Simple Pricing

Question 1

Profit equation is

Answer 1

(P - AC) x Q

Question 2

Many companies think about

Answer 2

how to sell more or how to reduce costs and not much time thinking about price

Question 3

A demand curve tells you

Answer 3

how much consumers will purchase at a given price

Question 4

The First Law of Demand says

Answer 4

the consumer will purchase more if the price falls

Question 5

An aggregate demand curve

Answer 5

is the sum of all individual demand curves

Question 6

An aggregate or market demand curve

Answer 6

is the relationship between the price and the number of purchases made by a group of consumers

Question 7

As price decreases, the

Answer 7

quantity of demand increases

Question 8

If something other than price causes an increase in demand,

Answer 8

the demand shifts to the right or demand increases

Question 9

Demand curves are used to

Answer 9

change the pricing decision into a quantity decision

Question 10

Consumers are using marginal analysis to

Answer 10

maximize consumer surplus

Question 11

Sellers use marginal analysis to

Answer 11

maximize profits

Question 12

If MR > MC

Answer 12

reduce price

Question 13

If MR < MC

Answer 13

increase price

Question 14

To get the best price by taking steps

Answer 14

and recomputing MR and MC to see whether to take another step

Question 15

To estimate Marginal Revenue

Answer 15

measure quantity responses to past price changes, experimenting with price changes, or surveying potential customers

Question 16

Price elasticity of demand is computed as

Answer 16

percentage of change in quantity demanded divided by percentage of change in price

Question 17

Price elasticity measures

Answer 17

the sensitivity of quantity to price

Question 18

A demand curve for which quantity changes more than price

Answer 18

is said to be elastic or sensitive to price

Question 19

A demand curve for which quantity changes less than price

Answer 19

is said to be elastic or insensitive to price

Question 20

if |e| > 1

Answer 20

demand is elastic

Question 21

if |e| < 1

Answer 21

demand is inelastic

Question 22

In general, elasticity tells you

Answer 22

how revenue changes as you change price

Question 23

Elastic Demand: Price increase

Answer 23

Revenue Decrease

Question 24

Elastic Demand: Price decrease

Answer 24

Revenue Increase

Question 25

Inelastic Demand: Price increase

Answer 25

Revenue decrease

Question 26

Inelastic Demand: Price decrease

Answer 26

Revenue increase

Question 27

The more elastic the demand is

Answer 27

the lower the profit-maximizing price is

Question 28

Products with close substitutes

Answer 28

have more elastic demand

Question 29

Consumers respond to price increases

Answer 29

by switching to their next best alternative

Question 30

Demand for an individual brand is

Answer 30

more elastics than industry aggregate demand

Question 31

Brand price elasticity is

Answer 31

approximately equals to industry price elasticity divided by brand share

Question 32

Products with many complements have

Answer 32

less elastic demand

Question 33

Individual products that are consumed as part of a larger bundle

Answer 33

are complementary goods and have less demand

Question 34

Another factor affecting elasticity is

Answer 34

time. Given more time, consumers are more responsive to time changes

Question 35

In the long run, demand curves

Answer 35

become more elastic

Question 36

As price increases,

Answer 36

demand becomes more elastic

Question 37

With elasticity and percentage change in price,

Answer 37

you can predict the corresponding change in quantity

Question 38

Income elasticity of demand measures

Answer 38

the change in demand arising from changes in income

Question 39

Positive income elasticity means

Answer 39

that the good is normal. That is as income increases, demand increases.

Question 40

Negative income elasticity means

Answer 40

that the good is inferior. That is as income increases, demand declines

Question 41

Cross price elasticity of demand measures

Answer 41

the change in good A owing a change in price of good B

Question 42

A positive cross-price elasticity means

Answer 42

that Good B is a substitute for A

Question 43

Negative cross-price elasticity means

Answer 43

that Good B is a complement for A

Question 44

Stay even analysis allows

Answer 44

you to do marginal analysis of pricing by determining the volume required to offset change in price

Question 45

If predicted quantity decrease is bigger than the stay-even quantity decrease,

Answer 45

then the price increase is not profitable

Question 46

The stay-even quantity is the function

Answer 46

of the size of the price increase and contribution margin

Question 47

A proposed price change is profitable

Answer 47

if the predicted quantity loss is less than the stay-even quantity