Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 25, Problem 7E
To determine
To explain:
The conditions for the given two-tier pricing scheme to be profitable.
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The pricing model for iTunes has been to price songs individually. In contrast, Spotify opted to offer unlimited song playing for a monthly fee.
True or False: Spotify's pricing model will likely yield more profit if the value that individuals attach to songs varies greatly across songs and across different people.
True
False
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.
Identify nine common pricing methods.
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- What is the Difference between predatory pricing, tie-in sales, and bundling? At what Price should All Firms Produce at? What should a Firm do for Pricing if it faces Elastic or Inelastic Demand?arrow_forwardWhat of the following statements is not true about group price discrimination? Group of answer choices it is less difficult to charge different prices to different consumers if a good is an individually provided service, such as haircuts the group of consumers with more elastic demand (as a given price) will be charged a higher price in theory the good considered must be the same, but in the real world a price discriminating monopolist may need to change the good in order to charge different prices (e.g., put it into a different container or box). Which is the best example of price discrimination? Group of answer choices Higher price for a Ford truck than for a Ford car. Different price for a car wash on Tuesday versus Wednesday Average price of a 2000 square foot home in California being higher than in South Dakota.arrow_forwardThe information in the table below shows the total demand for premium-channel digital cable TV subscriptions in a small urban market. Assume that each digital cable TV operator pays a fixed cost of $200,000 (per year) to provide premium digital channels in the market area and that the marginal cost of providing the premium channel service to a household is zero. 1. Assume there are two profit-maximizing digital cable TV companies operating in this market. Further assume that they are not able to collude on the price and quantity of premium digital channel subscriptions to sell, how many premium digital channel cable TV subscriptions will be sold altogether and what price will be charged when this market reaches a Nash equilibrium? 2. Under the conditions given in Question #3 of this problem, how much profit will each firm earn when this market reaches a Nash equilibrium? 3. What is the socially efficient level of digital premium channel subscriptions for this market and at what…arrow_forward
- Which of the following is an example of a two-part tariff pricing strategy? Group of answer choices A gym charging a monthly membership fee plus a fee for each fitness class attended. A coffee shop offering a free refill with the purchase of a large coffee. A cable company offering different packages of channels at different price points. A hotel charging a higher rate for a room with a better view.arrow_forwardTo join the Quiet Reading Society, members pay a fixed annual fee of F, and then they can read any number of books at an extra charge P per book. Each member’s willingness to pay for Q books is P = 100 - 5Q. (Here, Q refers to the number of books a member reads completely, but partial quantities are also possible.) The club has fixed costs, but incurs no additional cost when a member checks out a book to read. What does the optimal two-part pricing scheme look like?A. It costs nothing to join the club, and then books can be read for $50 each.B. It costs $100 to join the club, and then books can be read for $5 each.C. It costs $500 to join the club, and then books can be read for $10 each.D. It costs $1,000 to join the club, and then books can be read for free.arrow_forwardSmyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, compute the present value of Smyth Industries' profits if it could have remained a monopoly when the interest rate was 5 percent. Multiple Choice $210 million $200 million $1.05 billion $100 millionarrow_forward
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