CHAPTER 12 A top producer of tennis balls has recently started manufacturing tennis rackets, a complementary product to tennis balls. As a result, it should a. lower the price of its tennis balls. ...

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CHAPTER 12
A top producer of tennis balls has recently started manufacturing tennis rackets, a complementary
product to tennis balls. As a result, it should
a. lower the price of its tennis balls.
b. raise the price of its tennis balls.
c. keep the price of its tennis balls the same.
d. Not enough information to answer.
A very profitable, high-margin chain of ice cream shops has acquired its main competitor, a low-margin
frozen yogurt chain. It should
a. Lower the price of yogurt, and lower the price of ice cream even more.
b. Raise the price of yogurt, and raise the price of ice cream even more.
c. Raise the price of ice cream, and raise the price of yogurt even more.
d. Lower the price of ice cream, and raise the price of yogurt.
Long-run marginal cost
a. is the cost of building, maintaining, and using an additional unit of capacity.
b. is likely to be greater than short-run marginal cost.
c. is useful for determining how much capacity to build, but is not useful for setting price.
d. All of the above
Advertising that conveys an image of high product quality makes demand ___________ and should be
accompanied with a ____________.
a. more elastic ; price increase
b. more elastic ; price decrease
c. less elastic ; price increase
d. less elastic ; price decrease
To go along with its new advertising campaign, a company reduced its prices. The advertising likely
featured
a. a celebrity endorsement.
b. a favourable price comparison to a rival product.
c. an attempt to reduce customers' price sensitivity.
d. All of the above.
Which of the following is likely to be a profitable adjustment to pricing strategy?

a. A firm decreases consumers' expectations of the price that they will pay.
b. A pizza restaurant changes from charging a "delivery charge" to offering an "in-store
discount."
c. A utility replaces its "processing fees" line-item on its bill with an itemized list of each of the
constituent fees.
d. None of these is likely to be a profitable adjustment.
Cannibalization refers to
a. customers switching from one company's product to a rival company's substitute product.
b. customers switching from one company's product to a rival company's complementary
product.
c. customers switching from one company's product to the same company's substitute product.
d. customers switching from one company's product to the same company's complementary
product.
When two firms, each producing one product, merge, the new entity should _____ prices if the products
are complements and ______ prices if the products are substitutes.
a. lower; lower
b. lower; raise
c. raise; lower
d. raise; raise
An airline estimates that the potential cost of underpricing is less than the potential lost profit of unfilled
seats. The airline should
a. set a price equal to the "target price" so that expected demand is equal to each plane's
capacity.
b. set a price above the "target price" so that expected demand is, on average, below capacity.
c. set a price below