Question 1

A monopolist faces a demand function given by P = 100 - Q and a corresponding marginal revenue function of MR = 100 - 2Q. The average and marginal costs of production are constant at $20. a. How many units of output does the monopolist produce if setting a single price? b. Suppose that the monopolist practices perfect price discrimination. How many units of output will the monopolist now produce?

Accepted Answer

The answer of A monopolist faces a demand function given...

Question 2

Figure: Monopolist  Reference: Ref 14-1 (Figure: Monopolist)  Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market B?

Accepted Answer

A)   $9
B)   $5
C)   $7
D)   any price higher than $5.E) None of the above
F) C) and D)

Question 3

What is perfect price discrimination?

Accepted Answer

A)   This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum willingness to pay.
B)   This occurs when a seller is able to charge two different prices in different markets.
C)   This occurs when consumer surplus is maximized in a given market.
D)   All of the answers are correct.E) B) and C)
F) A) and B)

Question 4

Which of the following is a necessary condition for perfect price discrimination?

Accepted Answer

A)   The firm must have very good information about its customers.
B)   The firm can only have one market.
C)   The demand curve for the product must be inelastic.
D)   The firm must have no competition.E) All of the above
F) A) and B)

Question 5

Explain the two basic principles of successful price discrimination.

Accepted Answer

Principle 1: If the demand curves are di...

Question 6

A perfect price-discriminating seller:

Accepted Answer

A)   cannot prevent arbitrage.
B)   charges a single price.
C)   maximizes consumer surplus.
D)   eliminates deadweight loss.E) None of the above
F) B) and D)

Question 7

Which of the following conditions would prevent a firm from setting different prices in different markets?

Accepted Answer

A)   possibility of arbitrage for buyers between different markets
B)   law enforcement preventing smuggling from occurring
C)   government intervention forcing the firm to reduce the level of output
D)   government imposition of a price ceilingE) All of the above
F) B) and D)

Question 8

Reference: Ref 14-6 (Table: Willingness to Pay)  Refer to the table. What is John's maximum willingness to pay for the bundled goods?

Accepted Answer

A)   $90
B)   $30
C)   $120
D)   $105E) A) and D)
F) A) and B)

Question 9

Arbitrage makes it easier for a firm to set different prices in different markets.

Accepted Answer

A) True 
 B)False

Question 10

To maximize profit the monopolist should set a:

Accepted Answer

A)   lower price in markets with less elastic demand.
B)   lower price in markets with more inelastic demand.
C)   higher price in markets with more elastic demand.
D)   higher price in markets with more inelastic demand.E) A) and D)
F) B) and C)

Question 11

Reference: Ref 14-7 (Table: Maximum Willingness to Pay for Word and Excel)  Refer to the table. If Microsoft sells each product, Word and Excel, individually, what is the maximum profit Microsoft can make from selling the two products? (Assume the marginal costs of production are zero.)

Accepted Answer

A)   $210
B)   $100
C)   $220
D)   $160E) B) and C)
F) A) and B)

Question 12

Bundling can increase efficiency especially when:

Accepted Answer

A)   both fixed costs and marginal costs are high.
B)   both fixed costs and marginal costs are low.
C)   fixed costs are high and marginal costs are low.
D)   fixed costs are low and marginal costs are high.E) A) and B)
F) B) and C)

Question 13

Bundling is likely to increase total surplus if:

Accepted Answer

A)   the costs of production are U-shaped.
B)   fixed costs are high and marginal costs are low.
C)   most of the costs are associated with variable inputs.
D)   all consumers have the same willingness to pay.E) All of the above
F) A) and B)

Question 14

Which of the following regarding the outcome of perfect price discrimination is true?

Accepted Answer

A)   Consumer surplus increases.
B)   Deadweight loss increases.
C)   Producer surplus increases.
D)   The economy becomes more efficient.E) A) and C)
F) B) and C)

Question 15

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

Accepted Answer

A)   high fixed costs create incentive for pharmaceuticals to sell more.
B)   charging different prices to different customers generates different levels of fixed costs.
C)   profit from customers paying high prices allows pharmaceuticals to cover part of the fixed costs.
D)   extra profit from customers paying low prices allows pharmaceuticals to cover part of the fixed costs.E) B) and C)
F) A) and D)

Question 16

One example of price discrimination occurs in the airline industry as airlines typically set a high price for business people and a low price for vacationers. Use this example to demonstrate and graphically illustrate the rationale of airlines' price discrimination pricing strategy.

Accepted Answer

Airlines set different prices according ...

Question 17

Total surplus increases with practice of price discrimination only if:

Accepted Answer

A)   consumer surplus increases.
B)   producer surplus increases.
C)   price increases.
D)   output increases.E) A) and D)
F) A) and C)

Question 18

Tying is a legal strategy, but bundling is illegal in the United States.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following does NOT represent a benefit that can be achieved from bundling?

