Economics Sample Assignment Part 2

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The simple case of pricing with market power assumes (a) all consumers are charged the same price, (b) the firm sells one product and (c) demand exists in one time period. Discuss what happens as each assumption is relaxed.
Great Nuggets finds that there is a clear gender difference in the demand for their chocolates. Men have very little price sensitivity and tend to buy whatever the sales clerk recommends. Women, on the other hand, tend to ask many questions about product quality and attempt to maximize the quantity available for the price. Great Nuggets would like to implement a two-tier pricing system based on gender. What (non-legal) problems would it encounter?
A typical university football program requires alumni to join one of several booster clubs (each club gets seats in different parts of the stadium) before the person can buy season tickets. What has this got to do with consumer surplus?
Independence Burgers serves fast food at its 300 franchised outlets across the South. The chain has recently found that (a) people are upgrading to restaurants when they eat out, (b) government regulation of beef has been tightened and (c) modern food preparation technology makes central commissaries more cost effective. What should Independence Burgers be thinking about doing with its organizational architecture? What impact does excess capacity play on determining the strategic focus of managers toward competitors?
Describe the three aspects of organizational architecture. Which one is the most important?
GMB and VolgaBus compete to sell 100 buses to MetroTravel, a city-owned bus company. If sealed bids are required and no illegal activities occur, what will be the outcome? Explain the process.
Wet-n-Wild Indoor Water Park offers family fun year-round in the Northstar state to locals and out-of-state visitors to the nearby Mall of America. The demand for day-passes to the water park for each market segment is independent of the other market segment. The marginal cost of providing service to each visitor is $5 per day. Suppose the daily demand curves for the two market segments are:
1. If Wet-n-Wild Indoor Water Park charges one price to all visitors, what is the profit maximizing price? How many day-passes will be sold per day?
2. If Wet-n-Wild Indoor Water Park charges one price to locals, what is the profit maximizing price for locals? How many day-passes will be sold per day to locals?
3. If Wet-n-Wild Indoor Water Park charges one price to out-of-towners, what is the profit maximizing price for out-of-town guests? How many day-passes will be sold per day to out-of-town guests?
4. Compare the prices from uniform pricing to the prices from price discrimination.
Draw supply and demand for a product showing the equilibrium price and quantity. Illustrate what would happen if all the transactions costs of market were reduced. Generally, what is the impact of transactions costs on the operation of the marketplace?
Always Round Tire hires Plain Truth Advertising to write copy for its newspaper advertisements. Always Round has a demand for advertising of MB = 400 -2S where S is the number of hours that Plain Truth delivers. If Plain Truth has a fixed supply cost: MC = $150 per hour, what are the number of hours that Always Round purchases from Plain Truth? Now, if the copy writers are slackers and only deliver 100 hours of work each week and if the each company must spend $1,250 in monitoring and bonding costs, what is the surplus and residual loss in this environment?
In the area of agricultural chemicals, the Environmental Protection Agency requires detailed labeling on cans of pesticides and herbicides. Generally speaking, the industry not only doesn't oppose these labeling requirements, but even supports government sponsored education programs on how to use the these chemicals. Why?
What is an agency relationship? What are agency problems?
Many manufacturers attempt to build fairly close relationships with the firms that supply their packaging and boxes. Why?
What is Adverse Selection? Give an example to illustrate this problem
Human resources as a source of creating value in a modern company are also referred to as:
A. hardware.
B. software.
C. wetware.
D. dryware.
A firm with market power in pricing faces a:
A. flat demand curve.
B. vertical demand curve in all cases.
C. price inelastic demand curve.
D. downward sloping demand curve.
If a firm prices its output at marginal cost – the competitive solution – then the gains from trade are:
A. all in producer surplus.
B. split between producer and consumer surplus.
C. all in consumer surplus.
D. split in a Nash solution.
If Tiger Toys faces a demand curve of P = 85 - 0.25Q and a MC = ATC = 20, then the market price would be:
A. $85.00
B. $52.50
C. $130.00
D. $32.50
If Tiger Toys faces a demand curve of P = 85 - 0.25Q and a MC = ATC = 20, then the output would be:
A. 65 units.
B. 85 units.
C. 130 units.
D. 32.5 units.
If Tiger Toys faces a demand curve of P = 85 -0.25Q and a MC = ATC = 20, then the markup would be:
A. $52.50.
B. $20.00.
C. $32.50.
D. $65.00.
For decision making for the firm with market power, fixed costs are:
A. a key element in the markup.
B. irrelevant.
C. the same as marginal costs.
D. opportunity costs of production.
As a firm's market power in pricing decreases, the price elasticity of its demand:
A. stays the same.
B. decreases.
C. is equal to one.
D. increases.
Using the linear approximation system to estimate the profit maximizing price requires that the managers know the costs of production and:
A. the production function.
B. one price and quantity of demand.
C. two prices and quantities of demand.
D. decision-making process of the marketplace.
Using cost plus pricing, what is the price if ATC = $14.50 and the target rate of return is 4 percent?
