Quiz 12 Microeconomics Pricing, ch



Quiz 12 Microeconomics Pricing, ch. 15

 1. The best example of demand-based price discrimination among the following is:

c. Charging higher prices to minorities than to whites.

 2. Give your own example of price discrimination.

The pharmaceutical companies may sell antiretroviral drugs with higher price to the customers who belong to wealthier countries. As the purchasing power in Africa is low, the sale is without price discrimination.

Bill Barriers, the president of MightySoft (MS), is trying to decide how to price a new piece of software called DoorKnobs (DK). MS spent $100,000 to develop this software and is the only firm that can sell it. The marginal cost of producing and distributing a copy of DK is $10 per customer. Each demander will buy at most one copy of DK. There are three types of demanders in this market. Type A demanders are willing to pay up to $210 for a copy of DK, Type B demanders are willing to pay up to $110 for a copy of DK, and Type C demanders are willing to pay up to $60 for a copy of DK. In this market, there are 1,500 Type A demanders, 500 Type B demanders, and 1,000 Type C demanders.

3. If MS must charge the same price to all buyers, what price will maximize its profits?

b) $210

DEMANDER | | |Actual |200 |210 |110 |100 |60 | |TYPE A |1500 |210 |315000 |300000 |315000 |165000 |150000 |90000 | |TYPE B |500 |110 |55,000 |100000 |105000 |55000 |50000 |30000 | |TYPE C |1,000 |60 |60,000 |200000 |210000 |110000 |100000 |60000 | | | | |430000 |600000 |630000 |330000 |300000 |180000 | |

4. At this price, how much profit will MS make from DK?

630,000 (-) 430,000 = 200,000

b) $200,000

5. Now suppose that MS's market research team discovers that all Type B and Type C demanders own copies of a competing software product, and none of the Type A demanders own this competing product. MS can reliably determine who owns a copy of the competing product, but this is the only information it has regarding the type of each demander. Therefore, MS can charge different prices for DK to those who do and do not own copies of the competing product. In addition, MS is able to prevent resale of DK from one seller to another. Under these circumstances, what should MS do to maximize its profits?

a) Set a price of $210 for DK, but offer a $50 discount to anyone who owns a copy of the competing product.

 6. Choose one specific product and research its prices on the internet. Describe your results briefly. Do all internet stores charge the same price? If not, what is the price range? How can you explain why prices vary?

CHESS TIMER

Chess players use the chess timers or chess clocks. Chess clocks are integral part in chess competitions. Different types i.e. premium digital chess clocks, standard chess clocks and other are available at market. The chess clocks are available with different rates and many websites offer wide range of products with competitive rates. The price of the clock starts even with $ 14.95. Some clocks also ranges of $125. The varying of rate depends upon the quality, variety of the product.

 7. Give your own example of a two-part tariff price.

The two-part tariff is another price discrimination technique where the prescribed product or service is composed of two parts. The price discrimination technique fully or party associated with monopolistic policy.

The best example is

1. Credit cards which charge annual fee plus per-transaction fee.

2. Landline telephones which will charge rental fee and per call fee.

8. Answer one of the following questions.

c) What is cost-plus pricing? Is it consistent with profit maximization?

  The cost-plus pricing method used by companies. It is an easy method to calculate applying little information. Though various methods exist, the most common formula is calculation of the cost of the product and adding additional amount of the profit to such cost of the product. More particularly, the cost-plus pricing is used while tendering with government contracts. But it ignores the role of competitors and role of consumers. The method also provided incentive for inefficiency.

On the other hand, profit maximization can be achieved with main profit maximization methods i.e. Marginal cost-marginal revenue method and total cost – total revenue method. In order to maximize the returns, the company usually considers the factors like production costs, sale prices and output levels in order to reach profit goal.

 9. Products produced for mass consumption are often criticized as being of poor quality. We know, however, that markets create many assurance mechanisms to help consumers monitor product quality. "Piece of Crap" by Canadian rocker Neil Young discusses several of these mechanisms, for example:

In reference to the song, what market mechanisms help to alleviate problems arising from the lack of information about the quality of goods? Does Neil Young think these mechanisms work well?

The manufacturers manufacture the products with competitive price. If the quality of goods does not exist, such products will no longer at market. Besides various environment and other health laws insist to manufacture the goods by addressing green concept so that sustainable environment is achieved.

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