Problem set for week 7

Question 1

1. Acquiring a firm that sells a substitute good would make the demand curve for your original
   product
   a. More inelastic
   b. More elastic
   c. Unchanged
   d. None of the above

Answer 1

A

Question 2

2. If a hot dog manufacturer acquires a bakery that primarily bakes hot dog buns, you would
   probably see
   a. Higher prices for the hot dogs but lower prices for the buns
   b. Higher prices for the buns but lower prices for the hot dogs
   c. Higher prices for both the hot dogs and the buns
   d. Lower prices for both the hot dogs and the buns

Answer 2

D

Question 3

4. Which of the following is true?
   a. To reduce cannibalization among products, reposition a product so that it does
   not directly compete with the other
   b. After acquiring a substitute product, lower prices on both the products
   c. After acquiring a complementary product, raise prices on both the products
   d. All of the above

Answer 3

A

Question 4

5. A football stadium has a fixed number of seats. Given this, how should stadium management
   determine ticket prices?
   a. When MR<MC, do not price to fill capacity
   b. When MR<MC, price to fill capacity
   c. When MR>MC, price to fill capacity
   d. Both A&C

Answer 4

D

Question 5

6. After a massive promotional campaign of Justin Bieber’s latest music album, the producers
   decided to raise the prices on the album. This implies that the producers expect the promotion
   to have made the demand for the album
   a. More elastic
   b. Unitary elastic
   c. Perfectly elastic
   d. More inelastic

Answer 5

D

Question 6

7. Prospect theory implies that consumers are motivated by
   a. The actual price level
   b. The distance of the price from the reference price
   c. All of the above
   d. None of the above

Answer 6

B

Question 7

8.An online shoe retailer wants to introduce handling charges for purchases less than $50. How
should the retailer pose the charges to its customers to improve its chances of being wellreceived?
a. Introduce it separately as handling
b. Lump it together with shipping costs, but don’t let the customer know until
they check out
c. Introduce it as free above $50
d. Hide it from the customer

Answer 7

C

Question 8

9. The consequences of price discrimination are
   a. Consummate more transactions
   b. Convert consumer surplus into producer surplus
   c. Increase producer surplus
   d. All of the above

Answer 8

D

Question 9

10. Public transit offers discounted monthly passes to students, which can only be bought and
    used with valid student IDs. The transit system is using
    a. A direct price discrimination scheme
    b. An indirect price discrimination scheme
    c. The Robinson-Patman act
    d. None of the above

Answer 9

A

Question 10

11. For a firm to maximize total profits through price discrimination, it should
    a. Charge a high price to consumers with an inelastic demand and low price to
    consumers with an elastic demand
    b. Charge a low price to consumers with an inelastic demand and high price to
    consumers with an elastic demand
    c. Charge the same price to both sets of consumers
    d. Charge nothing to both set of consumers-throw a party