Texas A&M International University

ECO 3320

CHAPTER 12

1)The pricing rule MR=MC hold for

1. 1. All firms
   2. Single product firms
   3. Multiple product firms
   4. None of the above

2. Acquiring a firm that sells a substitute good will
   1. Make the demand curve more inelastic
   2. Make the demand curve more elastic
   3. Make MR>MC
   4. Will have no effect on the demand curve

3. Cannibalization is:
   1. Reducing the sales of own firm
   2. Improving quality over a rival’s product
   3. Reducing costs
   4. Increasing one’s output to reduce sales of another firm

4. Firm A producing one good acquires another firm B producing another good. The cross price elasticity of demand for the goods owned by each firm is 2.6. Holding other things constant, the acquiring firm should
   1. Raise prices on both goods
   2. Lower prices on both goods
   3. Raise price on the acquired good only
   4. Need more information

5. Firm A producing one good acquires another firm B producing another good. The cross price elasticity of demand for the goods owned by each firm is -1.4. Holding other things constant, the acquiring firm should
   1. Raise prices on both goods
   2. Lower prices on both goods
   3. Raise price on the acquired good only
   4. Need more information

6. Firm A producing one good acquires another firm B producing another good. Price elasticity of demand for Firm A’s good is -1.8 and Firm’s B is -1.8. Holding other things constant and assuming both goods are substitutes, the acquiring firm should
   1. Raise prices on both goods with a larger increase in Firm A’s good
   2. Raise prices on both goods with a larger increase in Firm B’s good
   3. Raise prices on both goods by the same amount
   4. Lower prices on both goods

7. Firm A producing one good acquires another firm B producing another good. Price elasticity of demand for Firm A’s good is -1.8 and Firm’s B is -1.8. Holding other things constant and assuming both goods are complements, the acquiring firm should
   1. lower prices on both goods with a larger decrease in Firm A’s good
   2. lower prices on both goods with a larger decrease in Firm B’s good
   3. Lower prices on both goods by the same amount
   4. Lower prices on both goods

8. The four P’s are
   1. Price, Product, Psychological, Promotion
   2. Price, Placement, Psychological, Promotion
   3. Price, Product, Placement, Promotion
   4. Price, Product, Psychological, Placement

9. After massive promotion of Justin Bieber’s latest music album, the producers reacted by raising prices for his albums. This implies that promotion expenditures made the album demand
   1. Elastic
   2. Unitary elastic
   3. Vertical
   4. Inelastic

10. 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

11. 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

12. Firms that face capacity constraints can only 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

13. Promotion is one dimension to competition. It represents
    1. The designing of a firm’s product
    2. Firm’s product distribution decisions
    3. Any expenditure that assist in increasing the demand for a firm’s product
    4. None of the above ANS:C

14. All the below choices are examples of promoting a firm’s product, except
    1. Advertising
    2. Pricing
    3. Discount coupons
    4. End-of-aisle displays

15. After running a promotional campaign, the owners of a local shoe store decided to decrease the prices for the shoes sold in their store. One can imply that
    1. The promotional expenditures made the demand for their shoes more elastic
    2. The promotional expenditures made the demand for their shoes more inelastic
    3. The promotional expenditures has no effect on the shoe demand elasticity
    4. The owners got it wrong. To cover the promotional expenses, they should have raised the prices.

16. A firm that acquires a substitute product can try and 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. Raising prices on the low-margin products

17. A shoe producing firm decides to acquire a firm that produces shoe laces. This implies that
    1. The firm’s aggregate demand will be less elastic than the individual demand
    2. The firm’s aggregate demand will be more elastic than the individual demand
    3. The firm’s aggregate demand will be of the same elasticity as the individual demand
    4. None of the above

18. Firm’s should raise the price of 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

19. Firm’s should lower the price of 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

20. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good 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

21. Firms tend to lower the price of their goods after acquiring a firm that sells a complementary good because
    1. They gain 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

22. After firm A producing one good acquired another firm B producing another good, it raised the prices for the bundle of goods. One can conclude that the goods were
    1. substitutes
    2. complements
    3. not related
    4. None of the above

23. After firm A producing one good acquired another firm B producing another good, it lowered the prices for the bundle of goods. One can conclude that the goods were
    1. substitutes
    2. complements
    3. not related
    4. None of the above

24. Firm A producing one good acquires another firm B producing another good. The cross price elasticity of demand for the goods owned by each firm is -1.4. Holding other things constant, the acquiring firm should
    1. Raise prices on both goods
    2. Lower prices on both goods
    3. Raise price on the acquired good only
    4. Need more information

25. On average, if demand is unknown and costs of underpricing are                             than the costs of overpricing, then                            .
    1. Smaller; overprice
    2. Smaller; underprice
    3. Larger; underprice
    4. None of the above