Chap018 - Chapter 18 - Pricing Strategies Chapter 18:...

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Chapter 18 - Pricing Strategies Chapter 18: Pricing Strategies Main Concepts and Learning Objectives This chapter explores pricing strategies to maximize profit when firms have market power. Because consumer surplus constitutes a useful measure of consumer willingness to pay, these pricing strategies focus on mechanisms for capturing consumer surplus as revenue. These pricing strategies are useful in situations in which a single demand curve represents a set of consumers with a range of willingness to pay, or a single firm faces two separate demand curves that represent two different groups of consumers. In addition, this chapter discusses pricing strategies that are useful in situations in which a single firm markets two related goods. The analysis of the optimal price for movie theater popcorn and movie tickets clearly explicates the complexity of pricing decisions in which the price of one good impacts the demand for the related good. Students who master the material presented in this chapter will be able to analyze price discrimination. They will be able to compute prices and the impact on consumer surplus for situations including: perfect price discrimination price discrimination based on observable customer characteristics price discrimination based on self-selection bundling. 18-1
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Chapter 18 - Pricing Strategies Multiple Choice Quiz (10 questions) covering main points: 1. Price discrimination occurs when a. a firm charges different prices for different units of the same good. b. a firm targets minority markets. c. a firm charges higher prices in low income inner city neighborhoods. d. none of the above 2. If a firm achieves perfect price discrimination, consumer surplus is a. maximized. b. zero. c. unaffected. d. always harms consumers (as a group). 3. A two-part tariff a. occurs when import tariffs are different for different countries. b. includes a fixed fee and a per-unit price. c. Both a and b d. None of the above 4. Consider the discussion of Price Discrimination Based on Observable Customer Characteristics in Section 18.3. This section explains a strategy to compute optimal prices for a firm with two sets of customers (college students and other adults). How is the situation described in this section different from the situation described in section 17.8? a. The situation describes in 17.8 focused on one set of customers that buy two related products, while the situation described in section 18.3 describes one product sold to two different sets of customers. This is important, because the two demand curves in the section 17.8 scenario are related, but the two demand curves in section 18.3 are not related. b. The firm in section 17.8 had market power, but the firm in section 18.3 does not. 5.
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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Chap018 - Chapter 18 - Pricing Strategies Chapter 18:...

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