Chapter 9 Bundling and Intrafirm Pricing
MULTIPLE CHOICE
1. Products should be regarded as a bundle when they are:
a.
produced in variable proportions
b.
consumed in variable proportions
c.
produced in fixed proportions
d.
consumed in fixed proportions
e.
interrelated in competitive markets
2. When the NCAA basketball tournament will only sell tickets to all three games held at a
given site as a package, it is practicing:
a.
first-degree price discrimination
b.
second-degree price discrimination
c.
third-degree price discrimination
d.
markup pricing
e.
tying
3. Tying can sometimes be justified as helping consumers by:
a.
brand name quality protection
b.
different consumer evaluations of the main good
c.
transportation costs
d.
standard industry practice
e.
offsetting price reductions in the main good
4. If a firm has a marketing division and a production division with increasing costs, and a
competitive external market for the production division’s output exists, then the marketing
division should always buy:
a.
from the production division at production’s price
b.
all it wants at the external market price from the production division
c.
only externally
d.
all the production division can produce at the external price
e.
what it wants at the external market price, first from whatever the production
division wishes to sell and then, if necessary, externally
5. A firm has a division that produces X, whose total costs are TC = 10 + Q2 (where Q is the
quantity of X). The marketing division adds its own total costs of 5 + 3Q. In the competitive
external market for X the wholesale price is $10. The transfer price of X should be:
a.
$2
b.
$5
c.
$10
d.
$12
e.
$15
6. A firm has a division which produces chemical Y, whose average total costs are ATC = 50 +
2Q (where Q is the quantity of Y), and a marketing division which adds its own average total
costs of ATC = 20 + 3Q. There is no external market price of Y. The transfer price of Y
should be:
a.
$50
b.
$4Q
c.
$50 + 4Q
d.
$2Q
e.
$5Q
7. When a monopolist requires a customer to buy additional products in order to buy one of its
products, this is known as a(n):
a.
bundling contract
b.
price differentiation
c.
oligopolistic device
d.
two-part tariff
e.
maximizing device
8. If Chip and Cathy have different valuations on dancing and dinner as in the table below,
what is the maximum profit Sammy can extract from Chip and Cathy for an evening’s
entertainment at Sammy’s dinner theater if Sammy’s marginal cost is $25 for dinner and $5
for dancing per person?
Chip
Cathy
Dinner
$40
$30
Dancing
$35
$50
a.
$60
b.
$70
c.
$80
d.
$90
e.
$100
9. There are 12,000 fans attending a basketball tournament featuring three regional
powerhouses in Charlotte, North Carolina. There are 4,000 of each of three types of fans,
identified by the school for which they cheer. The fans value a ticket to see a game
according to which teams are competing as shown in the table below. The stadium holds
12,000, and the marginal cost of seating another viewer is zero. What is the change in the
maximum profits that organizers can earn for the tourney if they sell the three games as a
package instead of as individual games?
Game Participants
Fan Type
SH–KC
SH–WF
KC–WF
Scrapple Hill
$30
$25
$ 5
Kudzu College
25
5
30
Worst Fake
5
30
25
a.
$20,000
b.
$120,000
c.
$160,000
d.
$200,000
e.
$220,000
10. The Two Stage Photo Company has a division for each stage of photo processing. There is
no external market for the first stage’s output. For a fixed quantity of photo processing, the
transfer price should depend on:
a.
whatever management wants
b.
marginal costs at stage 1 only
c.
marginal costs at each stage
d.
average costs at stage 1 only
e.
average costs at each stage
11. If a firm uses optimal transfer pricing between production division A and marketing division
B, and a competitive external market for the output of division A exists, then production
division A will surely:
a.
make positive economic profits
b.
make normal economic profits
c.
sell at marginal costs
d.
sell at the external price
e.
sell at less than the external price
12. Transfer prices are needed when:
a.
firms purchase raw materials from other firms
b.
consumers sell goods and services to one another
c.
markets must be stimulated within firms
d.
products are bundled and sold as a package
e.
firms charge different prices to customers where there are no differences in
production costs
13. The transfer price of an upstream product should always equal the market price when:
a.
there is an outside market for the upstream product
b.
the price elasticity of demand for the upstream product is greater than 1 (in
absolute value)
c.
there is a perfectly competitive market for the downstream product
d.
the marginal cost of the downstream product is greater than 1
e.
the firm is a monopolist in its downstream market
Please use this information to answer the following questions:
The XYZ Steel Company produces its own coal for use in its production facility. The
demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by
TCs = 100Qs, where Qs is tons of steel per week. The price of coal in a perfectly competitive
market outside the firm is $250 per ton, and the total cost of producing coal is given by TCc
= 40 + 5Qc2, where Qc is tons of coal per week.
