. After acquiring a substitute product, lower prices on both the products
    3. After acquiring a complementary product, lower prices on both the products
    4. All of the above

15. Which of the following is FALSE?
    1. To reduce cannibalization among products, make the products more homogenous
    2. After acquiring a substitute product, raise prices on both the products
    3. After acquiring a complementary product, lower prices on both the products
    4. All of the above

16. Which of the following is TRUE?
    1. To reduce cannibalization among products, reposition a product so that it does not directly compete with the other
    2. After acquiring a substitute product, lower prices on both the products
    3. After acquiring a complementary product, raise prices on both the products
    4. None of the above

17. For jointly owned substitute products, cannibalization leads to MR                         MC
    1. Being higher than
    2. Being lower than
    3. Equaling
    4. None of the above

18. Upon acquiring a complement the inter-relatedness of demand leads to, MR                            
    1. Rising
    2. Falling
    3. Staying constant
    4. None of the above

19. The general rule to increase profits when two close complementary brands are jointly owned is
    1. Increase prices for both brands
    2. Decrease prices for both brands
    3. Increase prices on one brand, decreasing it for the other
    4. Increase prices on one brand, keeping the prices of the second brand constant

20. Firm A owns produces both toothpaste and toothbrushes. In order to increase profits the firm must
    1. Increase prices for both toothbrushes and toothpaste
    2. Decrease prices for both toothbrushes and toothpaste
    3. Increase prices on toothbrushes and increase the price on toothpaste
    4. Increase prices on toothbrushes but keep the price on toothpaste constant

21. You are the owner of an art supply store, selling both paint and paintbrushes. In order to maximize total sales you should
    1. Decrease the price on the paint only
    2. Decrease the price on paintbrushes only
    3. Decrease the price on both the paint and the paintbrushes
    4. Increase the price on both the paint and the paintbrushes

22. Firm X owns both a grocery store and the parking lot outside the grocery store. In order to increase the traffic at the store it must
    1. Decrease the prices on the goods sold in the store

1. 2. Decrease the parking rates
   3. All of the above
   4. None of the above

23. Brenda’s Bakery started selling coffee along with pastries. In order to increase total sales she should
    1. Increase the prices on coffee
    2. Decrease the price on pastries
    3. Increase the price of pastries
    4. Shut down

24. Firm X owns both a grocery store and the parking lot outside the grocery store. In order to increase the traffic at the store the owners of the store should
    1. Increase the prices on the goods sold in the store
    2. Increase the parking rates
    3. All of the above
    4. None of the above

25. Firm X owns both a grocery store and the parking lot outside the grocery store. In order to increase the traffic at the store, the store should
    1. Decrease the prices on the goods sold in the store
    2. Increase the parking rates
    3. All of the above
    4. None of the above

26. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because
    1. They lose market power
    2. There is an increase in the overall demand for their products
    3. The bundle has a more elastic demand than individual goods
    4. The bundle has a more inelastic demand than individual goods

27. A firm that acquires a substitute product can try to reduce inter-product cannibalization by
    1. Doing nothing
    2. Repositioning its product or the substitute so that they do not directly compete with each other
    3. Pricing each product at the same level
    4. Lowering the prices on both the products

28. After firm A acquired firm B, it raised the prices for the goods produced by both firms. This can increase profits if those goods are
    1. Substitutes
    2. Complements
    3. Not related
    4. None of the above

29. After firm A acquired firm B, it lowered the prices for the goods produced by both firms. This can increase profits if the goods are
    1. Substitutes
    2. Complements
    3. Not related
    4. None of the above

30. On average, if demand is unknown and costs of underpricing are                             than the costs of overpricing, then err on the side of               .
    1. Smaller; overpricing
    2. Smaller; underpricing
    3. Larger; underpricing
    4. None of the above

31. The pricing rule MR=MC holds for
    1. All firms
    2. Single product firms
    3. Multiple product firms
    4. None of the above

32. Firms that face capacity constraints can increase output only up to the capacity, but no further. Therefore, firms
    1. Should price to capacity as long as MR > MC
    2. Should price to capacity as long as MR = MC
    3. Should price to capacity as long as MR < MC
    4. Should not take capacity into consideration in pricing decisions

33. For products like parking lots and hotels, the relevant costs and benefits to determine how much capacity to build are
    1. LRMR and LRMC
    2. LRMR and SRMC
    3. SRMR and SRMC
    4. SRMR and LRMC

