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Table 16-3 Table 16-3 Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-3 above shows a portion of her survey results. -Refer to Table 16-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers? A) $39 B) $28 C) $11 D) $0 Julie plans to start a pet-sitting service.She surveyed her neighborhood to determine the demand for this service.Assume that each person surveyed demands only one hour of pet sitting services per period.Table 16-3 above shows a portion of her survey results. -Refer to Table 16-3.Suppose Julie's marginal cost of providing this service is constant at $7 and she decides to charge each customer according to his or her willingness to pay.What is the value of consumer surplus by her customers?


A) $39
B) $28
C) $11
D) $0

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Which of the following products allows the seller to identify different groups of consumers (segment the market) at virtually no cost?


A) early bird dinner specials
B) books sold online
C) a pair of Bose speakers
D) iPhones

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Table 16-1 Table 16-1 Table 16-1 shows the price for the hardcover version of the novel The Girl on the Train by Paula Hawkins at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above? A) The data provides clear evidence of price discrimination in the online bookstore market. B) Amazon.com and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two companies. C) The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences. D) Walmart.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business. Table 16-1 shows the price for the hardcover version of the novel The Girl on the Train by Paula Hawkins at four online bookstores. -Refer to Table 16-1.Which of the following can one conclude from the data above?


A) The data provides clear evidence of price discrimination in the online bookstore market.
B) Amazon.com and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two companies.
C) The item offered for sale is similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences.
D) Walmart.com and Amazon.com have deliberately under-priced their product to force the other two companies out of business.

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If a firm could practice perfect price discrimination, it would


A) allow resale of its product.
B) charge every buyer a different price.
C) charge a price based on the quantity of a product bought.
D) use odd pricing.

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Article Summary Brandeis University economist Benjamin Shiller has written a paper which explains how Netflix could combine demographic data with customers' Web browsing habits to more accurately predict how much a customer would be willing to pay for a Netflix subscription, and how using this method of first-degree price discrimination would generate higher profits. Shiller explains that the more information a company has about its customers, the better it is at being able to set prices to increase profits. As he stated in his paper, "Using all variables to tailor prices, one can yield variable profits 1.39 percent higher than variable profits obtained using non-tailored 2nd degree price-discrimination. Using demographics alone to tailor prices raises profits by much less, yielding variable profits only 0.14% higher than variable profits attainable under 2nd degree [price discrimination]." Source: Brian Fung, "How Netflix could use Big Data to make twice as much money off you," Washington Post, September 4, 2013. -Refer to the Article Summary above.The pricing method described in the article is referred to as first-degree price discrimination.First-degree price discrimination is also known as


A) arbitrage.
B) perfect price discrimination.
C) odd pricing.
D) two-part tariff pricing.

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A firm using a two-part tariff faces a tradeoff because


A) the only way to increase the fixed-fee portion of the price is to lower the per-unit portion of the price.
B) the only way to increase total revenue is to lower per-unit profit.
C) any increase in consumer surplus must be offset by a decrease in producer surplus.
D) the smaller the variation between the parts of the price, the greater the deadweight loss generated by the pricing scheme.

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Price discrimination is the practice of


A) charging different prices for the same good when the price differences are not due to differences in cost.
B) charging different prices for the same good when the price differences arise because of differences in cost.
C) charging different prices for different qualities of a product.
D) charging higher prices for brand-named goods and lower prices for generic versions of the goods.

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.) What is the total revenue it can expect to collect from the fixed fee portion of the price? A) $2,560 B) $5,760 C) $7,870 D) $10,240 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.) What is the total revenue it can expect to collect from the fixed fee portion of the price?


A) $2,560
B) $5,760
C) $7,870
D) $10,240

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In an optimal two-part tariff pricing schedule, consumer surplus is zero.

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Figure 16-5 Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity? A) 320 units B) 480 units C) 560 units D) 640 units -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to practice perfect price discrimination.What is the profit-maximizing quantity?


