Question 1

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

Accepted Answer

A)  increasing average costs. 
B)  increasing marginal costs. 
C)  increasing supply. 
D)  increasing demand. 
A)  increasing average costs. 
B)  increasing marginal costs. 
C)  increasing supply. 
D)  increasing demand. D

Question 2

Use the following table to answer the following questions 
$$\begin{array} { | c | c | c | } 
\hline \text { Customer } & \begin{array} { c } 
\text { Product A } \
\text { Reservation Price }
\end{array} & \begin{array} { c } 
\text { Product B } \
\text { Reservation Price }
\end{array} \
\hline 1 & 1,000 & 200 \
\hline 2 & 800 & 400 \
\hline \text { Marginal Cost } & 500 & 100 \
\hline
\end{array}$$
-If the firm bundles the products, what single price should the firm charge for the bundle to maximize profit?

Accepted Answer

A)  600 
B)  800 
C)  1,000 
D)  1,200 
A)  600 
B)  800 
C)  1,000 
D)  1,200 D

Question 3

With tying

Accepted Answer

A)  the firm tries to price each unit at the consumer's reservation price. 
B)  the firm offers consumers a quantity discount. 
C)  the firm charges different consumer groups or market segments a different price. 
D)  a buyer can only purchase one product by agreeing to purchase some other product as well. 
A)  the firm tries to price each unit at the consumer's reservation price. 
B)  the firm offers consumers a quantity discount. 
C)  the firm charges different consumer groups or market segments a different price. 
D)  a buyer can only purchase one product by agreeing to purchase some other product as well. D

Question 4

All consumers are alike and each has an inverse demand curve for a monopolist's product of P = 100 - 2Q. The marginal cost of production is constant at MC = $10. Let the monopolist charge a price of $10 per unit purchased and a subscription fee of $2025 that must be paid by each purchaser. What is the amount of consumer's surplus generated by this scheme?

Accepted Answer

A)  0 
B)  $2025 
C)  $2025 multiplied by the number of consumers in the market. 
D)  $90 multiplied by the number of units purchased. 
A)  0 
B)  $2025 
C)  $2025 multiplied by the number of consumers in the market. 
D)  $90 multiplied by the number of units purchased.

Question 5

The firm's use of advertising is motivated

Accepted Answer

A)  by its desire to capture more surplus through shifting the demand curve to the right for its products. 
B)  by a desire to position itself in the marketplace as a monopolist. 
C)  through media manipulation and really is not cost effective. 
D)  only when the firm is in a perfectly competitive industry. 
A)  by its desire to capture more surplus through shifting the demand curve to the right for its products. 
B)  by a desire to position itself in the marketplace as a monopolist. 
C)  through media manipulation and really is not cost effective. 
D)  only when the firm is in a perfectly competitive industry.

Question 6

When a movie theater charges a lower ticket price for senior citizens and/or students, the movie theater is engaging in

Accepted Answer

A)  price gouging. 
B)  third-degree price discrimination. 
C)  first-degree price discrimination. 
D)  second-degree price discrimination. 
A)  price gouging. 
B)  third-degree price discrimination. 
C)  first-degree price discrimination. 
D)  second-degree price discrimination.

Question 7

A monopolist faces inverse demand $P = 400 - 4 Q ^ { d }$ and has constant marginal cost $M C = 80$ . If this monopolist engages in first-degree price discrimination, producer surplus will be

Accepted Answer

A)  0 
B)  1,600 
C)  3,200 
D)  12,800 
A)  0 
B)  1,600 
C)  3,200 
D)  12,800

Question 8

Electricity prices may be an example of ___________ as it often varies by the time of day, generally being set higher when demand is at its peak

Accepted Answer

A)  Intemporal price discrimination 
B)  Tie-in-sales 
C)  First degree discrimination 
D)  Second degree discrimination 
A)  Intemporal price discrimination 
B)  Tie-in-sales 
C)  First degree discrimination 
D)  Second degree discrimination

Question 9

Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 10. Which of the following is the optimal two-block tariff for the firm?

