Chapter 37 - Differing Objectives and Policies of Firms

Question 1

Objectives of Firms

Answer 1

1) Survival
2) Profit Satisficing
3) Sales maximizing
4) Revenue maximisation

Question 2

Profit Satisficing

Answer 2

A firm’s objective to make a reasonable or minimum level of profit.

Question 3

Sales Maximization

Answer 3

A firm’s objective to maximize the volume of sales.

Question 4

Cross Subsidization

Answer 4

Profits from one part of a firm are used to offset losses made somewhere else in the business.

Question 5

Revenue Maximisation

Answer 5

A firm’s objective to maximize total revenue.

Question 6

Other Pricing Policies

Answer 6

1) Limit Pricing
2) Predatory Pricing
3) Price Leadership

Question 7

Degrees of price discrimination

Answer 7

1st
2nd
3rd

Question 8

1st Degree Price Discrimination

Answer 8

First-degree discrimination, or perfect price discrimination, occurs when a business charges the maximum possible price for each unit consumed. Because prices vary among units, the firm captures all available consumer surplus for itself or the economic surplus.

Question 9

2nd Degree Price Discrimination

Answer 9

Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases.

Question 10

3rd Degree Price Discrimination

Answer 10

Third-degree price discrimination occurs when a company charges a different price to different consumer groups. For example, a theater may divide moviegoers into seniors, adults, and children, each paying a different price when seeing the same movie.