Exam 26:Monopoly Behavior-Part A

Bayerische Motoren Werk (BMW)charges a considerably higher price for its automobiles in the North American market than it does in its home market of Europe.Assuming that the goal of BMW's pricing policy is profit maximization,which of the following would be a plausible explanation for BMW's pricing policy?

In order to maximize his profits,a monopolist who practices third-degree price discrimination with two or more markets should charge higher prices in markets with more inelastic demand functions.

A careful analysis of demand for Bubbles in Strasburg,North Dakota,reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q = min{R/3,W },where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.P_R= $1,P_W =$5. )If demand for Bubbles by senior citizens is described by Q₀ =500P ^{- 3/2}while demand by those under 65 years old is Q_y =50P ^{- 5},how should Bubbles be priced to maximize profits?

A profit-maximizing monopolist practices third-degree price discrimination.If he charges p₁ in market 1 and p₂ in market 2,where p₁ $\gt$ p₂,then if the law forced him to charge the same price in both markets,more would be demanded in market 1 than in market 2.

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $5 in one market and p₂= $10 in the other market.At these prices,the price elasticity in the first market is -1.40 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits?

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $2 in one market and p₂=$8 in the other market.At these prices,the price elasticity in the first market is -2.20 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits?

Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

Roach Motors has a monopoly on used cars in Enigma,Ohio.By installing secret microphones in the showroom,the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice first-degree price discrimination,extracting from each customer his entire consumer's surplus.The inverse demand function for cars in Enigma is P= 2,000-10Q.Roach Motors purchases its stock of used cars at an auction in Cleveland for $500 each.Roach motors will

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 7,000-700p₁ and demand in England is given by Q₂ = 1,200 -200p₂,then the price in the United States will

A monopolist finds that a person's demand for its product depends on the person's age.The inverse demand function of someone of age y can be written p =A(y)-q,where A(y)is an increasing function of y.The product cannot be resold from one buyer to another and the monopolist knows the ages of its consumers.If the monopolist maximizes its profits,

A profit-maximizing monopolist is able to practice third-degree price discrimination.If he charges p₁ in market 1 and p₂ in market 2,where p₁ $\gt$ p₂,the quantity sold in market 1 must be smaller than the quantity sold in market 2.

A monopolist has discovered that the inverse demand function of a person with income M for the monopolist's product is p = .002 M-q.The monopolist is able to observe the incomes of its consumers and to practice price discrimination according to income (second-degree price discrimination).The monopolist has a total cost function,c(q)= 100q.The price it will charge a consumer depends on the consumer's income,M,according to the formula

It is possible that a profit-maximizing monopolist who is able to practice first-degree (perfect)price discrimination would sell a quantity x such that the demand curve for his product is inelastic when the quantity sold is x.

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 7,000 -700p₁ and demand in England is given by Q₂ = 3,200 -400p₂,then the price in the United States will

A careful analysis of demand for Bubbles in Strasburg,North Dakota,reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q = min{R/5,W },where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.P_R =$1,P_W = $4. )If demand for Bubbles by senior citizens is described by Q₀ =500P ^{- 3/2} while demand by those under 65 years old is Q_y =50P ^{- 5},how should Bubbles be priced to maximize profits?

A monopolist who is able to practice third-degree price discrimination will make greater profits than a monopolist who is able to practice first-degree price discrimination.

In a monopolistically competitive industry with zero profits,each firm will produce less than the amount that minimizes average costs.

Disneyland has two possibilities for pricing rides at its theme parks: (1)Set MR = MC for each ride and charge the maximum price consumers will bear.(2)Charge an admission fee to the theme park but allow unlimited rides for free.Using graphs,show which pricing scheme is more profitable for Disneyland.

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 6,000 -600p₁ and demand in England is given by Q₂ = 2,400 -400p₂,then the price in the United States will

A monopolist sells in two markets.The demand curve for her product is given by p₁= 122 - 2x₁ in the first market and p₂= 306 -5x₂ in the second market,where x_i is the quantity sold in market i and p_i is the price charged in market i.She has a constant marginal cost of production,c = 6,and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?