A. $15.10
B. $49.34
C. $14.5
D. $22.10
Using cost plus pricing, what is the price if ATC = $23.50 and the target rate of return is 17 percent?
A. $28.31
B. $138.24
C. $29.38
D. $46.74
The cost plus pricing formula tends to ignore:
A. incremental costs.
B. customer quantity sensitivity.
C. fixed costs.
D. quotas
Calculate the markup price if MC = $10.00 and price elasticity equals 1.7.
A. $5.88
B. $17.24
C. $24.27 D. $32.42
If Happy Times Theater charges one price to all customers, then that price will be:
A. $6.25.
B. $7.50.
C. $10.00.
D. Not enough information available.
If Happy Times Theater charges one price to all customers, then the profit will be:
A. $374.25.
B. $62.50.
C. $562.50.
D. $150.00.
If Happy Times Theater charges one price to day customers and a different price to night customers, then the profit will be:
A. $374.25.
B. $62.50.
C. $562.50.
D. $150.00.
If Happy Times Theater charges one price to day customers and another price to night customers, then the day price will be:
A. $7.50.
B. $5.50.
C. $6.25.
D. $10.00.
If Happy Times Theater charges one price day customers and another price to night customers, then the night price will be:
A. $7.50.
B. $5.50.
C. $6.25.
D. $10.00.
If Happy Times Theater charges one price day customers and another price to night customers, then its total profits on the sale of tickets will:
A. increase.
B. stay the same.
C. decrease.
D. vary according to the slope of marginal revenue curve.
Hickey-Freeman will sell a second suit to the same person for a $100 discount. This attempt to take advantage of an individual's falling additional utility for more consumption is called:
A. a two-part tariff.
B. first degree price discrimination.
C. block pricing.
D. cost-plus pricing.
Many college basketball programs require alumni to join a booster club before they can buy season tickets. This is an example of:
A. a two-part tariff.
B. first degree price discrimination.
C. block pricing.
D. cost-plus pricing.
Price discrimination requires that different customers have different levels of price sensitivity and that:
A. the cost of production is different for every customer.
B. customers cannot resell the product amongst themselves.
C. demand is homogeneous amongst customers.
D. marginal costs are falling.
Price discrimination is usually defined as selling a product to different customers at:
A. the same price even though costs of service are different.
B. different prices even though costs of service are different.
C. the same price even though the costs of service are the same.
D. different prices even though the costs of service are the same.
Third degree price discrimination is defined by selling:
A. to every customer at a different price.
B. at different prices by volume.
C. every unit at the same price.
D. to different groups at different prices.
Many firms offer substantial rebates by mail or coupons for discounts at the point of sale. The people who use the rebates or coupons have _______ than the people who don't use them.
A. greater price sensitivity
B. the same price sensitivity
C. less price sensitivity
D. inverted price sensitivity
Disney sold The Little Mermaid for $20.00 with a $5.00 mail in rebate. The rebate should have:
A. reduced overall customer demand.
B. stabilized overall customer demand.
C. increased overall customer demand.
D. inverted overall customer demand.
The higher the price elasticity ⁿ
A. the more sensitive price changes is to quantity demanded
B. the less sensitive price changes is to quantity demanded
C. the more sensitive quantity demanded to price changes
D. the less sensitive quantity demanded to price changes
In the 1950s and 1960s, cigarette company representatives stood at the edge of University campuses and gave away free cigarettes to anyone who would take them. This policy:
A. helped political groups
B. established brand identity.
C. helped forge volunteerism
D. reduced alcohol consumption
A company might charge a customer different prices per unit, depending upon the number of units purchased. This is called:
A. Bundling
B. Two-part tariff
C. Price Discrimination
D. Block Pricing
Under Block pricing, a company might
A. charge a customer different prices per unit, depending upon the customer's loyalty.
B. charge a customer different prices per unit, depending upon the number of units purchased.
C. provide a customer different units, depending upon the price the consumer bids.
D. charge a customer different prices per unit, depending upon the price the consumer bids.
A customer pays an admission fee to get into the local YMCA and also a monthly membership fee. This is called:
A. Bundling
B. Two-part tariff
C. Price Discrimination
D. Block Pricing
Season tickets for sporting events is an example of:
A. Bundling
B. Two-part tariff
C. Price Discrimination
D. Block Pricing
Electric generator companies did not raise their prices when there was a huge demand for their products, due to a power shortage. The companies were:
A. concerned with being sued by consumer activists
B. concerned with political backlash
C. concerned with peoples' welfare
D. concerned with reputation and future demand
Game theory between two firms with two outcomes tends to emphasize:
