Deck 14: Price Discrimination Monopoly Practices

Question 1

In the case of perfect price discrimination marginal revenue is usually:

A)decreasing.
B)equal to the marginal cost.
C)larger than the average revenue.
D)equal to the price.

Answer 1

equal to the price.

Question 2

Which of the following is not consistent with profit maximization monopsonistic behaviour?

A)output price equals marginal revenue.
B)setting marginal factor product equal to input supply
C)equalization of marginal factor costs
D)setting aggregate marginal factor costs equal to marginal revenue product

Answer 2

setting marginal factor product equal to input supply

Question 3

An all- or- nothing demand curve tells us:

A)the maximum amount a consumer will pay for the next unit of a good.
B)that some people prefer nothing to something.
C)the same thing as an ordinary demand curve.
D)the maximum amount a consumer will pay for a given quantity rather than have nothing.

Answer 3

the maximum amount a consumer will pay for a given quantity rather than have nothing.

Question 4

A monopsonistic producer minimizes costs by choosing quantities of inputs such that:

A)marginal factor costs are equal.
B)input prices are equal.
C)marginal revenue product is minimized.
D)the quantity of each input is equal.

Question 5

When a monopolist charges everybody exactly what they're willing to pay

A)consumer surplus is positive and the dead weight loss is positive
B)consumer surplus is zero and the dead weight loss is zero
C)consumer surplus is positive and the dead weight loss is zero
D)consumer surplus is zero and the dead weight loss is positive

Question 6

Which of the following explains the high price of ink jet printer cartridges?

A)two- part tariff
B)all or nothing demands
C)tie- in sales
D)multipart pricing

Question 7

Which of the following is not an example of price discrimination?

A)half- fare for children at the movie
B)cheap midweek fares on some airline routes
C)differences between wholesale and retail prices
D)pricing according to income of buyers

Question 8

A profit maximizing monopsonist chooses aggregate quantity of input so that:

A)price equals marginal factor cost.
B)marginal factor cost equals aggregate output price.
C)marginal revenue product equals aggregate marginal factor cost.
D)output price equals marginal revenue.

Question 9

Standard pricing by a monopolist:

A)is easy since there are few alternatives to extract more consumer surplus.
B)is thwarted by the drive to increase profits.
C)is seen as the moral alternative.
D)is helped by the fact that price discrimination is illegal.

Question 10

Where feasible, a monopolist will find the use of multipart pricing preferable to ordinary price discrimination because the former:

A)generates larger profits.
B)generates larger revenues.
C)is more effective in appropriating consumer surplus.
D)induces market segmentation through self- selection.

Question 11

Arbitrage refers to:

A)the activity of a referee.
B)the ability to buy a good in a low- price market and resell it in a high- price market.
C)certain activities undertaken by firms.
D)the strategy developed by a monopolist engaged in ordinary price discrimination in order to increase its profits.

Question 12

Which of the following is an example of perfect price discrimination?

A)A tattoo parlor charges a client's reservation price net of MC.
B)A club charges a member's reservation price for entry and MC for service.
C)A competitive firm charges a price equal to marginal cost.
D)A seamstress charges a client's reservation price.

Question 13

Under multipart pricing:

A)customers may pay different prices for each block they purchase.
B)each group may pay a different price.
C)each customer may pay a different price.
D)all customers pay the same price.

Question 14

Given a fixed level of output, an ordinary price discriminating monopolist will:

A)charge different rates for different amounts of a good or service.
B)allocate output to equalize MR on the last unit sold in each market.
C)serve a high price elasticity market first.
D)always sell the quantity at which MR is equal to zero in each market.

Question 15

An ordinary price discrimination monopolist that also has to decide on the production level would choose the quantities sold in the two markets so that:

A)the revenue is maximized.
B)consumer would not notice the difference.
C)the marginal costs in the two markets are equal.
D)the aggregate output is such that aggregate marginal revenue equals marginal cost.

Question 16

Which of the following are essential for perfect price discrimination?

A)the ability to prevent the resale of the product
B)knowledge of every customer's income
C)knowledge of the supply curve.
D)approval from the regulator.

Question 17

A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM. This is an example of:

A)tying.
B)perfect price discrimination.
C)ordinary price discrimination.
D)a two- part tariff.

