Chapter 12 Multiple Choice Quiz

. Carolina Berries manufactures many varieties of jams and jellies. An increase in the price of their strawberry jam can be expected to

A. increase the demand for their strawberry jelly because the two are complements.

B. increase the demand for their strawberry jelly because the two are substitutes.

C. decrease the demand for their strawberry jelly because the two are complements.

D. decrease the demand for their strawberry jelly because the two are substitutes.

. The Nintari Company produces video game playing machines and a second firm, Necsega, owns exclusive rights to manufacture games that can be used with the Nintari game machine. Both of these imperfectly competitive firms are maximizing profits. If Nintari buys Necsega and nothing else changes, then profits will be maximized if Nintari

A. decreases the prices of game machines and games.

B. does not change the prices of game machines or games.

C. increases the prices of game machines and games.

D. None of the above is correct.

. Icarus Medical Supplies produces patented adhesives that are used to reassemble broken bones. Pindrop Medical Products manufactures patented pins that are also used to reassemble broken bones. Both of these imperfectly competitive firms are maximizing profit. If Icarus merges with Pindrop, then the merged firm will maximize profits if it

A. decreases the prices of pins and adhesives.

B. does not change the prices of pins or adhesives.

C. increases the prices of pins and adhesives.

D. None of the above is correct.

. A single-plant, multi-product firm will introduce additional products

A. in order of diminishing price elasticities of demand.

B. until the marginal revenue from the last product introduced is equal to zero.

C. until 100% of unused plant capacity is employed.

D. None of the above is correct.

. The optimal output of joint products that are produced in fixed proportions is found where

A. the vertical sum of the marginal revenue from each product is equal to marginal cost.

B. the horizontal sum of the marginal revenue from each product is equal to marginal cost.

C. the marginal revenue from each product is equal to the marginal cost of producing each product.

D. the marginal cost is equal to the corresponding price of each product.

. The optimal combination of joint products that are produced in variable proportions is found where

A. the marginal revenue from each product is equal to the marginal cost of producing each product.

B. the isorevenue line is tangent to the product transformation curve.

C. the isorevenue line is tangent to the relevant total cost curve.

D. None of the above is correct.

. Which of the following is not an example of price discrimination?

A. It costs more to make a long-distance phone call during the day than it does late at night.

B. A ticket to the zoo costs less for a child than it does for an adult.

C. Regular gasoline costs less than premium gasoline.

D. All of the above are examples of price discrimination.

. A firm will realize the highest level of profit if it is able to engage in

A. first-degree price discrimination.

B. second-degree price discrimination.

C. third-degree price discrimination.

D. The answer cannot be determined without additional information.

. A grocery store that offers one can of soup for $0.35 and three cans for $1.00 is engaging in

A. first-degree price discrimination.

B. second-degree price discrimination.

C. third-degree price discrimination.

D. The answer cannot be determined without additional information.

. A movie theater that charges a lower price for matinees than for evening showings is engaging in

A. first-degree price discrimination.

B. second-degree price discrimination.

C. third-degree price discrimination.

D. The answer cannot be determined without additional information.

. A firm that is engaging in price discrimination will

A. charge a higher price to consumers with a higher price elasticity of demand.

B. charge a higher price to consumers with a lower price elasticity of demand.

C. earn lower profits than a similar firm that does not engage in price discrimination.

D. generally be a perfectly competitive firm.

. Persistent dumping refers to the practice of

A. international price discrimination.

B. charging a lower price on foreign markets where demand is more price elastic.

C. taking advantage of the segmentation of markets that results from domestic restrictions on imports.

D. All of the above are correct.

. A firm that is selling a product at or below cost on foreign markets in order to drive foreign producers out of business is engaging in

A. international price discrimination.

B. persistent dumping.

C. predatory dumping.

D. sporadic dumping.

. If there is no external market for an intermediate product, then the transfer price should be set equal to

A. the marginal cost of producing the optimal quantity of the intermediate product.

B. the marginal cost of producing the final product.

C. the selling price of the final product.

D. None of the above is correct.

. If the external market for an intermediate product is perfectly competitive, then the transfer price should be set equal to

A. the market price of the final product.

B. the competitive market price of the intermediate product.

C. the marginal cost of the final product.

D. None of the above is correct.

. If the external market for an intermediate product is imperfectly competitive, then the transfer price should be set equal to

A. the market price of the intermediate product.

B. the marginal cost of producing the optimal quantity of the intermediate product.

C. the market price of the final product.

D. None of the above is correct.

. A firm charges $14 for a product. If the markup is 40%, then the fully allocated average cost is

A. $19.60

B. $10.00

C. $8.40

D. None of the above is correct.

. A firm produces a product with a fully allocated average cost equal to $20. If the price elasticity of demand for the product is -5, then the product price should be set at

A. $25.

B. $24.

C. $23.

D. $22.

. Setting a high price when a product is first introduced and then gradually lowering its price over time is referred to as

A. value pricing.

B. skimming.

C. price lining.

D. prestige pricing.

. Developing a product to sell at a predetermined price is called

A. value pricing.

B. skimming.

C. price lining.

D. prestige pricing.

. A pricing practice that involves charging a fixed fee plus a per unit price for a good or service is referred to as

A. bundling.

B. skimming.

C. a two-part tariff.

D. first degree price discrimination.

. A tying agreement requires buyers of a product to

A. purchase another product needed in the use of the first product.

B. purchase a minimum number of units.

C. refrain from exporting the product to certain countries.

D. All of the above are true of a tying agreement.

. A pricing practice that requires buyers to purchase packages of different goods and does not make the goods available separately is called

A. value pricing.

B. bundling.

C. a two-part tariff.

D. skimming.

. A firm has two products and two customers. Customer 1 is willing to pay $5 for Product A and $3 for Product B. Customer 2 is willing to pay $7 for Product A and $4 for Product B. Can the firm increase revenue by bundling and, if so, how much should be charged for the bundle?

A. The firm cannot increase profits by bundling.

B. The firm can increase profits by bundling. The bundle should sell for $12.

C. The firm can increase profits by bundling. The bundle should sell for $10.

D. The firm can increase profits by bundling. The bundle should sell for $7.

. A firm has two products and two customers. Customer 1 is willing to pay $9 for Product A and $4 for Product B. Customer 2 is willing to pay $7 for Product A and $5 for Product B. Can the firm increase revenue by bundling and, if so, how much should be charged for the bundle?

A. The firm cannot increase profits by bundling.

B. The firm can increase profits by bundling. The bundle should sell for $12.

C. The firm can increase profits by bundling. The bundle should sell for $10.

D. The firm can increase profits by bundling. The bundle should sell for $7.

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