Accepted Answer

A)  P1 = $70; Q1 = 15; P2 = $40; Q2 = 30 
B)  P1 = $60; Q1 = 20; P2 = $30; Q2 = 15 
C)  P1 = $80; Q1 = 10; P2 = $40; Q2 = 15 
D)  P1 = $55; Q1 = 22.5; P2 = $55; Q2 = 22.5 
A)  P1 = $70; Q1 = 15; P2 = $40; Q2 = 30 
B)  P1 = $60; Q1 = 20; P2 = $30; Q2 = 15 
C)  P1 = $80; Q1 = 10; P2 = $40; Q2 = 15 
D)  P1 = $55; Q1 = 22.5; P2 = $55; Q2 = 22.5

Question 10

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

Accepted Answer

A)  With first-degree price discrimination, consumer surplus is small, yet still greater than zero. 
B)  With first-degree price discrimination, producer surplus is lower than with uniform pricing. 
C)  With first-degree price discrimination, deadweight loss is large. 
D)  With first-degree price discrimination, total surplus is greater than when the monopoly charges a uniform price. 
A)  With first-degree price discrimination, consumer surplus is small, yet still greater than zero. 
B)  With first-degree price discrimination, producer surplus is lower than with uniform pricing. 
C)  With first-degree price discrimination, deadweight loss is large. 
D)  With first-degree price discrimination, total surplus is greater than when the monopoly charges a uniform price.

Question 11

A monopolist faces two consumer groups: old and young. The inverse demand of old clients for the output of the monopolist is Po = 100 - 2Qo. The inverse demand of young clients for the output of the monopolist is Py = 80 - Qy. The marginal cost of supplying any type of client is MC = 10. If the monopolist can price discriminate between the two groups (i.e., charge a different uniform price to each group), what price will old and young clients be charged?

Accepted Answer

A)  Po = $45; Py = $55 
B)  Po = $55; Py = $45 
C)  Po = $50; Py = $50 
D)  Po = $40; Py = $60 
A)  Po = $45; Py = $55 
B)  Po = $55; Py = $45 
C)  Po = $50; Py = $50 
D)  Po = $40; Py = $60

Question 12

Which of the following is a real-world example of tying?

Accepted Answer

A)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. 
B)  Sam's Club warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time. 
C)  An airline charges more for a first-class ticket than for a coach ticket. 
D)  The manufacturer of an instant-prints camera is the only manufacturer of the film that the camera uses. 
A)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. 
B)  Sam's Club warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time. 
C)  An airline charges more for a first-class ticket than for a coach ticket. 
D)  The manufacturer of an instant-prints camera is the only manufacturer of the film that the camera uses.

Question 13

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

Accepted Answer

A)  A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. 
B)  An electric company sells "blocks" of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. 
C)  Different prices are charged to different customers at a flea market. 
D)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. 
A)  A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. 
B)  An electric company sells "blocks" of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. 
C)  Different prices are charged to different customers at a flea market. 
D)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket.

Question 14

Let a monopolist face consumer group A with inverse demand PA = 100 - 2QA and consumer group B with inverse demand PB = 80 - QB?. The monopolist can conduct third degree price discrimination, but faces a capacity constraint that QA + QB ≤ 100. What will be the amount supplied to each of the customer groups?

Accepted Answer

A)  QA = 50; QB = 50. 
B)  QA = 60; QB = 40. 
C)  QA = 33.67; QB = 66.33 
D)  QA = 36.67; QB = 63.33 
A)  QA = 50; QB = 50. 
B)  QA = 60; QB = 40. 
C)  QA = 33.67; QB = 66.33 
D)  QA = 36.67; QB = 63.33

Question 15

Which of the following statements is not correct regarding a "damaged goods strategy"?

Accepted Answer

A)  A damaged good strategy is an example of "versioning". 
B)  A damaged good strategy can be an example of third-degree price discrimination. 
C)  A damaged good strategy can be an example of "building fences". 
D)  A damaged good strategy is generally less profitable than a uniform pricing strategy for a high quality product. 
A)  A damaged good strategy is an example of "versioning". 
B)  A damaged good strategy can be an example of third-degree price discrimination. 
C)  A damaged good strategy can be an example of "building fences". 
D)  A damaged good strategy is generally less profitable than a uniform pricing strategy for a high quality product.

Question 16

Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 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 P1 = $70 and the second block provides an additional 15 units at a price of P2 = $40. What is the average outlay schedule for the consumer?

