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Multiple Choice Quiz
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1
The pricing strategy in which a firm optimally sets the internal price that an upstream division sells an input to a down stream division is referred to as
A)peak-load pricing.
B)cross-subsidization.
C)transfer pricing.
D)price matching.

Use the following information for questions 2-5.
A monopoly produces widgets at a marginal cost of $8 per unit and has fixed costs of $100. It faces an inverse demand function given by P = 38 – Q.

2
What is the marginal revenue function of the firm?
A)MR = 38 – Q.
B)MR = 30 – 2Q.
C)MR = 46 – Q.
D)MR = 38 – 2Q.
3
The monopoly equilibrium output is
A)8.
B)23.
C)15.
D)30.
4
What are the profits of the monopoly in equilibrium?
A)$225.
B)$125.
C)$345.
D)$161.
5
Suppose fixed costs rise by $100. What happens in the market?
A)The firm will decrease its output and lower its price.
B)The firm will increase the price.
C)The firm will shut down immediately.
D)The firm continues to produce the same output and charge the same price.
6
Which of the following is a correct statement?
A)The higher the marginal cost, the higher the profit-maximizing price.
B)The more inelastic the demand, the higher is the profit-maximizing markup.
C)The more elastic the demand, the lower is the profit-maximizing markup.
D)All of the above.
7
Which of the following pricing strategies does not extract all the consumer surplus from the market?
A)Second-degree price discrimination.
B)Block pricing.
C)Two-part pricing.
D)Commodity bundling.
8
Students have an elasticity of demand for going to see a first-screen movie in the theater of -3. Assume the general public has an elasticity of -2, and movie theaters charge the general public $10 per ticket. The movie theater should charge students
A)$7.50.
B)$3.00.
C)$5.50.
D)$15.00.
9
Firms will often implement randomized pricing to make less information about their pricing strategy available to
A)only rival firms.
B)only consumers.
C)both rival firms and consumers.
D)randomized pricing does not affect information available to consumers or rival firms.
10
If a monopolist claims her profit-maximizing markup factor is 6, what is the corresponding price elasticity of demand?
A)-1.5.
B)-1.2.
C)-0.85.
D)-0.2.
11
The pricing strategy in which identical products are packaged together in order to force consumers into an all or none decision is referred to as
A)two-part pricing.
B)price discrimination.
C)block pricing.
D)commodity bundling.
12
Which of the following pricing strategies usually enhances the profits of firms with market power?
A)Marginal cost pricing.
B)Second-degree price discrimination.
C)Commodity bundling.
D)Both B and C.
13
If EF is the firm elasticity of demand and EM is the market elasticity of demand, the profit-maximizing markup factor for a firm in a Cournot oligopoly with N identical firms is
A)NEF / (1+NEF).
B)NEM / (1+NEM).
C)(1+NEF) / NEF.
D)(1+NEM) / NEM.
14
You are the manager of a souvenir store in New York city that sells, among other things, post cards. You buy the post cards from a supplier at $0.20 per card. If you believe the elasticity of demand for post cards by customers at your store is -3, then your profit-maximizing price is
A)$0.30.
B)$0.13.
C)$0.60.
D)$0.50.
15
Which of the following is a true statement about the process of cross-subsidization, given a firm is selling two products?
A)The two products need to be interrelated through demand.
B)The firm must sell both of its products at prices set above costs.
C)The firm can not have cost complementarities in the production of the two goods.
D)The firm must sell both of its products at prices set below costs.







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