A. noncooperative games.
B. cooperative games.
C. intra-firms decision-making.
D. purely competitive outcomes.
Negotiations and binding contracts are not possible between rivals in:
A. noncooperative games.
B. cooperative games.
C. cartels.
D. single firm monopolies.
Sealed bid construction contracts are examples of market games that are:
A. simultaneous and non-repeated.
B. simultaneous and repeated.
C. sequential and non-repeated.
D. sequential and repeated.
A dominant strategy is one where the one firm picks:
A. a strategy only after seeing the other firm's decision.
B. a strategy that must be repeated.
C. a strategy no matter what the rival does.
D. the same the strategy as the rival.
If GMB were required to submit a single sealed bid to supply buses to MetroTravel, it would:
A. submit a low price.
B. submit a high price.
C. submit neither a high or low price.
D. split the bid – half high and half low.
The likely outcome for a simultaneous non-repeated bid is:
A. GMB – High, VolgaBus – High.
B. GMB – Low, VolgaBus – High.
C. GMB – High, VolgaBus – Low.
D. GMB – Low, VolgaBus – Low.
Risk-averse managers often take the tack of selecting the secure strategy. That is the business decision that provides the:
A. lowest payoff among the best payoffs.
B. highest payoff among the best payoffs.
C. lowest payoff among the worst payoffs.
D. highest payoff among the worst payoffs
Wal-Mart built the base of its retailing market power in small cities and towns. In most of those towns, the size of marketplace is so small that only one large retailer can successfully exist. This is known as:
A. adverse selection.
B. first-mover advantage.
C. secure strategy.
D. extension form.
Repeated market interaction, particularly when there is no end to the interaction in sight, can:
A. change the dominant strategic equilibrium.
B. not change the dominant strategic equilibrium.
C. only change the equilibrium if the first-mover changes.
D. result in a mixed, secure strategy
Though Nash games are noncooperative, a cooperative outcome is more likely if
A. long run gains are smaller than short run gains.
B. firms can easily monitor the outcomes from cooperation.
C. firms expect the market relationship to last only for a short time.
D. firms can easily monitor the outcomes from rival's defection.
A dominant strategy exists when it is:
A. suboptimal for a firm to choose that strategy regardless of what its rival does.
B. optimal for a firm to choose that strategy regardless of what its rival does.
C. optimal for a firm to choose an other strategy regardless of what its rival does.
D. suboptimal for a firm to choose an other strategy regardless of what its rival does.
A display of a game in a tree-diagram with nodes for every move:
A. is called a second-mover advantage.
B. is called a first-mover advantage.
C. is a simultaneous move game.
D. is an extensive form representation.
A household products firm was required to examine its organizational architecture in order to survive. What three aspects of its organization did it look at?
A. Decision rights, rewards and technology.
B. Government regulation, technology and decision rights.
C. Government regulation, technology and markets.
D. Decision rights, rewards, evaluation systems.
If a manager, who does not own the company, is allowed to make decisions for the company, then:
A. the decisions will usually be good ones.
B. the decisions will always be bad ones.
C. a control system of rewards and evaluation must be set up.
D. the manager usually assumes the same attitudes as the owner.
The three legs of the organizational stool are reward systems, performance evaluation systems, and:
A. influence costs.
B. decentralization.
C. decision rights.
D. market technology.
A job in sales – such as a sales representative for an agricultural chemical company – usually represents:
A. many tasks and little sales authority.
B. few tasks and very little sales authority.
C. many tasks and a lot of sales authority.
D. few tasks and a lot of sales authority.
Which of the following is not a benefit to decentralization of corporate decision-making?
A. Incentive problems
B. More effective use of local knowledge
C. Conservation of time of senior management
D. Training and motivation for local managers
If D represents the level of decentralization of corporate decision-making, then Benefits = B*D and Costs = A*D + C*D2. The optimal level of decentralization occurs where the:
A. horizontal distance between benefits and costs is greatest.
B. vertical distance between benefits and costs is greatest.
C. sum of the squares of the distance between benefits and costs is minimized.
D. level of benefits is greatest.
If an employee makes a point of stopping each morning in his manager's office to detail the positive outcomes yesterday's work, this is an example of:
A. project initiation.
B. influence costs.
C. project monitoring.
D. decentralization of decision-making.
Each year, most US companies bring a CPA firm to audit their books. This is an example of:
A. how most companies do not trust their managers.
B. separation of decision management and decision control.
C. the impact of influence costs.
D. the benefits of decentralization or outsourcing.
We say that a firm is vertically integrated if:
A. it makes a lot of its own outputs.
B. it makes a lot of its own inputs.
C. it centralizes all output decisions but decentralizes pricing decisions.
D. it decentralizes all input purchases but centralizes output levels.
The use of hierarchies is common in the modern corporation:
A. because of the principle of comparative advantage.
B. because of the principle of separation of decision management and decision control.
C. to avoid collective action problems.
D. to enhance employee buy-in.