Question 18

Perfect price discrimination draws its name from the fact that:

A)monopolies transformed price discrimination in a form of art.
B)customers do not realize they are discriminated.
C)the monopolist is able to extract the maximum profit from that market.
D)economists always side with the capitalists.

Question 19

Charging a price equal to marginal cost in the case of a two- part pricing strategy is efficient because:

A)pricing at cost results in low prices.
B)all potential gains from trade are realized.
C)it is a simple scheme.
D)pricing at cost is fair.

Question 20

Which of the following leads to the largest gains from trade?

A)second degree price discrimination
B)first degree price discrimination
C)tie- in sales
D)third degree price discrimination

Question 21

Price discrimination applies to:

A)perfectly competitive markets only.
B)monopoly only.
C)markets dominated by a few firms.
D)oligopoly only.

Question 22

Which of the following is an example of a two- part tariff?

A)motorized cart rental at a golf course
B)extended warranty on a laptop
C)meals on an airplane
D)Costco's membership fee

Question 23

The MR function of a perfect price- discriminating monopolist:

A)is independent of output.
B)lies everywhere below the AR function.
C)is undefined.
D)coincides with the market demand curve.

Question 24

In which of the following markets is one more likely to observe ordinary price discrimination rather than block pricing?

A)buying potatoes at your neighbourhood convenience store
B)banking services
C)the cable TV services
D)the local telephony services

Question 25

What price does a monopoly charge when it perfectly implements a two- part tariff?

A)a price higher than the monopolist price
B)a price between the competitive and monopolist prices
C)the monopoly price
D)the competitive price

Question 26

Which of the following is not an example of price discrimination?

A)Business travelers pay more than holiday traveler.
B)Women pay lower insurance premiums than men.
C)A senior citizen pays a discounted fare when boarding a bus.
D)A kid pays a lower cinema hall access fee than adults.

Question 27

Two- part tariffs:

A)are always better than price discrimination.
B)work best when consumers are similar.
C)work best when consumers vary in their preference for the good.
D)never exploit all of the gains from trade.

Question 28

Which of the following can act as effective factors preventing arbitrage?

A)search costs
B)transportation costs but not transaction costs
C)transaction costs but not tariffs
D)piracy

Question 29

Aggregate marginal revenue is:

A)the vertical sum of the marginal revenue in the two markets.
B)the horizontal sum of the marginal revenue in the two markets.
C)the marginal revenue that maximizes the monopolist's profit.
D)the marginal revenue of a common market formed by all the monopolist's customers.

Question 30

The possibility of arbitrage by its customers is loathed by the price discriminating monopolist because:

A)customers enrich themselves at the expense of the monopolist's profits.
B)it is the customers that price discriminate in this case.
C)profits will be lower even though separation of markets. is preserved.
D)it encourages entry.

Question 31

The monopolist engaged in ordinary price discrimination:

A)the monopolist will have troubles finding out the exact value of the price elasticities of demand.
B)charges higher prices in markets with higher absolute value of the price elasticity of demand.
C)the prices in the two markets are not related to the respective price elasticities of demand.
D)charges higher prices in markets with lower absolute value of the price elasticity of demand.

Question 32

Which type of price discrimination reduces the deadweight loss the most?

A)all- or- nothing pricing
B)perfect price discrimination
C)block pricing
D)uniform pricing

Question 33

The strategy underlying price discrimination is:

A)to reduce per unit cost by charging higher prices to those with the most inelastic demand and lower prices to those with the most elastic demand.
B)to charge higher prices to customers who have good substitutes available to them.
C)to increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.
D)to charge everyone the same price, but limit the quantity they are allowed to buy.

Question 34

A monopolist would usually find more profitable to engage in block pricing rather than ordinary price discrimination. However, there are instances when this is not the case because:

A)the monopolist finds the block pricing hard to master.
B)customers buy usually a few units of the good.
C)it is costly to measure the customer's consumption.
D)customers loath discrimination.

Question 35

The two- part tariff is an efficient pricing solution because:

A)is applied to homogenous consumers.
B)trendy night clubs use it.
C)the product is sold at marginal cost.
D)it extracts the maximum consumer surplus.

Question 36

A tie- in sale:

A)raises the price of a monopoly good and lowers the price of the tied- good.
B)lowers the price of the monopoly good and raises the price of the tied- good.
C)raises both the price of the monopoly good and the tied- good.
D)lowers both the price of the monopoly good and the tied- good.

Question 37

Which of the following is not a price discrimination scheme?