14. How much coal should the XYZ Company produce?
a.
2 tons
b.
25 tons
c.
100 tons
d.
200 tons
e.
250 tons
15. How much steel should the XYZ Company produce?
a.
6.25 tons
b.
18.75 tons
c.
25 tons
d.
43.75 tons
e.
75 tons
16. How much should XYZ steel charge itself for coal?
a.
$250 per ton
b.
$350 per ton
c.
$500 per ton
d.
$750 per ton
e.
$1,000 per ton
17. How much coal will XYZ sell outside the firm?
a.
6.25 tons
b.
18.75 tons
c.
25 tons
d.
43.75 tons
e.
75 tons
18. Play It Again Sam is a producer of high-end CD burners. They require customers to
purchase high-quality blank CDs from them in order to maintain warranty agreements. This
is an example of a:
a.
bundle
b.
two-part tariff
c.
tying contract
d.
transfer price
e.
joint product
19. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two
restaurants (1 and 2) are given in the table below. What is the maximum revenue that can be
generated by setting a separate price for each restaurant?
a.
$49
b.
$45
c.
$36
d.
$34
e.
$30
20. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two
restaurants (1 and 2) are given in the table below. What is the maximum revenue that can be
generated by setting a bundled price for the two restaurants?
a.
$49
b.
$45
c.
$36
d.
$34
e.
$30
21. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two
restaurants (1 and 2) are given in the table below. What is the maximum revenue that can be
generated by setting a separate price for each restaurant?
a.
$49
b.
$45
c.
$36
d.
$84
e.
$60
22. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two
restaurants (1 and 2) are given in the table below. What is the maximum revenue that can be
generated by setting a bundled price for the two restaurants?
a.
$49
b.
$45
c.
$36
d.
$84
e.
$60
23. When consumers can purchase a set of goods as a bundle or separately, then the seller is
engaging in:
a.
simple bundling
b.
complex bundling
c.
performance bundling
d.
mixed bundling
e.
engaged bundling
24. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the table below. What is the maximum revenue that can
be generated by setting a bundled price for the three restaurants?
a.
59
b.
75
c.
81
d.
89
e.
none of the above
25. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the table below. What is the maximum revenue that can
be generated by setting a separate price for each of the three restaurants?
a.
59
b.
75
c.
81
d.
89
e.
none of the above
26. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the table below. What is the maximum revenue that can
be generated by setting a bundled price for the three restaurants?
a.
46
b.
52
c.
63
d.
72
e.
84
27. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for three
restaurants (1, 2, and 3) are given in the table below. What is the maximum revenue that can
be generated by setting a separate price for each of the three restaurants?
a.
46
b.
52
c.
63
d.
72
e.
84
28. A firm with marginal cost MC = 2 + Q plans to practice price discrimination by charging
different prices to two separate types of consumers that have demand curves P1 = 10 – 0.5Q1
and P2 = 20 – 1.5Q2. What price and quantity will be optimal on market 1?
a.
P1 = 8 and Q1 = 4
b.
P1 = 9 and Q1 = 2
c.
P1 = 7 and Q1 = 6
d.
P1 = 6 and Q1 = 8
e.
none of the above
29. A firm with marginal cost MC = 2 + Q plans to practice price discrimination by charging
different prices to two separate types of consumers that have demand curves P1 = 10 – 0.5Q1
and P2 = 20 – 1.5Q2. What price and quantity will be optimal on market 2?
a.
P2 = 14 and Q2 = 4
b.
P2 = 11 and Q2 = 6
c.
P2 = 17 and Q2 = 2
d.
P2 = 8 and Q2 = 8
e.
none of the above
30. A firm with marginal cost MC = 1 + Q plans to practice price discrimination by charging
different prices to two separate types of consumers that have demand curves Q1 = 10 – 0.5P1
and Q2 = 20 – 1.5P2. What is the total quantity that the firm will sell on both markets?
a.
4
b.
5
c.
6
d.
7
e.
8
