Chapter 14: ADVANCED PRICING TECHNIQUES
What rule do you follow for price determination for a firm that practices price discrimination?
a. elasticity and price are not related
b. price is lower in the higher elasticity market
c. price is higher in the higher elasticity market
d. profit is maximized when both prices and elasticities are equal
e. none of the above
14-27 A firm is producing two goods (X and Y) that are related in consumption. The demand function for
X is:
Qd=120 –4P
X–10P
Y
Which of the following pairs of goods might the firm be producing?
a. cars and gasoline
b. cola and caffeine-free coke
c. newspapers and tennis balls
d. bran cereal and sugar-frosted corn flakes
e. both b and d
14-28 A firm is producing two goods (X and Y) that are related in consumption. The demand function for
X is:
Qd=120 –4P
X–10P
Y
Chapter 14: ADVANCED PRICING TECHNIQUES
In order to maximize profit, the firm
a. should determine jointly the levels of output for the two goods.
b. should treat the price of Y as given when determining the optimal production of good X.
c. should choose the levels of output for goods X and Y at which total marginal revenue
equals total marginal cost.
d. both a and b
e. both a and c
14-29 In order to maximize profit, a firm producing two goods that are related in consumption should
choose the levels of output at which
a. total marginal revenue equals total marginal cost.
b. total marginal revenue equals the marginal cost of each good.
c. the marginal revenue of each good equals total marginal cost.
d. marginal revenue equals marginal cost for each good simultaneously.
14-30 A firm sells two goods (X and Y) that are related in consumption. The estimated inverse demand
and cost functions are:
Good X and Y are:
a. complements
b. substitutes
c. independent
d. normal
e. inferior
14-31 A firm sells two goods (X and Y) that are related in consumption. The estimated inverse demand
and cost functions are:
Chapter 14: ADVANCED PRICING TECHNIQUES
What are the profit-maximizing levels of output for the two goods?
a.
QX
= 6,
QY
= 3
b.
QX
= 40,
QY
= 40
c.
QX
= 58,
QY
= 30
d.
QX
= 240,
QY
= 270
e. none of the above
14-32 A firm sells two goods (X and Y) that are related in consumption. The estimated inverse demand
and cost functions are:
What are the profit-maximizing prices for the two goods?
a.
PX
= $40,
P
Y
= $32.50
b.
PX
= $53.50,
P
Y
= $61
c.
PX
= $80,
P
Y
= $55
d.
PX
= $112.50,
P
Y
= $87.75
e. none of the above
14-33 Gus has 20 acres of land in cultivation and is currently planting both soybeans and peanuts. The
last acre planted in soybeans yielded 20 bushels, and the last bushel of soybeans added $0.50 to
Gus’s total revenue. The last acre planted in peanuts yielded 10 bushels and the last bushel of
peanuts added $1 to Gus’s total revenue. Gus:
a. is maximizing profit.
b. should devote more acres to soybeans and fewer to peanuts.
c. should devote more acres to peanuts and fewer to soybeans.
Chapter 14: ADVANCED PRICING TECHNIQUES
d. should devote 10 acres to each crop.
14-34 A firm sells two goods (X and Y) that are related in consumption. The estimated demand and cost
conditions are:
PX=20 –0.1QX–0.05QY
P
Y=70 –0.3QY–0.1QX
MCX=1+0.1QX
MCY=2+0.25QY
Goods X and Y are
a. complement
b. substitutes
c. independent
d. normal
e. inferior
14-35 A firm sells two goods (X and Y) that are related in consumption. The estimated demand and cost
conditions are:
PX=20 –0.1QX–0.05QY
P
Y=70 –0.3QY–0.1QX
MCX=1+0.1QX
MCY=2+0.25QY
What are the profit-maximizing levels of output for the two goods?
a.
QX
= 20,
QY
= 10
b.
QX
= 41,
QY
= 24
c.
QX
= 56,
QY
= 24
d.
QX
= 51,
QY
= 74
e. none of the above
Chapter 14: ADVANCED PRICING TECHNIQUES
14-36 A firm sells two goods (X and Y) that are related in consumption. The estimated demand and cost
conditions are:
PX=20 –0.1QX–0.05QY
P
Y=70 –0.3QY–0.1QX
MCX=1+0.1QX
MCY=2+0.25QY
What are the profit-maximizing prices for the two goods?
a.
PX
= $25.60,
P
Y
= $20.50
b.
PX
= $30,
P
Y
= $35
c.
PX
= $50,
P
Y
= $45
d.