34. For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints. Therefore,
    1. If SRMR>SRMC at capacity, then the firms should price to fill capacity
    2. If SRMR<SRMC at capacity, then the firms should price to fill capacity
    3. If LRMR>LRMC at capacity, then the firms should price to fill capacity
    4. If LRMR>LRMC at capacity, then the firms should price to fill capacity

35. All of the following are true, except
    1. Some consumers may infer high quality from high price
    2. Low prices can indicate lower quality given that no other information is available
    3. Promotional campaigns do not affect consumer’s perception on quality
    4. It makes more sense to raise price when advertising makes demand less elastic

36. Owners of a parking lot are deciding whether or not to add more parking spaces to the lot. The owners should increase parking spaces as long as:
    1. LRMR=LRMC
    2. LRMR>LRMC
    3. LRMR<LRMC
    4. None of the above

37. Owners of a parking lot are deciding whether or not to add more parking spaces to the lot. The owners should stop adding parking spaces where:
    1. LRMR=LRMC
    2. LRMR>LRMC
    3. LRMR<LRMC
    4. None of the above

38. The owner of a recently built cruise ship is deciding how to price its rooms. What advice would you give the owner?

1. 1. Since MR<MC, do not price to fill capacity
   2. Since MR<MC, price to fill capacity
   3. Since MR>MC, price to fill capacity
   4. Both A&C

39. A football stadium has a fixed number of seats. Given this, how should stadium management determine ticket prices?
    1. When MR<MC, do not price to fill capacity
    2. When MR<MC, price to fill capacity
    3. When MR>MC, price to fill capacity
    4. Both A&C

40. A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces. Which of the following strategies should it implement?
    1. Increase parking rates if the lot fills up much earlier than 9am
    2. Decrease parking rates if the lot doesn’t fill up until much after 9am
    3. If the lot fills up right around 9am the price is right
    4. All of the above

41. A parking lot in a busy downtown district is experimenting with its pricing strategy to figure out where it should price its spaces. Which of the following strategies should it implement?
    1. Decrease parking rates if the lot fills up much earlier than 9am
    2. Increase parking rates if the lot doesn’t fill up until much after 9am
    3. If the lot fills up right around 9am the price is right
    4. All of the above

42. For a cruise liner deciding how to price its rooms, if the cost of overpricing is higher than the cost of underpricing, then the management of the cruise liner should
    1. Price lower than what they expect would fill capacity
    2. Price higher than what they expect would fill capacity
    3. Price such that they would expect to just fill capacity
    4. None of the above

43. For a cruise liner deciding how to price its rooms, if the cost of overpricing is lower than the cost of underpricing, then the management of the cruise liner should
    1. Price lower than what they expect would fill capacity
    2. Price higher than what they expect would fill capacity

1. 3. Price such that they would expect to just fill capacity
   4. None of the above

44. After a massive promotional campaign of Justin Bieber’s latest music album, the producers decided to raise the prices on the album. This implies that the producers expect the promotion to have made the demand for the album
    1. More elastic
    2. Unitary elastic
    3. Perfectly elastic
    4. More inelastic

45. If advertising makes demand of a product less elastic, it makes sense for a firm to
    1. Decrease the price of the product
    2. Increase the price of the product
    3. Leave the price unchanged
    4. None of the above

46. If advertising makes demand of a product more elastic, it makes sense for a firm to
    1. Decrease the price of the product
    2. Increase the price of the product
    3. Leave the price unchanged
    4. None of the above

47. Firms should raise the prices on their goods
    1. If the demand for the product is elastic
    2. If it acquires a firm selling a complement good
    3. If it acquires a firm selling a substitute good
    4. Both a and c

48. Firms should lower the prices on their goods
    1. If the demand for the product is elastic
    2. If it acquires a firm selling a complement good
    3. If it acquires a firm selling a substitute good
    4. Both a and b

49. A local restaurant increases the prices on its burgers as soon as it begins a promotional campaign. Which of the following is most likely to be true?
    1. The promotional campaign featured how much better their burgers are
    2. The promotional campaign focused on the value per dollar
    3. The promotional campaign made demand more elastic
    4. All of the above

50. A Swiss watch company advertises its history of superior craftsmanship. The company thinks that this would
    1. Make the demand for the product less elastic
    2. Make the customers less sensitive to the price
    3. Assist them with differentiating their product
    4. All of the above

