MBA,!P1!Sept,Oct!2011!
Prices'and'Markets'
Amine'Ouazad
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Midterm'Quiz'
October'6,'2011'
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Instructions
•!Write!your!answers!only!on!the!quiz!itself.!Keep!the!pages!stapled!together!!
•!You!have!60!minutes!to!complete!this!quiz.!
•!This!is!a!closed,book!quiz.!An!“A4!cheat!sheet”!(both!sides)!is!allowed.!
•!A!non,communicating!calculator!is!allowed.!
•!The!quiz!has!15!questions!on!6!numbered!pages,!worth!a!total!of!30!points.!
•!Pace!yourself.!You!have!around!4!minutes!per!problem.!Don’t!spend!all!your!time!on!one!
hard!question!and!miss!out!on!the!easier!questions.!
•!The$MBA$department$rules$are$that$professors$cannot$come$to$answer$clarifying$questions$
during$an$exam.$Instead,$in$case$of$doubt$about$interpreting$a$question,$state$your$
assumptions$and$proceed.$
•!Otherwise,!give!no!explanations.!
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YOUR NAME AND SECTION!
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Prices!and!Markets!Quiz!#2!
All'questions'are'multiple>choice'questions.'Please'circle'the'only'valid'answer.'A'valid'
answer'leads'to'2'points,'an'invalid'answer'leads'to'0'points.'No'answer'leads'to'0'points.'
Circling'multiple'answers'leads'to'0'points.''
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1. The!three!conditions!for!explicit!market!segmentation!are:!
a. Market!power;!observability;!and!no!arbitrage!possible.!
b. Perfect!competition;!no!observability;!arbitrage!possible.!
c. Perfect!competition;!observability;!no!arbitrage!possible.!
d. Market!power;!observability;!arbitrage!possible.!
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2. Sodium!tripolyphosphate!is!a!molecule!that!has!a!large!number!of!potential!uses.!It!is!
used!as!a!detergent,!or!as!a!tanning!agent!for!leather!making.!A!chemical!company!is!
making!sodium!tripolyphosphate!and!branding!it!for!each!segment:!in!segment!A!as!a!
detergent,!in!segment!B!as!a!tanning!agent.!The!marginal!cost!of!production!is!$1!per!
ton!and!equal!across!the!two!segments.!!The!elasticity!of!demand!in!each!segment!is:!
0.3!in!segment!A,!5!in!segment!B.!Consumers!do!not!arbitrage!across!segments.!The!!
prices!are:!$13/ton!in!segment!A,!$20/ton!in!segment!B.!
a. The!price!should!be!increased!in!segment!A,!increased!in!segment!B.!
b. The!price!should!be!increased!in!segment!A,!lowered!in!segment!B.!
c. The!price!should!be!lowered!in!segment!A,!increased!in!segment!B.!
d. The!price!should!be!lowered!in!segment!A,!lowered!in!segment!B.!
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3. BHP!Billiton!produces!iron!ore!in!Australia!and!Brazil.!This!year,!the!market!price!is!
206!cents!per!ton!per!year.!The!Australian!plant!has!a!marginal!cost!of!103!cents,!and!
an!average!cost!of!324!cents!per!ton.!
a. The!Australian!plant!makes!a!positive!variable!profit,!!
and!a!positive!total!profit.!
b. The!Australian!plant!makes!a!positive!variable!profit,!!
and!a!negative!total!profit.!
c. The!Australian!plant!makes!a!negative!variable!profit,!!
and!a!positive!total!profit.!
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Prices!and!Markets!Quiz!#2!
4. An!artsy!cinema!in!Paris!is!showing!two!movies!this!month:!“Africa!is!ours,”!a!
wonderful!animal!documentary!with!no!comment!and!“Never!again,”!a!documentary!
on!human!trafficking.!The!cinema!is!considering!selling!a!bundle!of!the!two!movies.!
There!are!three!types!of!customers,!whose!valuations!are!described!in!the!following!
table.!
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Africa!is!ours!
Never!Again!
A!
20!
5!
B!
15!
15!
C!
5!
20!
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The!marginal!cost!of!an!extra!customer!is!0.!The!cinema!wants!to!maximize!profit.!
There!is!one!A!customer,!one!B!customer,!and!one!C!customer.!
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a. The!cinema!should!sell!a!pure!bundle,!and!no!separate!movie!tickets.!
b. The!cinema!should!do!mixed!bundling,!selling!a!ticket!for!each!movie,!and!a!
ticket!for!both!movies!bundled!together.!
c. The!cinema!should!not!sell!a!bundle!and!only!sell!tickets!for!each!movie.!
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5. There!are!20!firms!on!a!market,!producing!the!same!good,!in!perfect!competition.!10!
firms!have!the!cost!function!c(Q)=10Q+Q2,!and!10!firms!have!the!cost!function!
c(Q)=2Q+Q2.!Firms!have!no!fixed!cost.!What!is!the!market’s!supply!curve?!
a. Q!=!10P!–!60.!
b. Q!=!20P!–!30.!
c. Q!=!10P!–!12.!
d. Q!=!22P!–!12.!
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6. A!small!start,up!company!has!created!a!new!financial!software.!The!company!thinks!
about!releasing!two!versions!of!the!product,!a!“Home”!version,!and!a!“Professional”!
version!of!the!product.!Both!products!are!produced!at!zero!marginal!cost.!There!are!
two!kinds!of!customers:!households!and!businesses.!The!valuations!of!each!product!
by!each!kind!of!customer!are!given!in!the!following!table:!
