Chapter 12 True or False Quiz

. If two goods produced by a single firm are substitutes in consumption, then an increase in the price of one will cause a decrease in demand for the other.

. If two goods produced by a single firm are complements in consumption, then a decrease in the price of one will cause an increase in demand for the other.

. If two goods (A and B) produced by a single firm are substitutes in consumption, then the change in total revenue from the sale of B divided by the corresponding change in the quantity of A will be positive.

. If two goods (A and B) produced by a single firm are complements in consumption, then the change in total revenue from the sale of B divided by the corresponding change in the quantity of A will be positive.

. If a firm has idle plant capacity, then it should produce additional products even if the marginal cost of doing so exceeds marginal revenue.

. Additional products should be introduced by a single-plant firm in order of decreasing profitability up to the point where the marginal revenue of the least profitable product is equal to its marginal cost.

. A single-plant firm that produces more than one product will charge the same price for every product that it produces.

. A single-plant multi-product firm will produce a quantity of each product such that the marginal cost of each product is the same.

. A single-plant, multi-product, imperfectly competitive firm with excess plant capacity should continue to introduce new products until the price of the last product introduced is equal to its marginal cost or until all capacity is employed.

. An example of joint production with fixed proportions is petroleum refining.

. Joint production is the result of production interdependence.

. The optimal level of output where products are jointly produced in variable proportions occurs where the marginal cost of production is equal to the vertical summation of the marginal revenues of the individual products.

. If the optimal level of output where products are jointly produced in fixed proportions occurs where the marginal revenue for one product is negative, then the firm will maximize profit by disposing of some or all of the output of that product rather than by selling it.

. Products that are produced jointly in fixed proportions are substitutes in production.

. If products are produced jointly in fixed proportions, then their product transformation curves are right angles.

. If the product transformation curves for two goods produced jointly are straight lines, then the two goods are perfect substitutes in production.

. Price discrimination is illegal under U.S. law.

. Price discrimination refers to charging different prices for a product when price differences are not justified by differences in cost.

. A letter mailed to New York from Los Angeles costs less if it is sent first class than if it is sent by overnight mail, which proves that the U.S. Postal Service is engaging in price discrimination.

. First-degree price discrimination would allow a firm to charge the maximum possible price for every unit sold.

. If a firm that does not price discriminate begins to practice first-degree price discrimination, its profit will increase by an amount equal to consumers' surplus.

. A firm that is engaging in third-degree price discrimination will charge a lower price to buyers with less elastic demand curves.

. Perfectly competitive firms can engage in second-degree price discrimination.

. Price discrimination is most effective if all consumers have the same price elasticity of demand.

. A firm that sells on two markets and engages in third-degree price discrimination will increase the quantity sold on each market until marginal revenue is the same on both markets and is equal to marginal cost.

. A firm that sells on two markets and engages in third-degree price discrimination will adjust the quantity sold on each market until the same price holds on both markets.

. Persistent dumping refers to the practice of international price discrimination.

. Dumping occurs when a firm charges a higher price for a product on foreign markets than on domestic markets.

. Export subsidies are a form of dumping.

. A firm that is selling a product at a lower price on foreign markets for the purpose of driving foreign producers out of business is engaging in persistent dumping.

. The occasional sale of a commodity at a lower price on foreign markets is referred to as sporadic dumping.

. The harassment thesis holds that the threat of filing a dumping complaint against a foreign producer discourages the producer from aggressively competing in the domestic market.

. Persistent dumping and sporadic dumping may be desirable if benefits to domestic consumers exceed the losses experienced by domestic producers.

. Transfer pricing refers to the determination of prices of intermediate products sold by one semiautonomous division of a firm and purchased by another semiautonomous division of the same firm.

. Tax laws require that transfer prices be established, but they have little effect on the operation of a firm.

. Under cost-plus pricing, the more price elastic the demand is for a product, the higher the markup should be.

. Incremental analysis states that a firm should take an action if the resulting change in revenue exceeds the corresponding change in cost.

. Prestige pricing refers to setting a high product price in order to capitalize on snob appeal.

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