Accepted Answer

A)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 450 / Q$ if Q>15 
B)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40 + 450 / Q$ if Q>15 
C)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40$ if Q>15 
D)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 40 / Q$ if Q>15 
A)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 450 / Q$ if Q>15 
B)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40 + 450 / Q$ if Q>15 
C)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 40$ if Q>15 
D)  $\frac { E } { Q } = \$ 70$ if Q?15 and$\frac { E } { Q } = 70 - 40 / Q$ if Q>15

Question 17

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

Accepted Answer

A)  A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. 
B)  An electric company sells "blocks" of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. 
C)  Sam's Club® warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time. 
D)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. 
A)  A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. 
B)  An electric company sells "blocks" of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. 
C)  Sam's Club® warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time. 
D)  A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket.

Question 18

Some of the theme parks in Orlando, Florida offer lower entry rates or annual passes for Florida residents. Although this is not illegal, it is an example of

Accepted Answer

A)  price gouging. 
B)  first-degree price discrimination. 
C)  second-degree price discrimination. 
D)  third-degree price discrimination. 
A)  price gouging. 
B)  first-degree price discrimination. 
C)  second-degree price discrimination. 
D)  third-degree price discrimination.

Question 19

A block tariff is a form of

Accepted Answer

A)  first-degree price discrimination 
B)  second-degree price discrimination 
C)  third-degree price discrimination 
D)  tying 
A)  first-degree price discrimination 
B)  second-degree price discrimination 
C)  third-degree price discrimination 
D)  tying

Question 20

Bundling is a form of

Accepted Answer

A)  first-degree price discrimination. 
B)  second-degree price discrimination. 
C)  third-degree price discrimination. 
D)  tying. 
A)  first-degree price discrimination. 
B)  second-degree price discrimination. 
C)  third-degree price discrimination. 
D)  tying.

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

Use the following table to answer the following questions Customer Product A Reservation Price Product B Reservation Price 1 1,000 200 2 800 400 Marginal Cost 500 100 -If the firm bundles the products, what single price should the firm charge for the bundle to maximize profit?

With tying

The firm's use of advertising is motivated

When a movie theater charges a lower ticket price for senior citizens and/or students, the movie theater is engaging in

A monopolist faces inverse demand $P = 400 - 4 Q ^ { d }$ and has constant marginal cost $M C = 80$ . If this monopolist engages in first-degree price discrimination, producer surplus will be

Electricity prices may be an example of ___________ as it often varies by the time of day, generally being set higher when demand is at its peak

Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 10. Which of the following is the optimal two-block tariff for the firm?

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

Which of the following is a real-world example of tying?

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

Which of the following statements is not correct regarding a "damaged goods strategy"?

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

Some of the theme parks in Orlando, Florida offer lower entry rates or annual passes for Florida residents. Although this is not illegal, it is an example of

A block tariff is a form of

Bundling is a form of

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 12: Capturing Surplus

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

Use the following table to answer the following questions Customer Product A Reservation Price Product B Reservation Price 1 1,000 200 2 800 400 Marginal Cost 500 100 -If the firm bundles the products, what single price should the firm charge for the bundle to maximize profit?

With tying

The firm's use of advertising is motivated

When a movie theater charges a lower ticket price for senior citizens and/or students, the movie theater is engaging in

A monopolist faces inverse demand P=400−4QdP = 400 - 4 Q ^ { d }P=400−4Qd and has constant marginal cost MC=80M C = 80MC=80 . If this monopolist engages in first-degree price discrimination, producer surplus will be

Electricity prices may be an example of ___________ as it often varies by the time of day, generally being set higher when demand is at its peak

Let the inverse demand curve for a monopolist's product be P = 100 - 2Q and the marginal cost of production be constant at MC = 10. Which of the following is the optimal two-block tariff for the firm?

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

Which of the following is a real-world example of tying?

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

Which of the following statements is not correct regarding a "damaged goods strategy"?

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

Some of the theme parks in Orlando, Florida offer lower entry rates or annual passes for Florida residents. Although this is not illegal, it is an example of

A block tariff is a form of

Bundling is a form of

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

A monopolist faces inverse demand $P = 400 - 4 Q ^ { d }$ and has constant marginal cost $M C = 80$ . If this monopolist engages in first-degree price discrimination, producer surplus will be