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1.     marginal revenue is equal in both periods.

2.     b.         marginal revenue in the peak period is greater than in the off-peak period.

3.     marginal revenue in the peak period is less than in the off-peak period.

4.     the sum of the marginal revenues is greater than the sum of the marginal costs.

32.  When the movie "Jurassic Park" debuted in Westwood, California, the price of tickets was \$7.50.  After several months the ticket price had fallen to \$4.00.  This is an example of

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

33.  The price of on-campus parking from 8:00 AM to 5:00 PM, Monday through Friday, is \$3.00.  From 5:00 PM to 10:00 PM, Monday through Friday, the price is \$1.00.  At all other times parking is free.  This is an example of

1.     bundling.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

34.  A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM.  This is an example of

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     none of the above.

35.  A local theater prices every ticket in the theater at \$5.00 for matinees.  During the evening, ticket prices are much higher.  This is an example of

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     bundling.

5.     none of the above.

36.  An amusement park charges an entrance fee of \$75 per person, then \$2.50 per ride.  This is an example of

1.     first-degree price discrimination.

2.     b.         a two-part tariff.

3.     second-degree price discrimination.

4.     bundling.

5.     tying.

37.  When people pay a monthly fee to have a hookup to the telephone company's line plus a fee for each call actually made, we would say that the telephone company is using

1.     limit pricing.

2.     b.         a two-part tariff.

3.     second-degree price discrimination.

4.     two stage price discrimination.

38.  A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a

1.     tying contract.

2.     b.         two-part tariff.

3.     form of perfect price discrimination.

4.     none of these.

39.  A national chain of bookstores has initiated a frequent buyer program.  If you buy a frequent buyer card for \$10, you are entitled to a 10 percent discount on all purchases for 1 year.  This practice is an example of:

2.     intertemporal price discrimination.

3.     c.         two-part tariff.

4.     bundling.

5.     both (a) and (b) are correct.

40.  A firm setting a two-part tariff with only one customer should set the entry fee equal to

1.     marginal cost.

2.     b.         consumer surplus.

3.     marginal revenue.

4.     price.

41.  The local cable TV company charges a "hook-up" fee of \$30 per month.  Customer can then watch programs on a "pay-per-view" basis (a fee is charged for every program watched).  This is an example of

2.     second-degree price discrimination.

3.     c.         a two-part tariff.

4.     intertemporal price discrimination.

5.     none of the above.

42.  The pricing technique known as tying

1.     permits a firm to meter demand.

2.     permits a firm to practice price discrimination.

3.     enables a firm to extend its monopoly power to new markets.

4.     d.         all of the above.

43.  Season ticket holders for the St. Louis Rams received a surprise when they received their applications to renew their season tickets.  In order to get your season ticket to the Rams' home games, you had to buy tickets to the preseason games.  Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders.  This practice is an example of:

2.     intertemporal price discrimination.

3.     two-part tariff.

4.     d.         bundling.

5.     both (a) and (b) are correct.

44.  A local restaurant sells strawberry pie for \$3.00 per slice.  However, if you order the prime rib dinner, you can get a slice of pie for only a dollar.  This is an example of

1.     a.         bundling.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     none of the above.

45.  A local restaurant offers an "all-you-can-eat" salad bar for \$3.49.  However, with any sandwich, a customer can add the "all-you-can-eat" salad bar for \$1.49.  This is an example of

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

46.  Bundling products makes sense for the seller when

1.     consumers have heterogeneous demands.

2.     the products are complementary in nature.

3.     firms cannot price discriminate.

4.     d.         both (a) and (c).

47.  Bundling is effective when demands are ____________ and ____________ correlated.

1.     a.         different; negatively

2.     different; positively

3.     similar; negatively

4.     similar; positively

5.     identical; perfectly

48.  Bundling raises higher revenues than selling the goods separately when

1.     demands for two goods are highly positively correlated.

2.     demands for two products are mildly positively correlated.

3.     c.         demands for two products are negatively correlated.

4.     there is a perfect positive correlation between the demands for two goods.

5.     the goods are complementary in nature.

49.  Mixed bundling is more profitable than pure bundling when

1.     the marginal cost of each good being sold is positive.

2.     the consumers’ reservation values of each good being sold are not perfectly negatively correlated with one or another.

3.     c.         both (a) and (b) apply.

4.     the marginal cost of one good is zero.

50.  One Guy's Pizza advertising expenditures are \$1,200 and sales are \$30,000.  When advertising increases to \$1,400, sales increase to \$32,000.  The arc advertising elasticity of demand is approximately

1.     0

2.     0.1

3.     c.         0.4

4.     2.5

5.     12.5

51.  A 10 percent decrease in advertising results in a 5 percent sales decrease.  The advertising elasticity of demand is

1.     -2.0

2.     -0.5

3.     c.         0.5

4.     2

5.     none of the above.

52.  Use the following statements to answer this question.

I.    To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising just brings forth an additional dollar of revenue.

II.   The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about.

1.     Both I and II are true.

2.     I is true, and II is false.

3.     c.         I is false, and II is true.

4.     Both I and II are false.

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53.  Use the following statements to answer this question.

I.    To maximize profit, a firm will advertise more when the advertising elasticity is larger.

II.   To maximize profit, a firm will advertise more when the price elasticity of demand is smaller.

1.     a.         Both I and II are true.

2.     I is true, and II is false.

3.     I is false, and II is true.

4.     Both I and II are false.

54.  The price elasticity of demand for nursery products is -10.  The advertising elasticity of demand is 0.4.  Using the "Rule of Thumb for Advertising," the level of advertising will be set at _____ of sales.

1.     0.25 percent

2.     0.4 percent

3.     c.         4 percent

4.     40 percent

55.  Grocery store chains advertise more than convenience stores because:

1.     the advertising elasticity of demand is smaller for grocery store chains than for convenience stores.

2.     convenience stores have more elastic demand for their products then grocery store chains.

3.     c.         the advertising elasticity of demand for convenience stores is near zero and is much smaller than for grocery store chains.

4.     all of the above.

5.     none of the above.

56.  The Acme Oil Company is a vertically integrated firm.  It explores for and extracts crude oil.  It also refines the crude oil into gasoline and other products, and sells these products to consumers.  The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries is called:

2.     b.         the transfer price.

3.     the market price.

4.     the non-market price.

5.     none of the above.

57.  The Acme Oil Company is a vertically integrated firm.  It explores for and extracts crude oil.  It also refines the crude oil into gasoline and other products, and sells these products to consumers.  There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive.  The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries:

1.     a.         equals the market price for crude oil.

2.     equals the market price for crude oil less a discount because Acme Oil does not to profit from itself.

3.     is unrelated to the market price of crude oil.

4.     is greater than the marginal cost of extracting crude oil.

58.  What is net marginal revenue?

1.     The same as marginal profit.

2.     b.         The additional revenue the firm earns from an extra unit of an internally produced intermediate input.

3.     The additional revenue the firm earns from producing one more unit of output.

4.     The additional revenue the firm earns from selling one more unit of output.

59.  What is the profit maximizing condition for a vertically integrated firm?

1.     Net marginal revenue equals the sum of the marginal costs of the intermediate inputs.

2.     Marginal revenue equals the marginal cost of the final output.

3.     c.         Net marginal revenue equals the marginal cost of each intermediate good.

4.     The sum of net marginal revenues equals the marginal cost of the final output.

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