After acquiring a substitute product, to achieve greater profitability, one should: a. Raise price on both products, but raise price more on the less price elastic product b. Raise price on both products, but raise price more on the more price elastic product c. Raise price on just the more price elastic d. Raise price on just the less price product Question 2 Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because: a. There is an increase in the overall demand for their products b. They lose market power c. The bundle has a more inelastic demand than individual goods d. The bundle has a more elastic demand than individual goods Question 3 Firms tend to lower the price of their goods after acquiring a firm that sells a complementary good because: a. There is an increase in the overall demand for their products b. They gain market power c. The bundle has a more inelastic demand than individual goods d. The bundle has a more elastic demand than individual goods Question 4 If promotional expenditures make demand: a. Less elastic, then you should reduce price when you promote the product b. More elastic, then you should increase price when you promote the product c. More elastic, then you should reduce price when you promote the product d. Less inelastic, then you should increase price when you promote the product Question 5 Domino Sugar Company is considering buying Fisher Honey Company for $100 million. Based on information obtained from 500 supermarkets around the country, when the price of 1 lb. of Domino Sugar went on sale from $2.00 to $1.50, the average number of 1 lb. boxes of sugar rose from 200 boxes in a week to 300 boxes. The following week, when 1 lb. boxes of Fisher Honey went on sale for $2.50 from the original price of $3.00, the number of boxes of honey sold increased from 200 to 275 boxes. If the sale of Fisher Honey to Domino Sugar goes through, what changes to each products price Domino Sugar make? a. Increase the price of both, but increase the price of Fisher Honey more b. Increase the price of both, but increase the price of Domino Sugar more c. Lower the price of both d. No change Question 6 For a firm to maximize total profits through price discrimination, it should: a. Charge the same price to both sets of consumers by maximizing at MR=MC on the inelastic demand b. Charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand c. Charge the same price to both sets of consumers by maximizing at MR=MC on the elastic demand d. Charge a low price to consumers with an inelastic demand and high price to consumers with an elastic demand Question 7 Assume that the price elasticity of demand for movie theatres is -.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theatre to maximize total revenue, it should: a. Charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant b. Charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant c. Need more information d. Charge the same price for both shows, holding other things constant Question 8 In theory, price discrimination: a. Decreases consumer surplus b. Reduces the number of consumers who purchase the firm’s product c. Has no effect on deadweight loss d. Decreases producer surplus Question 9 Charging prices closer to what consumers are willing to pay for a good: a. None of the above b. Reduces consumers surplus and Increases producer surplus c. Increases producer surplus d. Reduces consumers surplus Question 10 When a firm practices perfect price discrimination: a. Producer surplus is maximized, and demand curve is marginal revenue curve b. Producer surplus is maximized c. The demand curve is very elastic d. The demand curve is the marginal revenue curve e. Producer surplus is minimized Question 11 Indirect price discrimination differs from direct price discrimination because: a. In direct price discrimination there is a risk of creating profitable entries for rival but for indirect price discrimination, this can be avoided b. In Direct price discrimination firms do not have to worry about cannibalizing c. In direct price discrimination high value consumers can sometime enjoy the benefits of a low-values customer d. There is no difference between the two Question 12 Firms can practice indirect price discrimination by: a. All of them b. Offering volume discounts c. Offering a bundle containing a number of units d. Using two-part pricing Question 13 When a firm practices perfect price discrimination: a. The demand curve is very elastic b. The marginal cost curve is the average cost curve c. The demand curve is the marginal revenue curve d. The demand curve is very inelastic Question 14 The higher cost for a refundable airline ticket for business travelers can be explained by: a. Bundling b. Price discrimination c. Indirect price discrimination d. Marginal revenue vs. marginal cost Question 15 Why might a company use an indirect price discrimination scheme versus direct price discrimination? a. The demand for each customer type is the same b. The company can prevent arbitrage between its different customer types c. The different customer types cannot be uniquely identified directly d. The different customer types shop at different stories
