Question 1

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. 
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.

Question 2

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 prices 
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 prices

Question 3

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. 
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.

Question 4

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)  $160 
A)  $210 
B)  $100 
C)  $220 
D)  $160

Question 5

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 ceiling 
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 ceiling

Question 6

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. 
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.

Question 7

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

Question 8

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

Question 9

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 10

Explain the two basic principles of successful price discrimination.

Accepted Answer

Principle 1: If the demand curves are di

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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. 
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.

Question 14

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. 
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.

Question 15

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 16

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. 
A)  $9 
B)  $5 
C)  $7 
D)  any price higher than $5.

Question 17

A perfect price-discriminating seller:

Accepted Answer

A)  cannot prevent arbitrage. 
B)  charges a single price. 
C)  maximizes consumer surplus. 
D)  eliminates deadweight loss. 
A)  cannot prevent arbitrage. 
B)  charges a single price. 
C)  maximizes consumer surplus. 
D)  eliminates deadweight loss.

Question 18

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. 
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.

Question 19

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)  $105 
A)  $90 
B)  $30 
C)  $120 
D)  $105

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. 
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.

Exam 14: Price Discrimination and Pricing Strategy

To maximize profit the monopolist should set a:

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

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

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.)

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

Bundling is likely to increase total surplus if:

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

Total surplus increases with practice of price discrimination only if:

Explain the two basic principles of successful price discrimination.

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

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

What is perfect price discrimination?

Bundling can increase efficiency especially when:

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.

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?

A perfect price-discriminating seller:

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

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

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?

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

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