Question 1

Classic Programs has purchased distribution rights for two television programs that are ready for syndication. One series, The Detectives, was enormously popular during its prime time run and will command a large rental fee. The second series, Kittie and Alma, was a poor parody of a popular series. Kittie and Alma is not expected to be in demand for syndication. The managers at Classic Programs feel that there are only two legitimate bidders for the two series. One bidder is a large independent television station that is carried across the country by cable TV companies. The other bidder is a youth oriented pay TV network called Kidwork. The independent station and Kidwork are rarely carried by the same cable companies, so that a successful bid by one has almost no impact on the willingness of the other to show the programs. Based upon previous experience, Classic estimates the following reservation prices for each bidder. Bidding is for the right to show the programs on an unlimited basis.
Independent Station Kidwork
The Detectives 100,000 120,000
Kittie and Alma 15,000 8,000
a. Assuming that Classic's managers set separate prices for the two programs, what is the most profitable pricing strategy? (Because of information that is shared within the industry, different prices for the two bidders are impossible.) How much revenue will be earned?
b. Classic's managers are considering bundling the two programs under a single price. Is bundling feasible in this instance? Why or why not? If so, what should the bundled price be? What will total revenue be?

Accepted Answer

a.Separate prices must be set at the low...

Question 2

Figure 11A.1
-The Acme Oil Company is a vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive. The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries:

Accepted Answer

A)   equals the market price for crude oil.
B)   equals the market price for crude oil less a discount because Acme Oil does not to profit from itself.
C)   is unrelated to the market price of crude oil.
D)   is greater than the marginal cost of extracting crude oil.E) C) and D)
F) A) and B)

Question 3

Marge's Beauty Salon sells shampoo and conditioner. Marge has two types of customers. Their willingness-to-pay for shampoo and conditioner are given in the table below. If Marge bundles the shampoo and conditioner, could she increase revenue?

Accepted Answer

If Marge bundles the products together a...

Question 4

Season ticket holders for the St. Louis Rams received a surprise when they read the applications forms to renew their season tickets. In order to get their season ticket to the Rams' home games, they also had to buy tickets to the preseason games. Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders. This practice is an example of:

Accepted Answer

A)   peak-load pricing.
B)   intertemporal price discrimination.
C)   two-part tariff.
D)   bundling.
E)   Both A and B are correct.F) A) and E)
G) B) and C)

Question 5

Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:

Accepted Answer

A)   intertemporal price discrimination.
B)   third-degree price discrimination.
C)   a two-part tariff.
D)   bundling.
E)   none of the aboveF) A) and E)
G) A) and C)

Question 6

0, the firm practices: A)  First degree price discrimination. B)  Second degree price discrimination. C)  Third degree price discrimination. D)  Perfect price discrimination." class="answers-bank-image d-inline" rel="preload" > Figure 11.2.2
-Refer to Figure 11.2.2 above. If the firm chooses to charge the four prices shown on the figure instead of a single price, P0, the firm practices:

Accepted Answer

A)   First degree price discrimination.
B)   Second degree price discrimination.
C)   Third degree price discrimination.
D)   Perfect price discrimination.E) A) and B)
F) All of the above

Question 7

Figure 11.5.1
-Refer to Figure 11.5.1 above. The points on the figure represent the reservation prices of four different consumers. With mixed bundling:

Accepted Answer

A)   consumers A and D pay $90 for a single good, and consumers B and C pay $120 for a bundle.
B)   consumers A and D pay $90 for a bundle, and consumers B and C pay $120 for a single good.
C)   consumers A and D pay $90 for a bundle, and consumers B and C pay $120 for a bundle.
D)   consumers A and D pay $90 for a single good, and consumers B and C pay $120 for a single good.E) B) and C)
F) A) and D)

Question 8

Discrimination based upon the quantity consumed is referred to as ________ price discrimination.

Accepted Answer

A)   first-degree
B)   second-degree
C)   third-degree
D)   groupE) B) and C)
F) A) and C)

Question 9

You interview with an athletic footwear manufacturer that has annual advertising expenditures of $32 million and total sales revenue of $100 million, and the firm selects the profit maximizing level of advertising expenditures. If the advertising elasticity of demand is 0.4, then you know that "Rule of Thumb for Advertising" implies that the demand for the firm's products is:

Accepted Answer

A)   inelastic.
B)   unit elastic.
C)   elastic.
D)   zero.E) None of the above
F) C) and D)

Question 10

Bookstores often offer annual memberships that allow customers to purchase books at a 10% discount. Explain why this may increase profits of the bookstore.

Accepted Answer

This book club membership program is an ...

Exam 11: Pricing With Market Power

Bookstores often offer annual memberships that allow customers to purchase books at a 10% discount. Explain why this may increase profits of the bookstore.

Correct Answer
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This book club membership program is an ...
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Correct Answer
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Marge's Beauty Salon sells shampoo and conditioner. Marge has two types of customers. Their willingness-to-pay for shampoo and conditioner are given in the table below. If Marge bundles the shampoo and conditioner, could she increase revenue?

Correct Answer
verified
If Marge bundles the products together a...
View Answer

Figure 11.2.2 -Refer to Figure 11.2.2 above. If the firm chooses to charge the four prices shown on the figure instead of a single price, P₀, the firm practices:

Correct Answer
verified

Correct Answer
verified
a.Separate prices must be set at the low...
View Answer

Discrimination based upon the quantity consumed is referred to as ________ price discrimination.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Figure 11.5.1 -Refer to Figure 11.5.1 above. The points on the figure represent the reservation prices of four different consumers. With mixed bundling:

Correct Answer
verified

Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:

Correct Answer
verified

Exam 11: Pricing With Market Power

Bookstores often offer annual memberships that allow customers to purchase books at a 10% discount. Explain why this may increase profits of the bookstore.

Correct AnswerverifiedThis book club membership program is an ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Marge's Beauty Salon sells shampoo and conditioner. Marge has two types of customers. Their willingness-to-pay for shampoo and conditioner are given in the table below. If Marge bundles the shampoo and conditioner, could she increase revenue?

Correct AnswerverifiedIf Marge bundles the products together a...View AnswerShow Answer

Figure 11.2.2 -Refer to Figure 11.2.2 above. If the firm chooses to charge the four prices shown on the figure instead of a single price, P0, the firm practices:

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Separate prices must be set at the low...View AnswerShow Answer

Discrimination based upon the quantity consumed is referred to as ________ price discrimination.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 11.5.1 -Refer to Figure 11.5.1 above. The points on the figure represent the reservation prices of four different consumers. With mixed bundling:

Correct AnswerverifiedShow Answer

Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:

Correct AnswerverifiedShow Answer

Correct Answer
verified
This book club membership program is an ...
View Answer

Correct Answer
verified

Correct Answer
verified
If Marge bundles the products together a...
View Answer

Figure 11.2.2 -Refer to Figure 11.2.2 above. If the firm chooses to charge the four prices shown on the figure instead of a single price, P₀, the firm practices:

Correct Answer
verified

Correct Answer
verified
a.Separate prices must be set at the low...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified