Chapter 15

question

1. The competitive market pricing rule-of-thumb for profit maximization is to set:
a. MR = MC
b. MR = MC/[1 + (1/elasticityofP)]
c. P = MC/[1 + (1/elasticityofP)]
d. MC = MR/[1 + (1/elasticityofP)]

answer

ANS: A

question

2. A 50% markup on cost is equivalent to a markup on price of:
a. 25%
b. 33%
c. 50%
d. 100%

answer

ANS: B

question

3. A 50% markup on price is equivalent to a markup on cost of:
a. 25%
b. 33%
c. 50%
d. 100%

answer

ANS: D

question

4. When elasticityof = -2, the optimal markup on cost is:
a. 100%
b. 67%
c. 50%
d. 33%

answer

ANS: A

question

5. When elasticityof = -1, the optimal markup on price is:
a. 100%
b. 67%
c. 50%
d. 33%

answer

ANS: A

question

6. During peak periods:
a. incremental costs are relevant for pricing purposes.
b. fully allocated costs are relevant for pricing purposes.
c. facilities are underutilized.
d. expansion is not required to further increase production.

answer

ANS: B

question

7. A by-product:
a. has MR = 0.
b. results from an increase in the production of some other output.
c. has MC = MCQ.
d. is identified in terms of its excess production.

answer

ANS: B

question

8. When transferred products can be sold in perfectly competitive external markets, the optimal transfer price is the:
a. external market price.
b. marginal revenue of the transferred-to (buying) division.
c. marginal revenue in the output market.
d. marginal cost of the transferring (selling) division.

answer

ANS: A

question

9. Consumers' surplus represents:
a. total revenues.
b. total revenues less total costs.
c. the excess of revenues above and beyond the cost of output to producers.
d. the value of output to consumers above and beyond the amount paid to producers.

answer

ANS: D

question

10. If a firm charges a price of $6 for a product with a cost of $4, the markup on cost equals:
a. 67%
b. 33%
c. 150%
d. 50%

answer

ANS: D

question

11. If a firm charges a price of $5 for a product with a cost of $2, the markup on price equals:
a. 60%
b. 150%
c. 250%
d. 40%

answer

ANS: A

question

12. Profit margin equals:
a. marginal cost minus marginal revenue.
b. average cost minus average revenue.
c. average cost minus average variable cost.
d. price minus cost.

answer

ANS: D

question

13. The optimal markup on price will fall following an increase in:
a. cost.
b. revenue.
c. the price elasticity of demand.
d. price.

answer

ANS: C

question

14. When engaging in short-run incremental analysis, managers should ignore:
a. fixed costs.
b. implicit costs.
c. explicit costs.
d. effects on the costs of already existing products.

answer

ANS: A

question

15. Consumers' surplus is:
a. the costs consumers would have to pay to produce a product minus the amount paid to sellers.
b. the consumer's budget minus total expenditures.
c. the value of a good to consumers minus the amount paid sellers.
d. quantity supplied minus quantity demanded.

answer

ANS: C

question

16. With price discrimination, higher prices are charged when:
a. the price elasticity of demand is high.
b. the price elasticity of demand is low.
c. the cross-price elasticity of demand is high.
d. the cross-price elasticity of demand is low.

answer

ANS: B

question

17. Price discrimination exists when:
a. costs vary among customers.
b. markups vary among customers.
c. markups are constant among customers.
d. prices vary among customers.

answer

ANS: B

question

18. Successful price discrimination requires:
a. the ability to prevent transfers among customers in different submarkets.
b. inelastic demand in each submarket.
c. constant marginal costs.
d. identical price elasticities among submarkets.

answer

ANS: A

question

19. A firm supplying a single product to two distinct submarkets will maximizes profits by equating:
a. average revenue in each market to average cost.
b. average revenue in each market to marginal cost.
c. marginal revenue in each market to marginal cost.
d. price in each market to marginal cost.

answer

ANS: C

question

20. When products A and B are produced in fixed proportions, profits will be maximized when marginal cost:
a. equals marginal revenue of B.
b. of B equals zero.
c. equals marginal revenue of A plus B.
d. equals marginal revenue of A.

answer

ANS: C

question

21. If elasticityof = -3, the optimal markup on price is:
a. 33%
b. 50%
c. 300%
d. 25%

answer

ANS: A

question

22. If elasticityof = -3, the optimal markup on cost is:
a. 33%
b. 50%
c. 300%
d. 25%

answer

ANS: B

question

23. If the optimal markup on price is 50%, the optimal markup on cost is:
a. 100%
b. 75%
c. 50%
d. 25%

answer

ANS: A

question

24. If the optimal markup on cost is 25%, the optimal markup on price is:
a. 20%
b. 25%
c. 50%
d. 100%

answer

ANS: A

question

25. Price discrimination exists when:
a. prices are set according to the price elasticity of demand.
b. markups differ.
c. prices differ.
d. costs differ.

answer

ANS: B

1 of 25

question

1. The competitive market pricing rule-of-thumb for profit maximization is to set:
a. MR = MC
b. MR = MC/[1 + (1/elasticityofP)]
c. P = MC/[1 + (1/elasticityofP)]
d. MC = MR/[1 + (1/elasticityofP)]

answer

ANS: A

question

2. A 50% markup on cost is equivalent to a markup on price of:
a. 25%
b. 33%
c. 50%
d. 100%

answer

ANS: B

question

3. A 50% markup on price is equivalent to a markup on cost of:
a. 25%
b. 33%
c. 50%
d. 100%

answer

ANS: D

question

4. When elasticityof = -2, the optimal markup on cost is:
a. 100%
b. 67%
c. 50%
d. 33%

answer

ANS: A

question

5. When elasticityof = -1, the optimal markup on price is:
a. 100%
b. 67%
c. 50%
d. 33%

answer

ANS: A

question

answer

ANS: B

question

7. A by-product:
a. has MR = 0.
b. results from an increase in the production of some other output.
c. has MC = MCQ.
d. is identified in terms of its excess production.

answer

ANS: B

question

answer

ANS: A

question

answer

ANS: D

question

10. If a firm charges a price of $6 for a product with a cost of $4, the markup on cost equals:
a. 67%
b. 33%
c. 150%
d. 50%

answer

ANS: D

question

11. If a firm charges a price of $5 for a product with a cost of $2, the markup on price equals:
a. 60%
b. 150%
c. 250%
d. 40%

answer

ANS: A

question

12. Profit margin equals:
a. marginal cost minus marginal revenue.
b. average cost minus average revenue.
c. average cost minus average variable cost.
d. price minus cost.

answer

ANS: D

question

13. The optimal markup on price will fall following an increase in:
a. cost.
b. revenue.
c. the price elasticity of demand.
d. price.

answer

ANS: C

question

14. When engaging in short-run incremental analysis, managers should ignore:
a. fixed costs.
b. implicit costs.
c. explicit costs.
d. effects on the costs of already existing products.

answer

ANS: A

question

answer

ANS: C

question

answer

ANS: B

question

17. Price discrimination exists when:
a. costs vary among customers.
b. markups vary among customers.
c. markups are constant among customers.
d. prices vary among customers.

answer

ANS: B

question

answer

ANS: A

question

answer

ANS: C

question

answer

ANS: C

question

21. If elasticityof = -3, the optimal markup on price is:
a. 33%
b. 50%
c. 300%
d. 25%

answer

ANS: A

question

22. If elasticityof = -3, the optimal markup on cost is:
a. 33%
b. 50%
c. 300%
d. 25%

answer

ANS: B

question

23. If the optimal markup on price is 50%, the optimal markup on cost is:
a. 100%
b. 75%
c. 50%
d. 25%

answer

ANS: A

question

24. If the optimal markup on cost is 25%, the optimal markup on price is:
a. 20%
b. 25%
c. 50%
d. 100%

answer

ANS: A

question

25. Price discrimination exists when:
a. prices are set according to the price elasticity of demand.
b. markups differ.
c. prices differ.
d. costs differ.

answer

ANS: B

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Chapter 15

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