Chapter 10: Bundling and Intrafirm PricingMULTIPLE 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. ANS: A Bundling MSC: Factual DIF: Easy REF: 357 TOP: The Mechanics of 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. b. c. d. e. ANS: A Bundling MSC: Applied $49. $45. $36. $84. $60. DIF: Easy REF: 358 TOP: The Mechanics of 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. b. c. d. e. ANS: A Bundling MSC: Applied $59. $75. $81. $89. None of the above. DIF: Easy REF: 358 TOP: The Mechanics of 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. b. c. d. e. $49. $45. $36. $34. $30. ANS: C Bundling MSC: Applied $49. 2. B. d. DIF: Easy REF: 358 TOP: The Mechanics of 6. and C) for two restaurants (1 and 2) are given in the following table. e. What is the maximum revenue that can be generated by setting a separate price for each of the three restaurants? a. c. in dollars. ANS: B Bundling MSC: Applied $49. c. e. d. b. $75. The reservation prices.a. $89. and C) for three restaurants (1. in dollars. e. ANS: B Bundling MSC: Applied $59. and 3) are given in the following table. b. $30. What is the maximum revenue that can be generated by setting a bundled price for the three restaurants? a. d. $34. c. DIF: Easy REF: 358 TOP: The Mechanics of 8. b. $52. and C) for three restaurants (1. ANS: C Bundling MSC: Applied $46. and 3) are given in the following table. for three classes of demanders (A. DIF: Easy REF: 358 TOP: The Mechanics of 5. $84. DIF: Easy REF: 358 TOP: The Mechanics of 7. b. $63. for three classes of demanders (A. B. What is the maximum revenue that can be generated by setting a bundled price for the three restaurants? . d. The reservation prices. and 3) are given in the following table. $45. 2. None of the above. $30. What is the maximum revenue that can be generated by setting a separate price for each restaurant? a. for three classes of demanders (A. The reservation prices. The reservation prices. $34. in dollars. $45. e. B. in dollars. and C) for three restaurants (1. $81. $72. for three classes of demanders (A. c. $36. B. $36. 2. c. c. $63. b. mixed bundling.000. $60. 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. $84. ANS: D Bundling MSC: Applied $46. There are 12. c. The stadium holds 12. d. complex bundling. d. ANS: E Bundling MSC: Applied $49. b. $72. identified by the school for which they cheer. $160.000 fans attending a basketball tournament featuring three regional powerhouses in Charlotte.000. simple bundling. DIF: Moderate REF: 358 TOP: The Mechanics of .000. then the seller is engaging in: a. DIF: Easy REF: 358 TOP: The Mechanics of 10. There are 4. $120. for three classes of demanders (A. ANS: D Bundling MSC: Factual DIF: Moderate REF: 358 TOP: The Mechanics of 11. What is the maximum revenue that can be generated by setting a bundled price for the two restaurants? a. e.a. $45. $84.000. and C) for two restaurants (1 and 2) are given in the following table. engaged bundling.000. performance bundling. DIF: Easy REF: 358 TOP: The Mechanics of 9. c. The reservation prices. e. When consumers can purchase a set of goods as a bundle or separately. b. e. e.000. in dollars. $36. b. $200. ANS: B $20. d. North Carolina. $52.000 of each of three types of fans. and the marginal cost of seating another viewer is zero. d. $220. The fans value a ticket to see a game according to which teams are competing as shown in the following table. B. and Microsoft MSC: Applied 15. e. ANS: A DIF: Easy REF: 386 TOP: Tying at IBM. d. first-degree price discrimination. This is an example of a: a. $100. tying contract. Play It Again Sam is a producer of high-end CD burners. c. transfer price. Xerox. second-degree price discrimination. ANS: E DIF: Easy REF: 386 . third-degree price discrimination. $70. ANS: D Bundling MSC: Applied 13. If Chip and Cathy have different valuations on dancing and dinner as in the following table. DIF: Moderate REF: 358 TOP: The Mechanics of Tying can sometimes be justified as helping consumers by: brand-name quality protection. different consumer evaluations of the main good. d. and Microsoft MSC: Factual 14. it is practicing: a. $80. c. joint product. a. ANS: C DIF: Easy REF: 386 TOP: Tying at IBM. e. c. transportation costs. 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? Dinner Dancing Chip $40 $35 a. $90.Bundling MSC: Applied 12. e. standard industry practice. Cathy $30 $50 $60. d. offsetting price reductions in the main good. It requires customers to purchase high-quality blank CDs from it in order to maintain warranty agreements. bundle. b. b. b. d. b. Xerox. two-part tariff. When the NCAA basketball tournament will only sell tickets to all three games held at a given site as a package. tying. e. markup pricing. c. ANS: C MSC: Factual 19. ANS: A MSC: Factual MSC: Applied DIF: Easy REF: 388 TOP: Transfer Pricing 17.TOP: Tying at IBM. b. The Two Stage Photo Company has a division for each stage of photo processing. then production division A will surely: a. the firm is a monopolist in its downstream market. markets must be simulated within firms. marginal costs at stage 1 only. c. the price elasticity of demand for the upstream product is