51. A Swiss watch company advertises its history of superior craftsmanship. The company thinks that this will
    1. Make the demand for the product more elastic
    2. Make the customers more sensitive to the price
    3. Not impact the demand for their product
    4. None of the above

52. A discount shoe manufacturer’s advertisement suggests that they are almost as good as the name brands but better value. The shoe manufacturer believes that the advertisement will
    1. Make the demand for its product more elastic
    2. Make his customers more price sensitive
    3. Cause people to directly compare his product to the name brands
    4. All of the above

53. A discount shoe manufacturer’s advertisement suggests that they are almost as good as the name brands but better value. The shoe manufacturer believes that the advertisement will make
    1. The demand for its product less elastic
    2. His customers less price sensitive
    3. Him able to raise prices
    4. None of the above

54. Advertising claiming superior quality of a product makes its demand
    1. More elastic

1. 2. Less elastic
   3. Perfectly elastic
   4. None of the above

55. By focusing the customers on the price of a product, you make the demand for the product
    1. More elastic
    2. Less elastic
    3. Perfectly inelastic
    4. None of the above

56. By focusing the customers on the price of a product, you
    1. Increase your chances of engaging in a price war with your competitors
    2. Make the customers more price sensitive to the product
    3. Make the demand for the product more elastic
    4. All of the above

57. By focusing the customers on the price of a product, you make
    1. The demand for the product more inelastic
    2. The customers less price sensitive to the product
    3. The demand for the product more elastic
    4. Only B&C

58. By focusing the customers on the price of a product, you make
    1. The demand for the product more inelastic
    2. The customers less price sensitive to the product
    3. Both A & B
    4. None of the above

59. Which of the following are ways of promoting a firm’s product
    1. Advertising
    2. Discount coupons
    3. End-of-aisle displays
    4. All of the above

60. Given that you observe nothing but the high price of the product, you are more likely to infer that
    1. The product is low quality
    2. The product is high quality
    3. The product is the lowest quality possible
    4. The product is defective

61. Given that you observe nothing but the low price of the product, you are more likely to infer that
    1. The product is high quality
    2. The product is the highest quality possible
    3. The product is low quality
    4. None of the above

62. Many wines are priced high in order to
    1. Indicate low quality
    2. Indicate high quality
    3. Indicate a bargain brand
    4. None of the above

63. In order to increase sales the firm can
    1. Increase the reference price for the product
    2. Decrease prices
    3. Differentiate their product
    4. All of the above

64. Prospect theory implies that consumers are motivated by
    1. The actual price level
    2. The distance of the price from the reference price
    3. All of the above
    4. None of the above

65. An airline wants to introduce a charge for snacks on flights. Why would it not be such a good idea?
    1. Passengers would be less likely to buy snacks
    2. Passengers would be more likely to carry their own snacks onboard
    3. Passengers would feel nickel-and-dimed and would switch airlines
    4. All of the above

66. Why would large department stores such as Home Depot rather face shortages than increase the prices of basic food and repair items in cases of natural disasters such as Hurricanes?
    1. They do not want to increase sales
    2. They are maximizing sales
    3. They do not want to be viewed as unfair
    4. All of the above

67. An online shoe retailer wants to introduce handling charges for purchases less than $50. How should the retailer pose the charges to its customers to improve its chances of being well-received?
    1. Introduce it separately as handling
    2. Lump it together with shipping costs, but don’t let the customer know until they check out
    3. Introduce it as free above $50
    4. Hide it from the customer

68. Large amusement parks charge entrance fees rather than fee per ride because
    1. Customers are more sensitive to paying a fee per ride
    2. Customers are less sensitive to paying a fee per ride
    3. Customers view paying per ride as a smaller cost
    4. None of the above

69. Viceroy Vacations is deciding on how to price its vacation packages. Which of the following strategies would you suggest?
    1. Price the flight, hotel and car separately
    2. Advertise it as an all-inclusive vacation
    3. Give them away as free vacations to everyone
    4. Close down your company. No one goes on vacations anymore

70. Beverage Merger

Cott Corp. markets a portfolio of beverages, bottled waters, beverage, and coffee delivery systems for homes and offices. In November, 2014, it has agreed to merge with DS Services of America, a water and coffee direct-to-consumer services provider. What is the expected effect of this merger on price-cost margins?

71. Wine Merger