Exam 12: Capturing Surplus

Suppose you own a business and your own price elasticity is -2. In addition, suppose your advertising elasticity of demand is 0.50. If your marginal cost per unit is $4, what is your optimal advertising-to-sales ratio?

An example of second-degree price discrimination is when you segment the market and charge individuals different prices for the same product or service based on their age.

The conditions for capturing more surplus from price discrimination include:

A block tariff is a form of:

Consider price discrimination. The firm must be able accurately forecast total sales.

When a firm engages in __________, every unit of output is sold at the same price; when a firm engages in ___________, different consumers are charged different prices for the same good.

An example of second-degree price discrimination is:

You own a small bookstore. You have hired a marketing firm to calculate your own price elasticity of demand and your advertising elasticity of demand. The firm has provided you with the relevant numbers regardless of minor adjustments in price or advertising budget. Your own price elasticity of demand is around -1.7, and your advertising elasticity of demand is around 0.05. How much should you mark-up your price over your marginal cost for your books?

You own a small bookstore. You have hired a marketing firm to calculate your own price elasticity of demand and your advertising elasticity of demand. The firm has provided you with the relevant numbers regardless of minor adjustments in price or advertising budget. Your own price elasticity of demand is around -1.7, and your advertising elasticity of demand is around 0.05. What should your approximate advertising-to-sales ratio be?

Which of the following is not a real-world example of third-degree price discrimination?

Which of the following is a real-world example of first-degree price discrimination?

Consider price discrimination. In order to capture more surplus, the firm must have some market power.

Which of the following statements regarding a monopoly's first-degree price discrimination is correct?

Third-degree price discrimination is illegal.

The reason that profit-maximizing firms willingly incur the added expense of advertising is that they hope that successful advertising will increase profits by:

Bundling can increase the seller's profits when customers have different _______ for the two products and when the firm __________________.

Consider a monopoly's first-degree price discrimination. With first-degree price discrimination, deadweight loss is large.

Let the inverse demand curve for a monopolist's product be $P = 100 - 2 Q$ and the marginal cost of production be constant at $M C = 10$ . Suppose that the firm considers moving from a uniform pricing strategy to a two-block tariff where the first block provides 15 units at a price of $P _ { I } =$ $\$ 70$ and the second block provides an additional 15 units at a price of $P _ { 2 } = \$ 40$ . What is the average outlay schedule for the consumer?

An example of second-degree price discrimination is when you sell something on eBay to an individual and ship it through the mail.

In order to capture more surplus, the firm must have some market power.