Multiple Choice Questions,
1. After massive promotion of Justin Bieber's latest music album, the producers reacted by raising prices for his albums. This implies that promotion expenditures made the album demand
a. More elastic.
b. Unitary elastic.
c. The change is due to psychological pricing.
d. Less elastic.

2. All the below choices are examples of promoting a firm's product, except
a. Advertising.
b. Pricing.
c. Discount coupons.
d. End-of-aisle displays.

3. A firm that acquires a substitute product can reduce inter-product cannibalization by
a. Doing nothing.
b. Repositioning its product or the substitute so that they do not directly compete with each other.
c. Pricing each product at the same level.
d. Raising prices on the low-margin products.

4. A shoe-producing firm decides to acquire a firm that produces shoe laces. This implies that the firm's aggregate demand (shoes + laces) will be:
a. Less elastic than the individual demands.
b. More elastic than the individual demands.
c. Same elasticity as the individual demands.
d. None of the above

5. After firm A producing one good acquired another firm B producing another good, it raised the prices for the bundle of goods. One can conclude that the goods were
a. Substitutes.
b. Complements.
c. Not related.
d. None of the above

6. Firms tend to raise the price of their goods after acquiring a firm that sells a substitute good because
a. They lose market power.
b. There is an increase in the overall demand for their products.
c. The bundle has a more elastic demand than individual goods.
d. The bundle has a less elastic demand than individual goods.

7. For products like parking lots and hotels, costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.
Therefore,
a. If SRMR > SRMC at capacity, then the firms should price to fill capacity.
b. If SRMR < SRMC at capacity, then the firms should price to fill capacity.
c. If LRMR > LRMC at capacity, then the firms should price to fill capacity.
d. If LRMR > LRMC at capacity, then the firms should price to fill capacity.

8. A firm started advertising its product and this changed the product's elasticity from -2 to -1.5. The firm should
a. Raise price from $10 to $15.
b. Reduce price from $15 to $10.
c. Raise price from $7.5 to $10.
d. Reduce price from $10 to $7.5

9. After running a promotional campaign, the owners of a local shoe store decided to decrease the prices for the shoes sold in their store. One can infer that
a. The promotional expenditures made the demand for their shoes more elastic.
b. The promotional expenditures made the demand for their shoes less elastic.
c. The promotional expenditures has no effect on the shoe demand elasticity.
d. The owners got it wrong. To cover the promotional expenses, they should have raised the prices.

10. On average, if demand is unknown and costs of underpricing are than the costs of overpricing, then.
a. Smaller; overprice
b. Smaller; underprice
c. Larger; underprice
d. None of the above