A) 320 units
B) 480 units
C) 560 units
D) 640 units

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Consider the following pricing strategies: A.perfect price discrimination B.charging different prices to different groups of customers C.optimal two-part tariff D.single-price monopoly pricing Which of the pricing strategies leads to the economically efficient output level?


A) a only
B) a and b only
C) a and c only
D) a, b, and c only

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Figure 16-2 Figure 16-2 Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers. -Refer to Figure 16-2.What is the quantity sold to each group of customers and what is the total quantity sold? A) quantity sold to students = Qb; quantity sold to non-students = Qb; total sales = Qₐ B) quantity sold to students = Qc; quantity sold to non-students = Qb; total sales = Qb ₊ Qc C) quantity sold to students = Qc; quantity sold to non-students = Qₑ; total sales = Qₑ ₊ Qc D) quantity sold to students = Qc; quantity sold to non-students = Qd; total sales = Qd ₊ Qc Plato Playhouse, a theatre company in the university town of Wegg, caters to two groups of customers: students and the non-student population.Figure 16-2 shows the demand curves for the two groups of customers. -Refer to Figure 16-2.What is the quantity sold to each group of customers and what is the total quantity sold?


A) quantity sold to students = Qb; quantity sold to non-students = Qb; total sales = Qₐ
B) quantity sold to students = Qc; quantity sold to non-students = Qb; total sales = Qb ₊ Qc
C) quantity sold to students = Qc; quantity sold to non-students = Qₑ; total sales = Qₑ ₊ Qc
D) quantity sold to students = Qc; quantity sold to non-students = Qd; total sales = Qd ₊ Qc

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Consider three pricing strategies that the firm can pursue: A.optimal two-part tariff pricing B.perfect price discrimination C.single-price monopoly pricing. Of these three strategies, which is least likely to benefit society as a whole?


A) a two-part tariff pricing because consumers have to pay a fixed fee in addition to a per-unit price
B) perfect price discrimination because those willing to pay higher prices are forced to subsidize those who are not
C) Both perfect price discrimination and two-part tariff pricing do not benefit society because the entire consumer surplus is extracted by the producer.
D) single-price monopoly pricing because there are mutually beneficial trades (between consumers and seller) that are not exploited

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The Walt Disney Company uses cost-plus pricing to determine the prices it charges for admission and rides at Disneyland and Walt Disney World.

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Suppose the per-unit production cost of a book is $4.00 and the retail price is $32.If the book publisher sells books to a bookstore at a 40 percent discount, what is the amount of the publisher's markup per book? Assume that bookstores sell books at the retail price.


A) $12.80
B) $15.20
C) $19.20
D) $21.60

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Which of the following is a necessary condition for successful price discrimination?


A) The seller must possess market power.
B) The buyer must possess market power.
C) Transactions costs must be zero.
D) Buyers must have identical inelastic demands.

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Which of the following statements is true?


A) Consumer surplus under perfect price discrimination is greater than under single-price monopoly pricing.
B) Consumer surplus under an optimal two-part tariff is greater than that under single-price monopoly pricing.
C) Although consumers reap some consumer surplus under a single-price monopoly, society is better off with optimal two-part tariff pricing.
D) Of the three pricing schedules, single-price monopoly, an optimal two-part tariff, and perfect price discrimination, profit is highest under single-price monopoly pricing.

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What is meant by the "law of one price"? In discussing the law of demand, Hubbard and O'Brien claim there has been no evidence of an exception to the law (that is, no evidence of an upward-sloping demand curve).Are there exceptions to the law of one price?

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The law of one price states that identic...

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Today, Walt Disney World charges different customers different prices for admission.This pricing strategy is called


A) arbitrage.
B) odd pricing.
C) cost-price pricing.
D) price discrimination.

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Consider a discount retailer such as Costco which uses a two-part tariff pricing strategy.The Costco membership fee


A) buys the consumer the right to make future purchases at Costco.
B) is a resalable asset to the consumer.
C) is a resalable asset to the producer.
D) is used by Costco to cover its fixed costs of production.

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