Accepted Answer

A)   spreading of fixed costs across greater number of units
B)   increased incentive to innovate
C)   increased profit
D)   setting of bundle prices that are lower than individual unit pricesE) C) and D)
F) A) and D)

Question 20

Reference: Ref 14-3 (Figure: PPD)  Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond c units of output?

Accepted Answer

A)   If the firm can perfectly price discriminate it can charge a price equal to the consumers' willingness to pay, which for all units beyond c is higher than the firm's marginal cost for those units.
B)   The firm will continue to increase profits as long as consumers' willingness to pay is greater than zero.
C)   A firm will not sell beyond c units of output. The marginal cost is greater than consumers' willingness to pay for these units.
D)   A firm will not sell beyond c units of output. The marginal cost is greater than the firm's marginal revenue for these units.E) None of the above
F) B) and D)

Exam 14: Price Discrimination and Pricing Strategy

To maximize profit the monopolist should set a:

Correct Answer
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Which of the following is a necessary condition for perfect price discrimination?

Correct Answer
verified

Bundling can increase efficiency especially when:

Correct Answer
verified

Reference: Ref 14-3 (Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond c units of output?

Correct Answer
verified

Which of the following conditions would prevent a firm from setting different prices in different markets?

Correct Answer
verified

Figure: Monopolist Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market B?

Correct Answer
verified

What is perfect price discrimination?

Correct Answer
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Which of the following regarding the outcome of perfect price discrimination is true?

Correct Answer
verified

Explain the two basic principles of successful price discrimination.

Correct Answer
verified
Principle 1: If the demand curves are di...
View Answer

Bundling is likely to increase total surplus if:

Correct Answer
verified

One example of price discrimination occurs in the airline industry as airlines typically set a high price for business people and a low price for vacationers. Use this example to demonstrate and graphically illustrate the rationale of airlines' price discrimination pricing strategy.

Correct Answer
verified
Airlines set different prices according ...
View Answer

Correct Answer
verified

Reference: Ref 14-6 (Table: Willingness to Pay) Refer to the table. What is John's maximum willingness to pay for the bundled goods?

Correct Answer
verified

Arbitrage makes it easier for a firm to set different prices in different markets.

Correct Answer
verified

Total surplus increases with practice of price discrimination only if:

Correct Answer
verified

Which of the following does NOT represent a benefit that can be achieved from bundling?

Correct Answer
verified

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

Correct Answer
verified

Tying is a legal strategy, but bundling is illegal in the United States.

Correct Answer
verified

Reference: Ref 14-7 (Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft sells each product, Word and Excel, individually, what is the maximum profit Microsoft can make from selling the two products? (Assume the marginal costs of production are zero.)

Correct Answer
verified

A perfect price-discriminating seller:

Correct Answer
verified

Exam 14: Price Discrimination and Pricing Strategy

To maximize profit the monopolist should set a:

Correct AnswerverifiedShow Answer

Which of the following is a necessary condition for perfect price discrimination?

Correct AnswerverifiedShow Answer

Bundling can increase efficiency especially when:

Correct AnswerverifiedShow Answer

Reference: Ref 14-3 (Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond c units of output?

Correct AnswerverifiedShow Answer

Which of the following conditions would prevent a firm from setting different prices in different markets?

Correct AnswerverifiedShow Answer

Figure: Monopolist Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market B?

Correct AnswerverifiedShow Answer

What is perfect price discrimination?

Correct AnswerverifiedShow Answer

Which of the following regarding the outcome of perfect price discrimination is true?

Correct AnswerverifiedShow Answer

Explain the two basic principles of successful price discrimination.

Correct AnswerverifiedPrinciple 1: If the demand curves are di...View AnswerShow Answer

Bundling is likely to increase total surplus if:

Correct AnswerverifiedShow Answer

One example of price discrimination occurs in the airline industry as airlines typically set a high price for business people and a low price for vacationers. Use this example to demonstrate and graphically illustrate the rationale of airlines' price discrimination pricing strategy.

Correct AnswerverifiedAirlines set different prices according ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Reference: Ref 14-6 (Table: Willingness to Pay) Refer to the table. What is John's maximum willingness to pay for the bundled goods?

Correct AnswerverifiedShow Answer

Arbitrage makes it easier for a firm to set different prices in different markets.

Correct AnswerverifiedShow Answer

Total surplus increases with practice of price discrimination only if:

Correct AnswerverifiedShow Answer

Which of the following does NOT represent a benefit that can be achieved from bundling?

Correct AnswerverifiedShow Answer

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

Correct AnswerverifiedShow Answer

Tying is a legal strategy, but bundling is illegal in the United States.

Correct AnswerverifiedShow Answer

Reference: Ref 14-7 (Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft sells each product, Word and Excel, individually, what is the maximum profit Microsoft can make from selling the two products? (Assume the marginal costs of production are zero.)

Correct AnswerverifiedShow Answer

A perfect price-discriminating seller:

Correct AnswerverifiedShow Answer

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Principle 1: If the demand curves are di...
View Answer

Correct Answer
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Correct Answer
verified
Airlines set different prices according ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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