Question 1

Price discrimination may be:

Accepted Answer

A)  good in industries with high fixed costs. 
B)  good in industries with high marginal costs. 
C)  less efficient if the number of consumers in the market is low. 
D)  less efficient if it leads to higher prices. 
A)  good in industries with high fixed costs. 
B)  good in industries with high marginal costs. 
C)  less efficient if the number of consumers in the market is low. 
D)  less efficient if it leads to higher prices.

Question 2

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

Accepted Answer

A)  $70 
B)  $30 
C)  $120 
D)  $105 
A)  $70 
B)  $30 
C)  $120 
D)  $105

Question 3

One would expect more arbitrage to occur between two markets if:

Accepted Answer

A)  the products are differentiated in terms of their fundamental characteristics. 
B)  the products have built in tracking mechanisms that enable the discovery of the distributors. 
C)  the demand curves in the two markets are essentially the same. 
D)  products are non-differentiated and the different markets have good transportation networks between them. 
A)  the products are differentiated in terms of their fundamental characteristics. 
B)  the products have built in tracking mechanisms that enable the discovery of the distributors. 
C)  the demand curves in the two markets are essentially the same. 
D)  products are non-differentiated and the different markets have good transportation networks between them.

Question 4

Which of the following statements is TRUE about price discrimination?

Accepted Answer

A)  Price discrimination makes consumers worse off due to higher prices. 
B)  Price discrimination leads to deadweight loss and therefore makes the market less efficient. 
C)  Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. 
D)  Price discrimination is illegal in the United States. 
A)  Price discrimination makes consumers worse off due to higher prices. 
B)  Price discrimination leads to deadweight loss and therefore makes the market less efficient. 
C)  Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. 
D)  Price discrimination is illegal in the United States.

Question 5

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

Accepted Answer

A)  more inelastic 
B)  less inelastic 
C)  more elastic 
D)  closer to perfectly elastic 
A)  more inelastic 
B)  less inelastic 
C)  more elastic 
D)  closer to perfectly elastic

Question 6

Which of the following is NOT an example of bundling?

Accepted Answer

A)  cell phones and phone calls 
B)  computer software 
C)  automobiles and engines 
D)  McDonald's value meals 
A)  cell phones and phone calls 
B)  computer software 
C)  automobiles and engines 
D)  McDonald's value meals

Question 7

Bundle pricing makes sense for cable operators because:

Accepted Answer

A)  customers have a high willingness to pay for some channels and a low willingness to pay for others. 
B)  customers are more satisfied with more channels being offered. 
C)  the cost of operation decreases with bundle pricing. 
D)  the marginal costs of adding additional channels is high. 
A)  customers have a high willingness to pay for some channels and a low willingness to pay for others. 
B)  customers are more satisfied with more channels being offered. 
C)  the cost of operation decreases with bundle pricing. 
D)  the marginal costs of adding additional channels is high.

Question 8

Tying is:

Accepted Answer

A)  the practice of selling complement goods together. 
B)  a way for firms to lower costs. 
C)  a type of price discrimination. 
D)  typically easy to spot. 
A)  the practice of selling complement goods together. 
B)  a way for firms to lower costs. 
C)  a type of price discrimination. 
D)  typically easy to spot.

Question 9

Reference: Ref 14-2 (Figure: Price Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?

Accepted Answer

A)  $6 < PU < $14 
B)  $6 < PU < $10 
C)  $10 < PU < $16 
D)  $10 < PU < $14 
A)  $6 < PU < $14 
B)  $6 < PU < $10 
C)  $10 < PU < $16 
D)  $10 < PU < $14

Question 10

The chapter opens with a story about GlaxoSmithKline (GSK) and Combivir, the anti-AIDS drug. What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?

