Questions:
Question 1
After acquiring a substitute product, to achieve greater profitability, one should:
a. Raise price on both products, but raise price more on the less price elastic product
b. Raise price on both products, but raise price more on the more price elastic product
c. Raise price on just the more price elastic
d. Raise price on just the less price product
Question 2
Firms tend to raise the price of their goods after acquiring a firm that sells a substitute
good because:
a. There is an increase in the overall demand for their products
b. They lose market power
c. The bundle has a more inelastic demand than individual goods
d. The bundle has a more elastic demand than individual goods
Question 3
Firms tend to lower the price of their goods after acquiring a firm that sells a
complementary good because:
a. There is an increase in the overall demand for their products
b. They gain market power
c. The bundle has a more inelastic demand than individual goods
d. The bundle has a more elastic demand than individual goods
Question 4
If promotional expenditures make demand:
a. Less elastic, then you should reduce price when you promote the product
b. More elastic, then you should increase price when you promote the product
c. More elastic, then you should reduce price when you promote the product
d. Less inelastic, then you should increase price when you promote the product
Question 5
Domino Sugar Company is considering buying Fisher Honey Company for $100 million.
Based on information obtained from 500 supermarkets around the country, when the
price of 1 lb. of Domino Sugar went on sale from $2.00 to $1.50, the average number of 1
lb. boxes of sugar rose from 200 boxes in a week to 300 boxes. The following week,
when 1 lb. boxes of Fisher Honey went on sale for $2.50 from the original price of $3.00,
the number of boxes of honey sold increased from 200 to 275 boxes. If the sale of Fisher
Honey to Domino Sugar goes through, what changes to each products price Domino
Sugar make?
a. Increase the price of both, but increase the price of Fisher Honey more
b. Increase the price of both, but increase the price of Domino Sugar more
c. Lower the price of both
d. No change
Question 6
For a firm to maximize total profits through price discrimination, it should:
a. Charge the same price to both sets of consumers by maximizing at MR=MC on the
inelastic demand
b. Charge a high price to consumers with an inelastic demand and low price to consumers
with an elastic demand
c. Charge the same price to both sets of consumers by maximizing at MR=MC on the
elastic demand
d. Charge a low price to consumers with an inelastic demand and high price to consumers
with an elastic demand
Question 7
Assume that the price elasticity of demand for movie theatres is -.85 during all evening
shows but for all afternoon shows the price elasticity of demand is -2.28. For the theatre
to maximize total revenue, it should:
a. Charge a higher price for the afternoon shows and lower price for the evening shows,
holding other things constant
b. Charge a lower price for the afternoon shows and higher price for the evening shows,
holding other things constant
c. Need more information
d. Charge the same price for both shows, holding other things constant
Question 8
In theory, price discrimination:
a. Decreases consumer surplus
b. Reduces the number of consumers who purchase the firm's product
c. Has no effect on deadweight loss
d. Decreases producer surplus
Question 9
Charging prices closer to what consumers are willing to pay for a good:
a. None of the above
b. Reduces consumers surplus and Increases producer surplus
c. Increases producer surplus
d. Reduces consumers surplus