ECON7100-M50 Spring 2015

Self-Study06

1. Free digital goods are more common than free physical goods because
   1. It is not possible to exclude non-paying users of digital goods.
   2. There is little fixed cost for providing digital goods.
   3. It is cheaper to provide free samples of digital goods as bait for the paying customers.
   4. The marginal cost of physical goods is lower than that of digital goods.
2. Super-sizing fast foods will increase profit
   1. even if the variable costs of the extra items in the bundle are not covered.
   2. if the extra revenue from the bundle helps to pay part of the fixed cost.
   3. if the bundle costs just as much as the bundled items sold separately.
   4. as long as the order brings in higher gross revenue.
3. Goods subject to consumption rivalry could not be provided free because
   1. Partial excludability is not possible.
   2. There is no need for price rationing.
   3. They have significant positive marginal cost which must be recovered by sellers.
   4. Consumers generally do not like free goods.
4. Cost-based pricing is more appropriate for
   1. customized products.
   2. innovative products.
   3. inferior goods.
   4. luxury goods.
5. Which one of the following is correct?
   1. Pure bundling generates higher net revenue than mixed revenue when marginal costs are positive.
   2. Bundling is superior to perfect price discrimination in maximizing total revenue.
   3. Pure bundling always generates more profit than mixed bundling.
   4. Bundling will increase total revenue when demands for the bundled items are negatively correlated.
6. Loss-leader pricing can be profitable for sellers if
   1. other non-price-leader items are competitively priced and the loss-leader does not generate much higher customer traffic.
   2. customers can stock up loss-leader items for later use.
   3. myopic customers become captive to complementary services which are premium-priced.
   4. customers can freely combine complementary loss-leader items from different vendors.
7. Which of the following goods or services can be successfully price discriminated?
   1. Easily transportable and non-perishable goods.
   2. Concert tickets on hot performers.
   3. Light-weight standardized manufactured goods.
   4. Location-specific goods.
8. Single pricing is preferred to perfect price discrimination by consumers
   1. because the consumer surplus received by those with reservation prices higher than the single prices always exceeds the consumer loss suffered by those consumers who cannot afford the single prices.
   2. with reservation prices lower than the single prices.
   3. with reservation prices higher than the single prices.
   4. because single pricing generates more consumer surplus for all consumers.
9. Price discrimination
   1. generates more consumer surplus when it is successful.
   2. denies consumers with lower reservation prices.
   3. is difficult because goods purchased at lower prices could be resold at higher prices.
   4. generates less profit when it is successful.
10. Flat-rate (all you can use) pricing is profitable for sellers if
    1. It includes usually expensive items.
    2. it involves additional cost for buyers to use as much as they think they would.
    3. the right of use can be transferred to friends.
    4. there is no minimum pre-paid subscription period.
11. Cinemas and theme parks forbid customers to bring food and drink with them because
    1. the management does not want to compete with cheaper outside sources.
    2. the management wants to promote good eating habits by selling only health food in their establishments.
    3. the management does not want to clean up after their customers.
    4. the management wants their customers to concentrate on the non-food entertainment.
12. Selling item A and item B in a bundle will increase profit if
    1. sellers can perfectly price discriminate among customers.
    2. those buyers who value item A more than other buyers also value item B more than other buyers.
    3. the bundle price is higher than buying the items separately.
    4. those buyers who value item A more than other buyers also value item B less than other buyers.
    5. Both B and C.
13. Which of the following will encourage the highest subscription renewal rate?
    1. Bonus prize for early renewal.
    2. Renewal reminder 2 months before expiration date.
    3. Renewal reminder 6 months before expiration date.
    4. Automatic subscription renewal plan with credit card data on file.
14. Pay-what-you-want pricing allows downloaders to
    1. enjoy a public good with close to zero marginal cost.
    2. it allowed downloaders with higher reservation prices to pay more for deluxe versions.
    3. hide their reservation prices behind free access.
    4. pay according to their reservation prices.
15. Which one of the following is correct?
    1. Bundling is superior to perfect price discrimination in maximizing total revenue.
    2. Fake bundling can increase revenue if buyers mistakenly think bundles always represent savings compared to buying the items separately.
    3. Bundling will increase total revenue when demands for the bundled items are negatively correlated.
    4. Pure bundling always generates more profit than mixed bundling.
    5. Both B and C.
16. Mixed bundling can increase total net revenue when
    1. demands are positively correlated.
    2. demands are negatively correlated and marginal costs are positive.
    3. demands are concentrated in the middle range of individual prices.
    4. Both B and C.
17. A cover charge in a busy entertainment business on top of the ordered items
    1. is a form of single pricing.
    2. forces those customers who spend a long time nursing a cheap item to pay for part of the fixed cost.
    3. encourages customers who have more time than money.
    4. discourages customers who have more money than time.
18. The profitability of free public goods depends on
    1. Free access alone regardless of popularity.
    2. Consumption non-rivalry and non-excludability.
    3. Charging some paying customers to cover all costs.
    4. Consumption non-rivalry alone.
19. For which products will nation-wide online auctions bring in higher prices?
    1. used items with only strong local demand.
    2. limited-edition products with inelastic demand.
    3. widely available new products with list prices.
    4. commodities with elastic demand.
20. Value-based pricing is more appropriate for
    1. generic products.
    2. inferior goods.
    3. experience goods
    4. commodities.