A)block or multipart pricing
B)perfect price discrimination
C)imperfect price discrimination
D)ordinary price discrimination

Question 38

Under ordinary price discrimination:

A)all customers pay the same price.
B)customers may pay different prices for each block they purchase.
C)each group may pay a different price.
D)each customer may pay a different price.

Question 39

The reason monopolists try to devise more sophisticated pricing schemes is that:

A)all of them have a strong entrepreneurial spirit.
B)they hold an MBA degree and want to show off.
C)they are interested in finding ways to increase their profits.
D)they are trying to make an easy buck at the expense of consumers.

Question 40

Charging a higher price on the tied good and a lower price on the monopoly good renders the tie- in strategy:

A)always a better choice than price discrimination.
B)efficient because it does not create deadweight loss.
C)fair because the consumer gets a good deal on the average.
D)an available alternative strategy to extract surplus from the customer.

Question 41

If an ordinary price discrimination monopolist charges a higher price in one market than another, it must mean that at the profit- maximising level of output in each market the:

A)monopolist is implementing perfect price discrimination.
B)price- elasticity of demand is higher in the high- price market.
C)price- elasticity of demand is lower in the high- price market.
D)reservation prices are generally higher in the high- price market.

Question 42

Which of the following can practice price discrimination the easiest?

A)a book publisher
B)a record store
C)a grocery store
D)an oral surgeon

Question 43

An ordinary price- discriminating monopolist that faces a downward- sloping demand curve in one market and a horizontal demand curve in another market will:

A)charge the same price in both markets.
B)sell an aggregate output corresponding to the aggregate marginal revenue equaling marginal cost.
C)charge p = MR where it has market power, and p = AR in the others.
D)charge p = MR in both markets.

Question 44

A firms sells an identical product to two groups of consumers, A and B. The firm has decided that ordinary price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?

A)MRA = MRB = MC.
B)(MRA - MRB)= (1 - MC).
C)PA = PB = MC.
D)MRA = MRB.

Question 45

On a recent trip to Starbucks we noticed that the price of coffee per ounce is highest for the short size, slightly lower for the tall, even lower for the grande, and lowest for the venti. Why do they price this way?

A)marginal cost curve is downward sloping
B)the price of the short size captures all the consumer surplus and the others don't
C)average cost curve is downward sloping
D)each size has a different elasticity

Question 46

Firms with monopoly power will price discriminate when ever possible because

A)it makes the price of the last unit sold lower which makes customers happy
B)discrimination increases profits
C)discrimination reduces costs
D)it reduces the dead weight loss and is better for society

Question 47

In order to maximize revenue from the sale of a fix quantity of output in two markets, a monopolist engaged in ordinary price discrimination would:

A)sell half the goods in each market.
B)make sure it sells all the units of the good.
C)allocate output so that MC is the same in both markets.
D)allocate output so that MR is the same in both markets.

Question 48

Which of the following is true when comparing two part tariffs to ordinary price discrimination?

A)Both price schemes generate the same amount of profit in different ways.
B)Both price schemes generate the same amount of profit in the same way.
C)More profit is generated with two- part tariffs.
D)More profit is generated with ordinary price discrimination.

Question 49

Ordinary price discrimination entails:

A)serving only groups of customers.
B)identifying customers by groups.
C)doing business as usual.
D)serving only ordinary customers.

Question 50

The deadweight loss emerging in the standard monopoly pricing stems from:

A)marginal cost is upward- sloping.
B)the monopolist charges the same price for all units sold.
C)price is lower than the marginal revenue.
D)the fact that monopolists are evil.

Question 51

Who is more likely to get closer to perfect price discrimination?

A)a convenience store
B)a department store
C)a supermarket
D)an accounting firm

Question 52

An all- or- nothing demand curve:

A)tells us the total value of a given quantity.
B)tells us the marginal value of a given quantity.
C)tells us the average value of a given quantity.
D)is the same as an ordinary demand curve.

Question 53

All- or- nothing pricing is a:

A)special instance of multi- part pricing.
B)special instance of perfect competition.
C)situation where all the goods go to one consumer.
D)situation where all the goods go to the producer.

Question 54

The most common problem encountered with two- part tariffs is that:

A)pricing at marginal cost prevents the monopolist from breaking even.
B)this pricing scheme is illegal in most jurisdictions.
C)the consumers are heterogenous.
D)the monopolist finds estimating consumer demand too costly.

