1. A video store believes there are two equally sized consumer groups with different values for two DVDs as follows:
Segment 1 values DVD A at $10 and DVD B at $8
Segment 2 values DVD A at $4 and DVD B at $12.
There are estimated to be 50 consumers in each group. The Store currently has 100 of each
DVD on hand. It paid $10 for each DVD. If it is unable to sell them all it can return them to
The distributor for each $4 each. To maximize profit contribution from the sale (or return) of These DVDs the store should:
a. Set a standard price of $8 for each DVD.
b. Set a price of $10 for A and $12 for B.
c. Offer A and B together for a price of $16.
d. Offer A and B together for a price of $18.
e. None of the above.
2. If two firms producing substitutes agree to fix prices, then their prices will 1. _________
If two firms producing complements agree to fix prices, then their prices will 2._________
a. 1. Increase; 2. Increase
b. 1. Decrease; 2. Decrease
c. 1. Increase; 2. Decrease
d. 1. Decrease; 2. Increase
3. You pay $60 at a mall video game store for a computer game that
you have been dying to play. Three months later, while at the same mall
video game store, you see the same game for $20. What is this an example
of?
Choose one answer.
A. economies of scale
B. price elasticity of income
C. direct price discrimination
D. indirect price discrimination
4. Why might a company use an indirect price discrimination scheme versus direct price discrimination?
Choose one answer.
A. The different customer types shop at different stories
B. The demand for each customer type is the same
C. The different customer types cannot be uniquely identified directly
D. The company can prevent arbitrage between its different customer types
5. Domino Sugar Is considering the purchase of Fisher Honey Co. for
$100 million. Based on information obtained from 500 supermarkets around
the country, when 1 lb. of Domino Sugar went on sale from $2.00 to
$1.50, the average sales of 1 lb boxes went from 200 to 300 per week.
The following week, when 1lb. jars of Fisher Honey went on sale from $3
to $2.50 the number of jars of Honey sold went from 200 to 275. If the
sale of Fisher Honey to Domino Sugar goes through, what changes to each
product’s price should Domino Sugar make?
a. Increase the price of both, but increase the price of Fisher Honey more.
b. No change.
c. Lower the price of both.
d. Increase the price of both, but increase the price of Domino Sugar more.
6. The marginal cost of a software company is zero. There are equal
numbers of home users and commercial users, and the company cannot
distinguish between the users. What is the best strategy for a software
developer given the demand below?
Demand for Software
Software Version Home user
Commercial user
Disabled version
$100
$150
Full-featured version
$150
$450
7. The higher cost for a refundable airline ticket for business travelers can be explained by:
a. price discrimination
b. indirect price discrimination
c. Bundling
d. Marginal revenue vs. marginal cost
8. If promotional expenditures make demand
A. More 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. Less elastic, then you should reduce price when you promote the product
D. Less inelastic, then you should increase price when you promote the product
9. The publisher of an online Economics Primer course is trying to
sell the primer to a group of MBA students and a group of EMBA students
in the US. The maximum willingness to pay for the primer in each group
of students as well as the number of students in each group is given in
the table. Assume the marginal cost is $50.
Willing to pay Number of Students
EMBA $300 1,000
MBA $100 2,000
What is (are) the publisher's profit maximizing price(s)?
A. Charge $300 to EMBA and $100 to MBA
B. Charge either $300 or $100 (the publisher is indifferent)
C. Charge a uniform price of $300
D. Charge a uniform price of $100 Question
10. Using the same information as above, suppose you can set one
price for MBA students and one price for EMBA students. However you know
that MBA students are willing to resell the Primer to EMBA students for
their purchase price plus $60. MBA students pay $x and they can resell
the primer for $(x + 60). Assuming there are no other cost involved in
this transaction and it cannot be prevented. What are the optimal prices
for the two groups of students?
A. Charge $300 to EMBA and $240 to MBA
B. Charge $240 to EMBA and $100 to MBA
C. Charge $240 to EMBA and $240 to MBA
D. None of the above
11. Using the same information as above, suppose you cannot
distinguish between the two groups of students. However if you offer a
rebate, you know that the EMBA students will never redeem the rebate
while MBA students will always redeem the rebate. What is the optimal
full price for the Primer and Optimal rebate?
A. Charge $300 for the primer and offer $200 for the rebate
B. Charge $300 for the primer and offer $100 for the rebate
C. Charge $300 for the primer and do no offer any rebate
D. Charge $100 for the primer and do not offer any rebate
13. As a budding entrepreneur, you have purchased a small bagel shop.
You have engaged in a market study to categorize your customers’
willingness to pay for a meal (coffee+bagel) into 8 equal sized groups:
($5.00, $4.50, $4.00, $3.50, $3.00, $2.50, $2.00, $1.50). All of your
costs are fixed except labor and materials, which cost $2.25 per meal
sold. **Hint: If it is helpful to you in thinking through the problem,
pick a group size (such as 100 customers per group) to help you
construct a demand schedule.
a. What price should you charge for a meal?
b. Suppose your market research tells you that the four lowest value
groups are all students. Should you offer a student discount? If so,
how much?
14. Concert price have increased coincidentally with illegal
downloading of music off the internet. Do you think there is a causal
link here? If yes, what is it? If not, why not?
15. VetPharm has historically produced and sold drugs for animals;
however, one of its products developed for animal use has recently been
approved for a similar use in humans. Market research has revealed that
that at the current per dose price, the elasticity of demand on the part
of animal owners is -2.0. The research also estimates that at this
price the elasticity of demand for human use would be -.2. The current
price is $5.00 per dose. If the MC of production is $1, what should the
company do?
a. Reduce animal price; reduce human price.
b. Raise animal price; raise human price.
c. Reduce animal price; raise human price.
d. Raise animal price; reduce human price.
16. Ivan loves classical music, and his favorite composer wrote nine
symphonies. Ivan just happens to the 9 symphonies in exactly the order
in which they were written. The table below shows the values that Ivan
places on having these symphonies which he does not currently yet own:
Rank Total Personal Value
1____________19
2____________36
3____________51
4____________64
5____________75
6____________84
7____________91
8____________96
9____________99
You can interpret the above to mean, for example, that Ivan values her
favorite Symphony at $19, and that the total value of the first Symphony
plus Symphony # 2 (his second favorite) is $36, etc. If the symphonies
were sold individually on CDs - one symphony per disc - and the price
per CD was $10.00, how many CDs would he buy?
17. Referring to the question above: If symphonies were also offered
as a complete set of 9 CDs and the price of the entire set was $79.00,
would rather buy the individual CDs or the box set? HINT: WHICH OPTION
GIVES HIM MORE CONSUMER SURPLUS?
---- Get Answer ---
---------Better Deal-- Get Answer From Here ---