greater than 1 (in absolute value). Xerox. d. products are bundled and sold as a package. DIF: Easy REF: 388 TOP: Transfer Pricing . d. c. and Microsoft 16. whatever management wants. ANS: C DIF: Easy REF: 388 TOP: Transfer Pricing Transfer prices are needed when: firms purchase raw materials from other firms. consumers sell goods and services to one another. average costs at stage 1 only. make positive economic profits. average costs at each stage. a. sell at less than the external price. For a fixed quantity of photo processing. sell at the external price. e. e. If a firm uses optimal transfer pricing between production division A and marketing division B. e. the marginal cost of the downstream product is greater than 1. e. sell at marginal costs. c. b. price when: a. b. marginal costs at each stage. b. c. d. The transfer price of an upstream product should always equal the market there is an outside market for the upstream product. There is no external market for the first stage’s output. ANS: B MSC: Factual DIF: Easy REF: 388 TOP: Transfer Pricing 18. d. and a competitive external market for the output of division A exists. there is a perfectly competitive market for the downstream product. make normal economic profits. the transfer price should depend on: a. firms charge different prices to customers where there are no differences in production costs. $350 per ton. c. $2. $10. c. $250 per ton. 250 tons. . $5Q. where Qc is tons of coal per week. 100 tons. $50. and the total cost of producing coal is given by TCc = 40 + 5Qc2. c. d. d. and a marketing division that adds its own average total costs of ATC = 20 + 3Q. b.000 per ton. $1. The price of coal in a perfectly competitive market outside the firm is $250 per ton. b. $750 per ton. The price of coal in a perfectly competitive market outside the firm is $250 per ton. whose total costs are TC = 10 + Q2 (where Q is the quantity of X). e. How much coal should the XYZ Company produce? a. b. $15. $50 + 4Q. The XYZ Steel Company produces its own coal for use in its production facility. The marketing division adds its own total costs of 5 + 3Q. A firm has a division that produces chemical Y. d. and the total cost of producing coal is given by TCc = 40 + 5Qc2. The demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by TCs = 175Qs.MSC: Factual 20. where Qs is tons of steel per week. b. There is no external market price of Y. e. 200 tons. the wholesale price is $10. whose average total costs are ATC = 50 + 2Q (where Q is the quantity of Y). where Qs is tons of steel per week. $2Q. ANS: B MSC: Applied DIF: Easy REF: 388 TOP: Transfer Pricing 22. c. $5. ANS: A MSC: Applied DIF: Easy REF: 388 TOP: Transfer Pricing 21. In the competitive external market for X. d. How much should XYZ steel charge itself for coal? a. e. $12. where Qc is tons of coal per week. 25 tons. e. $500 per ton. A firm has a division that produces X. The XYZ Steel Company produces its own coal for use in its production facility. ANS: C MSC: Applied DIF: Easy REF: 388 TOP: Transfer Pricing 23. 2 tons. The transfer price of X should be: a. $4Q. The transfer price of Y should be: a. The demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by TCs = 175Qs. 18.25 tons.75 tons.a. b. b.75 tons. where Qc is tons of coal per week. ANS: B MSC: Applied DIF: Moderate REF: 388 TOP: Transfer Pricing 26. 75 tons. b. d. 75 tons. c. If a firm has a marketing division and a production division with increasing costs. 25 tons. and the total cost of producing coal is given by TCc = 40 + 5Qc2.75 tons. where Qs is tons of steel per week. if necessary. $5Q. ANS: E MSC: Conceptual DIF: Moderate REF: 388 TOP: Transfer Pricing . 43.75 tons. e. where Qs is tons of steel per week. The price of coal in a perfectly competitive market outside the firm is $250 per ton. where Qc is tons of coal per week. The XYZ Steel Company produces its own coal for use in its production facility. then the marketing division should always buy: a. first from whatever the production division wishes to sell and then. 6. 6. The price of coal in a perfectly competitive market outside the firm is $250 per ton. The demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by TCs = 175Qs. all the production division can produce at the external price. 43. How much steel should the XYZ Company produce? a. all it wants at the external market price from the production division. ANS: A MSC: Applied DIF: Moderate REF: 388 TOP: Transfer Pricing 25. ANS: C MSC: Applied $50. DIF: Easy REF: 388 TOP: Transfer Pricing 24. The XYZ Steel Company produces its own coal for use in its production facility. c. e. and the total cost of producing coal is given by TCc = 40 + 5Qc2. b. c. d. How much coal will XYZ sell outside the firm? a. and a competitive external market for the production division’s output exists. d. $4Q. e. c. from the production division at production’s price. $2Q. 18. externally. only externally.25 tons. what it wants at the external market price. e. 25 tons. $50 + 4Q. The demand for steel is given by Ps = 500 – 2Qs and the total cost of producing steel is given by TCs = 175Qs. d.
Report "Managerial Economics, Allen, Ch 10 Test Bank"