PX
= $11.20,
P
Y
= $42.70
14-37 In order to maximize profit, a firm that produces two goods that are related in consumption should
chose the levels of output at which:
a. total marginal revenue equals total marginal cost
b. total marginal revenue equals the marginal cost of each good
c. the marginal revenue of each good equals total marginal cost
d. marginal revenue equals marginal cost for each good
e. none of the above
14-38 Refer to the following:
PX=666 –0.5QX–2QY
P
Y=484.5 –1.5QY–0.25QX
MCX=20 +2QX
MCY=4+QY
Goods X and Y are:
a. normal
b. inferior
c. independent
d. substitutes
e. complements
Chapter 14: ADVANCED PRICING TECHNIQUES
14-39 Refer to the following:
PX=666 –0.5QX–2QY
P
Y=484.5 –1.5QY–0.25QX
MCX=20 +2QX
MCY=4+QY
What are the profit-maximizing levels of output for the two goods?
a.
QX
= 30,
QY
= 34
b.
QX
= 63,
QY
= 66
c.
QX
= 142,
QY
= 110
d.
QX
= 191,
QY
= 163
14-40 Refer to the following:
PX=666 –0.5QX–2QY
P
Y=484.5 –1.5QY–0.25QX
MCX=20 +2QX
MCY=4+QY
What are the profit-maximizing prices for the two goods?
a.
PX
= $375,
P
Y
= $284
b.
PX
= $423,
P
Y
= $712
c.
PX
= $166,
P
Y
= $324
d.
PX
= $481,
P
Y
= $588
Chapter 14: ADVANCED PRICING TECHNIQUES
14-41
The Hilton Hotel chain serves both business and vacation travelers. Above,
DBusiness
and
MRBusiness
represent the demand and marginal revenue for business travelers, while
DVacation
and
MRVacation
are the demand and marginal revenue for vacation travelers. What is the profit-maximizing
number of BUSINESS travelers to serve?
a. 55
b. 100
c. 150
d. 200
e. 300
Chapter 14: ADVANCED PRICING TECHNIQUES
14-42
The Hilton Hotel chain serves both business and vacation travelers. Above,
DBusiness
and
MRBusiness
represent the demand and marginal revenue for business travelers, while
DVacation
and
MRVacation
are the demand and marginal revenue for vacation travelers. What price should the Hilton charge
VACATION travelers?
a. $20
b. $30
c. $50
d. $60
e. $70
Chapter 14: ADVANCED PRICING TECHNIQUES
14-43
The Hilton Hotel chain serves both business and vacation travelers.
DBusiness
and
MRBusiness
represent the demand and marginal revenue for business travelers, while
DVacation
and
MRVacation
are the demand and marginal revenue for vacation travelers. If marginal cost decreases to the
point that total marginal revenue (MRT is not shown in the figure) for Hilton at the profit–
maximizing level of total output is $40, what price should the Hilton charge BUSINESS
travelers?
a. $60
b. $80
c. $100
d. $120
e. $140
14-44 The WildTimes Bar offers female patrons a lower price for a drink than male patrons. The bar will
maximize profit by selling a total of 200 drinks per night. At the current prices, male customers
buy 150 drinks, while female customers buy 50 drinks. The marginal revenue from the last drink
sold to a male customer is $1.50, while the marginal revenue from the last drink sold to a female
customer is $0.50. The bar
a. should lower the price for male customers and raise the price for female customers.
b. should lower the price for female customers and raise the price for male customers.
c. should charge the same price regardless of gender.
Chapter 14: ADVANCED PRICING TECHNIQUES
d. is maximizing profit; should keep selling 150 drinks to male customer and 50 drinks to
female customers.
14-45 The WildTimes Bar offers female patrons a lower price for a drink than male patrons. The bar will
maximize profit by selling a total of 200 drinks per night. At the current prices, male customers
buy 150 drinks, while female customers buy 50 drinks. The marginal revenue from the last drink
sold to a male customer is $1.50, while the marginal revenue from the last drink sold to a female
customer is $0.50. If the bar sells 151 drinks to male customers and 49 drinks to female customers
instead, then
a. total revenue will decrease $0.50.
b. profit will decrease $0.50.
c. total revenue will increase $1.
d. total revenue will increase $1.50.
e. both a and b
14-46 A drugstore offers a discount on prescriptions to senior citizens. This suggests that the absolute
value of elasticity of demand for senior citizens is
a. greater than one.
b. less than one.
c. greater than the elasticity of demand for other customers.
d. less than the elasticity of demand for other customers.
