Chapter 10: Bundling and Intrafirm Pricing
MULTIPLE CHOICE
1. When a firm 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.
2. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two restaurants (1
and 2) are given in the following table. 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.
3. 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 following table. 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.
4. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two restaurants (1
and 2) are given in the following table. 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.
5. 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 following table. 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.
6. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two restaurants (1
and 2) are given in the following table. 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.
7. 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 following table. 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.
8. 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 following table. 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.
9. The reservation prices, in dollars, for three classes of demanders (A, B, and C) for two restaurants (1
and 2) are given in the following table. 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.
10. 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.
11. 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 following table. 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?
a.
$20,000.
b.
$120,000.
c.
$160,000.
d.
$200,000.
e.
$220,000.
12. If Chip and Cathy have different valuations on dancing and dinner as in the following table, 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.
13. 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.
14. Play It Again Sam is a producer of high-end CD burners. It requires customers to purchase
high-quality blank CDs from it 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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 simulated 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.
20. 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 = 175Qs, 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. 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.
21. 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 = 175Qs, 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. How much coal should the XYZ Company produce?
a.
2 tons.
b.
25 tons.
c.
100 tons.
d.
200 tons.
e.
250 tons.
22. 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.
23. A firm has a division that produces chemical Y, whose average total costs are ATC = 50 + 2Q (where Q
is the quantity of Y), and a marketing division that 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.
24. 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 = 175Qs, 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. 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.
25. 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 = 175Qs, 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. 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.
26. 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.