Accepted Answer

A)  It is much cheaper to produce the drug in Africa than in Europe. 
B)  Government regulations in Europe forced it to charge higher prices. 
C)  African governments imposed price ceilings. 
D)  Lower prices were charged for humanitarian reasons. 
A)  It is much cheaper to produce the drug in Africa than in Europe. 
B)  Government regulations in Europe forced it to charge higher prices. 
C)  African governments imposed price ceilings. 
D)  Lower prices were charged for humanitarian reasons.

Question 11

To perfectly price discriminate, a firm must have full information of:

Accepted Answer

A)  efficient level of output. 
B)  market price. 
C)  total cost of production. 
D)  every customer's willingness to pay. 
A)  efficient level of output. 
B)  market price. 
C)  total cost of production. 
D)  every customer's willingness to pay.

Question 12

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-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?

Accepted Answer

A)  $5 < PU < $9 
B)  $5 < PU < $10 
C)  $9 < PU < $10 
D)  $7 < PU < $10 
A)  $5 < PU < $9 
B)  $5 < PU < $10 
C)  $9 < PU < $10 
D)  $7 < PU < $10

Question 13

To maximize profit, a monopolist should charge a higher price in the market with the more inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 14

Bundling and tying are:

Accepted Answer

A)  essentially the same practices. 
B)  different forms of price discrimination. 
C)  often done at the same time. 
D)  considered illegal in many countries. 
A)  essentially the same practices. 
B)  different forms of price discrimination. 
C)  often done at the same time. 
D)  considered illegal in many countries.

Question 15

Bundling is sometimes a form of price discrimination, but not necessarily always a form of price discrimination.

Accepted Answer

A) True 
 B)False

Question 16

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 B?

Accepted Answer

A)  $260 
B)  $780 
C)  $1,040 
D)  $520 
A)  $260 
B)  $780 
C)  $1,040 
D)  $520

Question 17

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is TRUE?

Accepted Answer

A)  The insurance companies are practicing price discrimination. 
B)  The insurance companies are not practicing price discrimination. 
C)  The insurance companies are practicing inter-temporal price discrimination. 
D)  The insurance companies are using a bundling/tying strategy. 
A)  The insurance companies are practicing price discrimination. 
B)  The insurance companies are not practicing price discrimination. 
C)  The insurance companies are practicing inter-temporal price discrimination. 
D)  The insurance companies are using a bundling/tying strategy.

Question 18

Consumers are ________ with price discrimination than with single-pricing.

Accepted Answer

A)  always better off 
B)  sometimes better off 
C)  never better off 
D)  neither better off nor worse off 
A)  always better off 
B)  sometimes better off 
C)  never better off 
D)  neither better off nor worse off

Question 19

The difference between tying and bundling is that tied goods are sold one to one while bundled goods are sold one to many.

Accepted Answer

A) True 
 B)False

Question 20

Bundling increases ________ and hence increases the incentives to ________.

Accepted Answer

A)  costs; innovate 
B)  profits; innovate 
C)  revenue; price higher 
D)  demand; enhance customer service 
A)  costs; innovate 
B)  profits; innovate 
C)  revenue; price higher 
D)  demand; enhance customer service

Exam 14: Price Discrimination and Pricing Strategy

Price discrimination may be:

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

One would expect more arbitrage to occur between two markets if:

Which of the following statements is TRUE about price discrimination?

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

Which of the following is NOT an example of bundling?

Bundle pricing makes sense for cable operators because:

Tying is:

Reference: Ref 14-2 (Figure: Price Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?

The chapter opens with a story about GlaxoSmithKline (GSK) and Combivir, the anti-AIDS drug. What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?

To perfectly price discriminate, a firm must have full information of:

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-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?

To maximize profit, a monopolist should charge a higher price in the market with the more inelastic demand curve.

Bundling and tying are:

Bundling is sometimes a form of price discrimination, but not necessarily always a form of price discrimination.

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 B?

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is TRUE?

Consumers are ________ with price discrimination than with single-pricing.

The difference between tying and bundling is that tied goods are sold one to one while bundled goods are sold one to many.

Bundling increases ________ and hence increases the incentives to ________.

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

Bundling increases and hence increases the incentives to .