Question 1

Compared to a single price for all markets, price discrimination can make some consumers better off and others worse off.

Accepted Answer

A) True 
 B)False  True

Question 2

(Figure: Monopoly Profits) Refer to the figures. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make. Figure: Monopoly Profits

Accepted Answer

The answer of (Figure: Monopoly Profits) Refer to the figures....

Question 3

Price discrimination is:

Accepted Answer

A)  always better than single pricing. 
B)  always worse than single pricing. 
C)  sometimes better and sometimes worse than single pricing. 
D)  illegal in many countries. 
A)  always better than single pricing. 
B)  always worse than single pricing. 
C)  sometimes better and sometimes worse than single pricing. 
D)  illegal in many countries. C

Question 4

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

Accepted Answer

A)  Federal regulations require that drugs for common diseases get developed before drugs for rare diseases. 
B)  The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases. 
C)  Drug firms practice perfect price discrimination. 
D)  Drugs for rare and common diseases can be sold as bundled goods. 
A)  Federal regulations require that drugs for common diseases get developed before drugs for rare diseases. 
B)  The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases. 
C)  Drug firms practice perfect price discrimination. 
D)  Drugs for rare and common diseases can be sold as bundled goods.

Question 5

One example of price discrimination occurs in the publishing industry when a publisher initially releases an expensive hardcover edition of a popular novel, and later releases a cheaper paperback edition. Use this example to demonstrate both the benefits, as well as the potential pitfalls, of a price discrimination pricing strategy.

Accepted Answer

The answer should address the three basi

Question 6

(Figure: Monopolist's Profits under Price Discrimination) Refer to the figure. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make.

Accepted Answer

The answer of (Figure: Monopolist's Profits under Price Discrimination) Refer...

Question 7

Which of the following is a real example of price discrimination?

Accepted Answer

A)  Airlines set different prices for business people and vacationers. 
B)  Publishers charge high prices on hardback and low price on paperback books. 
C)  IBM's regular version of a printer that prints at 10 pages per minute is more expensive than the Series E that prints five pages per minute. 
D)  All of these examples are real. 
A)  Airlines set different prices for business people and vacationers. 
B)  Publishers charge high prices on hardback and low price on paperback books. 
C)  IBM's regular version of a printer that prints at 10 pages per minute is more expensive than the Series E that prints five pages per minute. 
D)  All of these examples are real.

Question 8

GlaxoSmithKline attempts to prevent arbitrage of its drug Combivir by selling different colored pills in special bar-coded packages, to identify and track distributors in different markets.

Accepted Answer

A) True 
 B)False

Question 9

Airlines try to differentiate their customers by willingness to pay based on:

Accepted Answer

A)  how long in advance a person books their flight. 
B)  a person's weight. 
C)  the ethnicity of a person's last name. 
D)  All of the answers are correct. 
A)  how long in advance a person books their flight. 
B)  a person's weight. 
C)  the ethnicity of a person's last name. 
D)  All of the answers are correct.

Question 10

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-through the process of price discrimination, how much profit is the monopolist making in Market A?

Accepted Answer

A)  $270 
B)  $450 
C)  $830 
D)  $627.50 
A)  $270 
B)  $450 
C)  $830 
D)  $627.50

Question 11

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

Accepted Answer

A)  $160 
B)  $300 
C)  $320 
D)  $210 
A)  $160 
B)  $300 
C)  $320 
D)  $210

Question 12

Tying is a form of price discrimination in which one good, called the ________ is tied to a second good called the ________.

Accepted Answer

A)  base good; variable good 
B)  physical; service good 
C)  physical good; nonphysical good 
D)  mother good; spawned good 
A)  base good; variable good 
B)  physical; service good 
C)  physical good; nonphysical good 
D)  mother good; spawned good

Question 13

Reference: Ref 14-6 (Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the firm were to set individual prices for each of the two goods, how much total profit does it earn from Good B?

