Firms that make game systems like Playstation and Nintendo typically charge a price close to average cost on the game system itself, and do not change that price even when the systems are scarce or demand increases
Why might this be a profit-maximizing strategy?
These firms are selling two products, the systems and the games. These are complementary products. If they increase the price of the systems, they reduce the demand for games (and games are repeat purchases rather than one-time purchases). Additionally, the system is the "hook," or the loss leader that draws customers in. Once you have the system, the switching cost of moving to another system is significant. Thus the systems are cheap, and the games are expensive.
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Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium quantity of ketchup to decrease?
A) an increase in the price of mustard, a substitute for ketchup B) a decrease in the price of tomatoes C) an increase in the price of tomatoes D) an increase in the price of french fries, a complement for ketchup
If output is increased in the long-run, average production costs in the presence of internal economies of scale will ________, and in the presence of external economies of scale, will ________
A) decrease; decrease B) increase; remain constant C) remain constant; increase D) decrease; remain constant E) increase; decrease
One reason economists have begun focusing on the Personal Consumption Expenditure measure for inflation is that the PCE deflator:
A. allows for a changing basket of goods. B. weights food more because food is a rising percent of expenditures. C. includes the price of assets such as stock portfolios. D. takes the exchange rate value of the dollar into account.
Once a country has lost its comparative advantage in producing a good, its income will be ________ and its economy will be ________ if it switches from producing the good to importing it
A) higher; less efficient B) higher; more efficient C) lower; less efficient D) lower; more efficient