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Prices!and!Markets!Quiz!#2!
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Professional'version'
Home'version'
Business''
2000!
800!
Household'
1000!
600!
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The!company!engages!in!implicit!price!discrimination.!Then:!
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a. The!price!of!the!professional!version!is!2000!euros,!!
the!price!of!the!home!version!is!600!euros.!
b. The!price!of!the!professional!version!is!1800!euros,!!
the!price!of!the!home!version!is!600!euros.!
c. The!price!of!the!professional!version!is!1000!euros,!!
the!price!of!the!home!version!is!600!euros.!
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7. Which!of!the!following!is!a!key!assumption!of!a!perfectly!competitive!market?!
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a. There!is!only!one!large!supplier.!
b. Commodities!have!few!sellers.!
c. Products!are!differentiated.!
d. All!companies!produce!the!same!homogeneous!good.!
e. Each!firm!has!a!large!fixed!cost.!
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8. A!private!parking!lot!in!Fontainebleau!(next!to!the!Chateau)!rents!parking!space!at!
100!euros!for!the!month!of!January!2012,!and!can!only!set!a!uniform!price!for!all!
parking!space.!The!parking!lot!does'not'engage'in'price'discrimination!(explicit,!
implicit!or!perfect!price!discrimination).!All!parking!spots!have!the!same!size.!There!
are!130!slots!available!for!that!month.!The!marginal!cost!of!parking!space!is!0.!The!
demand!curve!for!parking!space!is!Q!=!200!–!P.!!Should!the!parking!lot!set!a!lower!
uniform!price!to!fill!its!empty!slots?!
a. Yes,!the!uniform!price!should!be!lowered!for!all,!so!that!the!parking!lot!is!full.!
b. No,!the!uniform!price!maximizes!profit.!
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Prices!and!Markets!Quiz!#2!
9. Disneyland!sells!two,day!tickets!at!$99!for!residents!of!California,!and!at!$149!for!
other!customers.!This!is!an!example!of:!
a. Perfect!price!discrimination.!
b. Explicit!market!segmentation.!
c. Implicit!market!segmentation.!
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10. The!cancer!drug!Tamoxifen!(30!pills!of!20mg)!costs!40.30!euros!in!France,!and!37!
euros!in!Italy.!This!is!an!example!of:!
a. Perfect!price!discrimination.!
b. Explicit!market!segmentation.!
c. Implicit!market!segmentation.!
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11. Africa!Telecom!offers!two!plans!for!its!mobile!phone:!(i)!The!“Premium!plan”,!30!
euros!a!month!for!3!hours,!and!1!euro!per!minute!above!3!hours!(ii)!The!“Basic!plan”,!
at!10!euros!a!month!for!2!hours,!and!2!euros!per!minute!above!2!hours.!All!
customers!can!choose!either!plan.!This!is!an!example!of:!
a. Explicit!Market!Segmentation.!
b. Implicit!Market!Segmentation.!
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12. Restaurant!Quinzi!&!Gabrieli!in!Rome,!Italy,!Via!delle!Coppelle,!offers!a!seafood!menu!
with!a!starter,!a!main!dish,!and!a!dessert.!Customers!can!also!order!each!starter,!
each!main!dish,!and!each!dessert!separately.!This!is!an!example!of:!
a. Pure!bundling.!
b. Mixed!bundling.!
c. No!bundling.!
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13. !BlueSky!offers!25!TV!channels!at!30!euros!a!month.!Consumers!cannot!buy!each!
channel!separately.!This!is!an!example!of:!
a. Pure!bundling.!
b. Mixed!bundling.!
c. No!bundling.!
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Prices!and!Markets!Quiz!#2!
14. A!Dry!Cleaner,!“Susie’s!Dry!Cleaner”!is!considering!the!pricing!of!white!shirts’!dry!
cleaning.!Female!customers’!elasticity!of!demand!for!white!shirts’!dry!cleaning!is!
constant,!at!1.2,!and!male!customers’!elasticity!of!demand!for!white!shirts’!dry!
cleaning!is!constant,!at!4.!Dry!cleaning!a!white!shirt!costs!3!euros!(marginal!cost),!
regardless!of!whether!it!is!a!man’s!shirt!of!a!woman’s!shirt.!“Susie’s!Dry!Cleaner”!sets!
prices!to!maximize!profits.!Then,!at!the!optimal!prices:!
a. The!price!of!dry!cleaning!for!a!woman’s!white!shirt!is!higher!than!the!price!of!
dry!cleaning!a!man’s!white!shirt.!
b. The!price!of!dry!cleaning!for!a!woman’s!white!shirt!is!lower!than!the!price!of!
dry!cleaning!a!man’s!white!shirt.!
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15. AstraZeneca!is!a!pharmaceutical!company!which!sells!a!cancer!drug!in!Vietnam!and!in!
Japan.!The!price!of!the!cancer!drug!is!different!in!different!countries.!The!company!
DrugTradingFast!buys!the!drug!from!Astra!Zeneca!in!Vietnam!at!$12,!and!resells!it!in!
Japan!at!$34!per!package.!The!products!are!the!same!in!Vietnam!and!in!Japan.!What!
DrugTradingFast!does!is!an!example!of:!
a. Implicit!price!discrimination.!
b. Arbitrage.!
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Prices!and!Markets!Quiz!#2!
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Prices!and!Markets!Quiz!#2!
Write!on!this!page.!Do!not!unstaple!!
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