14-47 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
Using cost-plus pricing, Drill Quest prices its bits at $______________ per bit.
a. $10,195
Chapter 14: ADVANCED PRICING TECHNIQUES
b. $12,175
c. $797
d. $6,000
e. $6,797
14-48 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
Using the cost-plus price, Drill Quest earns profit of (approximately) $___________ by selling
690 bits.
a. $2,895,000
b. $2,345,000
c. $3,500,000
d. $3,895,000
e. $4,895,000
14-49 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill
Quest’s bits. The profit-maximizing number of bits to sell is
a. 250
b. 300
c. 350
d. 400
e. 450
Chapter 14: ADVANCED PRICING TECHNIQUES
14-50 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill
Quest’s bits. The profit-maximizing price to charge is $___________ per bit.
a. $15,000
b. $12,500
c. $10,378
d. $10,245
e. $10,000
14-51 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
Use the MR = SMC approach to finding the profit-maximizing point on the demand for Drill
Quest’s bits. The maximum possible profit is $___________.
a. $2,895,000
b. $2,345,000
c. $3,500,000
d. $3,895,000
e. $4,895,000
14-52 Drill Quest, Inc. manufactures drill bits for the oil industry. Drill Quest uses cost-plus pricing to
set the price of its bits. Currently Drill Quest applies a 50 percent markup on average total cost.
Average variable cost of producing bits is constant and equal to $6,000 per bit. Total fixed cost at
Chapter 14: ADVANCED PRICING TECHNIQUES
Drill Quest is $550,000. DrillQuest currently produces 690 bits. Statistical estimation of demand
for Drill Quest brand bits produces the following linear demand equation (where Q is the number
of bits demanded and P is the price of bits):
Q=1,200 –0.05P
If Drill Quest wishes to use cost-plus pricing, it can maximize profit by applying a markup of
_____ percent on __________.
a. 150 percent; AVC
b. 150 percent; ATC
c. 50 percent; AVC
d. 50 percent; ATC
e. 250 percent; AVC
14-53 Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-
oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black
Diamond. Forecasted demand prices for golf and tennis memberships by family type are given
below. There is no way to identify family types for pricing purposes, and all costs are fixed so
that maximizing total revenue is equivalent to maximizing profit.
Demand Prices for Golf and Tennis Memberships
Type of family
Tennis
membership only
Golf membership
only
Tennis-oriented
$150
$50
Golf-oriented
$75
$200
If Black Diamond Tennis & Golf Club plans to offer golf and tennis memberships separately,
what prices should be charged for each kind of membership if Black Diamond wishes to
maximize profit?
a. Charge $75 for tennis memberships and $50 for golf memberships.
b. Charge $75 for tennis memberships and $200 for golf memberships.
c. Charge $150 for tennis memberships and $200 for golf memberships.
d. Charge $150 for tennis memberships and $50 for golf memberships.
e. either b or c
Chapter 14: ADVANCED PRICING TECHNIQUES
14-54 Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-
oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black
Diamond. Forecasted demand prices for golf and tennis memberships by family type are given
below. There is no way to identify family types for pricing purposes, and all costs are fixed so
that maximizing total revenue is equivalent to maximizing profit.
Demand Prices for Golf and Tennis Memberships
Type of family
Tennis
membership only
Golf membership
only
Tennis-oriented
$150
$50
Golf-oriented
$75
$200
How much total revenue can be generated each month under a pricing plan where separate golf
and tennis memberships are offered?
a. $20,000
b. $25,000
c. $35,000
d. $70,000
e. $95,000
14-55 Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-
oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black
Diamond. Forecasted demand prices for golf and tennis memberships by family type are given
below. There is no way to identify family types for pricing purposes, and all costs are fixed so
that maximizing total revenue is equivalent to maximizing profit.
Demand Prices for Golf and Tennis Memberships
Type of family
Tennis
membership only
Golf membership
only
Tennis-oriented
$150
$50
Golf-oriented
$75
$200
The conditions are right for bundle pricing to increase profit at Black Diamond Tennis & Golf
Club because
a. demand prices for golf are greater than demand prices for tennis.
b. Demand prices differ across family types for tennis and golf memberships.
c. Demand prices are negatively correlated.
d. Demand prices are positively correlated.
Chapter 14: ADVANCED PRICING TECHNIQUES
e. Both b and c
14-56 Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-
oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black
Diamond. Forecasted demand prices for golf and tennis memberships by family type are given
below. There is no way to identify family types for pricing purposes, and all costs are fixed so
that maximizing total revenue is equivalent to maximizing profit.
Demand Prices for Golf and Tennis Memberships
Type of family
Tennis
membership only
Golf membership
only
Tennis-oriented
$150
$50
Golf-oriented
$75
$200
What is the optimal price to charge for a bundled tennis and golf and tennis membership?
a. $150
b. $200
c. $225
d. $250
e. $275
14-57. Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-
oriented families. There are 100 golf-oriented families and 100 tennis-oriented families in Black
Diamond. Forecasted demand prices for golf and tennis memberships by family type are given
below. There is no way to identify family types for pricing purposes, and all costs are fixed so
that maximizing total revenue is equivalent to maximizing profit.
Demand Prices for Golf and Tennis Memberships
Type of family
Tennis
membership only
Golf membership
only
Tennis-oriented
$150
$50
Golf-oriented
$75
$200
How much revenue will the optimal bundled price produce for Black Diamond Tennis & Golf
Club?
a. $25,000
b. $27,500
c. $35,000
d. $40,000