Accepted Answer

A)  $70 
B)  $30 
C)  $100 
D)  $120 
A)  $70 
B)  $30 
C)  $100 
D)  $120

Question 14

In markets with different demand curves for the same good, different prices generate more profit than a single price.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following conditions must be TRUE for perfect price discrimination? I. The seller must have very good information about the buyer's willingness to pay. II. Marginal revenue must equal demand. III. The marginal cost of production must be constant.

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III. 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III.

Question 16

Perfectly price discriminating monopolists charge:

Accepted Answer

A)  each consumer his or her maximum willingness to pay, so consumer surplus is zero. 
B)  all consumers the average of their willingness to pay, so consumer surplus is maximized. 
C)  each consumer his or her maximum willingness to pay, so consumer surplus is maximized. 
D)  all consumers the average of their willingness to pay, so consumer surplus is zero. 
A)  each consumer his or her maximum willingness to pay, so consumer surplus is zero. 
B)  all consumers the average of their willingness to pay, so consumer surplus is maximized. 
C)  each consumer his or her maximum willingness to pay, so consumer surplus is maximized. 
D)  all consumers the average of their willingness to pay, so consumer surplus is zero.

Question 17

The Gillette Fusion razor sells for approximately $10.00, and a four-set of replacement blades sells for over $8. Which of the following statements is TRUE? I. Consumers with a high willingness to pay for being clean- shaven will buy many replacement blades. II. Consumers with a low willingness to pay for being clean- shaven will rarely buy replacement blades. III. Gillette's high price for the replacement blades is a method to extract consumer surplus from those consumers with a high desire to be clean shaven.

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  III only 
D)  I, II, and III 
A)  I and II only 
B)  II and III only 
C)  III only 
D)  I, II, and III

Question 18

Reference: Ref 14-5 (Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge:

Accepted Answer

A)  $130. 
B)  $145. 
C)  $110. 
D)  $190. 
A)  $130. 
B)  $145. 
C)  $110. 
D)  $190.

Question 19

Perfect price discrimination is always bad, while imperfect price discrimination can be either good or bad.

Accepted Answer

A) True 
 B)False

Question 20

For price discrimination to work, the young should ________ than/to the old.

Accepted Answer

A)  be charged less for a product 
B)  be charged more for a product 
C)  sometimes be charged more and sometimes charged less 
D)  be charged a price equal to the marginal cost 
A)  be charged less for a product 
B)  be charged more for a product 
C)  sometimes be charged more and sometimes charged less 
D)  be charged a price equal to the marginal cost

Exam 14: Price Discrimination and Pricing Strategy

Compared to a single price for all markets, price discrimination can make some consumers better off and others worse off.

(Figure: Monopoly Profits) Refer to the figures. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make. Figure: Monopoly Profits

Price discrimination is:

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

(Figure: Monopolist's Profits under Price Discrimination) Refer to the figure. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make.

Which of the following is a real example of price discrimination?

GlaxoSmithKline attempts to prevent arbitrage of its drug Combivir by selling different colored pills in special bar-coded packages, to identify and track distributors in different markets.

Airlines try to differentiate their customers by willingness to pay based on:

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-through the process of price discrimination, how much profit is the monopolist making in Market A?

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

Tying is a form of price discrimination in which one good, called the ________ is tied to a second good called the ________.

Reference: Ref 14-6 (Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the firm were to set individual prices for each of the two goods, how much total profit does it earn from Good B?

In markets with different demand curves for the same good, different prices generate more profit than a single price.

Which of the following conditions must be TRUE for perfect price discrimination? I. The seller must have very good information about the buyer's willingness to pay. II. Marginal revenue must equal demand. III. The marginal cost of production must be constant.

Perfectly price discriminating monopolists charge:

Reference: Ref 14-5 (Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge:

Perfect price discrimination is always bad, while imperfect price discrimination can be either good or bad.

For price discrimination to work, the young should ________ than/to the old.

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

Gdp and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation, and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters

Tying is a form of price discrimination in which one good, called the is tied to a second good called the .