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| 1 | |
The pricing strategy in which a firm optimally sets the internal price to an upstream division to maximize overall firm profits is referred to as |
| | A) | commodity bundling. |
| | B) | transfer pricing. |
| | C) | cross-subsidization. |
| | D) | two-part pricing. |
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| 2 | |
A monopoly produces widgets at a marginal cost of $55 per unit and has fixed costs of $500. It faces an inverse demand function given by P = 125 - 5Q. What is the marginal revenue function of the firm? |
| | A) | MR = 5 - 0.4Q. |
| | B) | MR = 125 - 10Q. |
| | C) | MR = 5 - 5Q. |
| | D) | MR = 125 - 5Q. |
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| 3 | |
A monopoly produces widgets at a marginal cost of $55 per unit and has fixed costs of $500. It faces an inverse demand function given by P = 125 - 5Q. The output that equates the monopolist's marginal revenue and marginal cost is |
| | A) | 7. |
| | B) | 14. |
| | C) | 55. |
| | D) | 125. |
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| 4 | |
A monopoly produces widgets at a marginal cost of $55 per unit and has fixed costs of $500. It faces an inverse demand function given by P = 125 - 5Q. Profit/loss at the output that equates the monopolist's marginal revenue and marginal cost is |
| | A) | $55. |
| | B) | $125. |
| | C) | -$255. |
| | D) | $0. |
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| 5 | |
A monopoly produces widgets at a marginal cost of $55 per unit and has fixed costs of $500. It faces an inverse demand function given by P = 125 - 5Q. Suppose fixed costs are cut by $500; resulting in zero fixed costs. What happens in the market? |
| | A) | The firm will decrease its output and lower its price. |
| | B) | The firm will increase the price. |
| | C) | The firm will shut down immediately. |
| | D) | The firm produces the profit-maximizing output and price. |
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| 6 | |
Which of the following is an incorrect statement? |
| | A) | The lower the marginal cost, the higher the profit-maximizing price. |
| | B) | The more inelastic the demand, the higher is the profit-maximizing markup. |
| | C) | The more elastic the demand, the lower is the profit-maximizing markup. |
| | D) | The price that maximizes revenues occurs when demand is unit elastic. |
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| 7 | |
Which of the following pricing strategies extracts all the consumer surplus from the market? |
| | A) | Second-degree price discrimination. |
| | B) | Block pricing. |
| | C) | Two-part pricing. |
| | D) | B and C. |
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| 8 | |
Students have an elasticity of demand for going to see a first-screen movie in the theater of -3. Assume the general public has an elasticity of -2, and movie theaters charge students $7.50 per ticket. The movie theater should charge the general public |
| | A) | $7.50. |
| | B) | $12.00. |
| | C) | $5.50. |
| | D) | $10.00. |
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| 9 | |
Firms will often implement price-matching strategies to |
| | A) | increase price competition. |
| | B) | decrease price competition. |
| | C) | monitor rivals' prices. |
| | D) | ensure pricing occurs at marginal cost. |
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| 10 | |
If a monopolist claims her profit-maximizing markup factor is 4, what is the corresponding price elasticity of demand? |
| | A) | -1.5. |
| | B) | -1.2. |
| | C) | -0.75. |
| | D) | -1.33. |
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| 11 | |
The pricing strategy in which several different products are packaged is called |
| | A) | two-part pricing. |
| | B) | price discrimination. |
| | C) | block pricing. |
| | D) | commodity bundling. |
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| 12 | |
Which of the following pricing strategies usually enhances the profits of firms with market power? |
| | A) | First-degree price discrimination. |
| | B) | Second-degree price discrimination. |
| | C) | Commodity bundling. |
| | D) | All of the above. |
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| 13 | |
If EF is the firm elasticity of demand and EM is the market elasticity of demand, the profit-maximizing markup factor for a firm operating in a monopolistically competitive industry with N identical firms is |
| | A) | NEF / (1+NEF). |
| | B) | NEM / (1+NEM). |
| | C) | (1+NEF) / NEF. |
| | D) | EF / (1+EF). |
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| 14 | |
You are the manager of a souvenir store in New York City that sells, among other things, post cards. You buy the post cards from a supplier at $0.10 per card. If you believe the elasticity of demand for post cards for customers at your store is -2, then your profit-maximizing price is |
| | A) | $0.30. |
| | B) | $0.13. |
| | C) | $0.20. |
| | D) | $0.15. |
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| 15 | |
Which of the following is a not true statement about the process of cross-subsidization, given a firm is selling two products? |
| | A) | The two products need to be interrelated through costs or demand. |
| | B) | The firm must sell both of its products at prices set above costs. |
| | C) | The firm cannot have cost complementarities in the production of the two goods. |
| | D) | B and C |
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