Question 55

A tie- in sale is a form of:

A)price discrimination.
B)two- part tariff.
C)gauging the consumer.
D)extracting surplus from the customer.

Question 56

In Canada most people know when the Bay and Sears hold their big sales. Why is it that people shop at any other time of the year for durable or semidurable goods if they know they can get it on sale.

A)Canadians know that retailers are just trying to trick them
B)the opportunity cost of shopping during a sale is high
C)people shop when they need things
D)people aren't always utility maximizers

Question 57

If a monopolist can charge an all- or- nothing price, then:

A)consumer surplus is a meaningless notion.
B)consumer surplus is captured by consumers.
C)consumer surplus is minimized.
D)consumer surplus is captured by the monopolist.

Question 58

In order to be able to price- discriminate, firms need:

A)government approval.
B)competitors willing to form a cartel.
C)market power.
D)inventive economists.

Question 59

Efforts to price discriminate on the part of a price searcher:

A)are bad because they reduce total surplus.
B)always maximize profits.
C)are welfare increasing because they increase consumer's surplus.
D)are less effective than other forms of pricing.

Question 60

Perfect price discrimination is usually not attainable because:

A)the government makes it illegal in most countries.
B)nobody is perfect.
C)monopolists find it hard to gather enough information on their customers.
D)managers of monopolies lack imagination.

Question 61

All- or- nothing pricing:

A)is just another form of two part pricing.
B)should be illegal.
C)allows the consumer to keep some of the surplus.
D)applies to both market and non- market transactions.

Question 62

Under perfect price discrimination:

A)each customer may pay a different price.
B)customers may pay different prices for each block they purchase.
C)all customers pay the same price.
D)each group may pay a different price.

Question 63

Ordinary price discrimination still results in a deadweight loss because:

A)firms are not charging enough different prices.
B)competitors prevent the price searcher from exploiting more of the consumer's surplus.
C)consumers are not willing to pay the prices charged.
D)firms that price discriminate are not maximizing profits.

Question 64

How many broad theoretical categories of price discrimination are usually distinguished by economists?

A)three categories
B)more than three categories
C)one category
D)two categories

Question 65

Several magazine articles documented the reluctance of AIDS drug manufacturers to provide relief to developing countries. The likely reason for this is:

A)the high cost of transportation.
B)their fears that arbitrage will severely cut into their profits.
C)the inability of the developing countries to pay for the drugs.
D)lack of compassion from their part.

Question 66

An ordinary price discrimination monopolist that serves two markets and can produce any level of output that it desires will maximize profits by:

A)producing at the minimum of each market's AC function.
B)producing output where the horizontal sum of the MR curve meets AC.
C)producing where MR = MC in each market.
D)charging a price equal to MR in each market.

Question 67

Back in the dark ages (1980s)there was an active secondary market in airline tickets. Now, due to security concerns, passengers are required to show identification twice before boarding a plane. Once at check- in and once clearing security. Why didn't airlines oppose the extra costs of having to check identification?

A)checking identification does not affect marginal costs
B)airlines are as concerned about security as the government
C)identification provides information for the airlines
D)requiring identification prohibits arbitrage

Question 68

What are the most common ways to segment a market?

A)enlist the government to erect barriers
B)geographical separation
C)threaten customers who engage in reselling
D)use different packaging

Question 69

Tie- in sales:

A)require the firm to know each individual's demand for the good.
B)are always better than two part tariffs.
C)is a good method to separate markets.
D)never exhaust all of the consumer's surplus.

Question 70

Which form of price discrimination is more commonly met in our daily lives?

A)two- part tariffs
B)perfect price discrimination
C)ordinary price discrimination
D)block pricing

Question 71

In Canada, the Competition Act makes price discrimination illegal in certain circumstances. The main reason for which price discrimination cases brought before courts are difficult is:

A)judges have a hard time thinking like an economist.
B)the cases are politically motivated.
C)it is hard to prove that the price difference is not due to objective factors, such as cost differences.
D)the Competition Tribunal tends to dismiss as irrelevant most price discrimination cases.

Question 72

Which of the following are genuine tie- in pricing schemes?

A)a copying machine that works with a special type of paper only
B)a digital camera.
C)the sale of a browser with an operating system.
D)the sale of popcorn at the mall.

Question 73

Which statement is inconsistent with a tie- in pricing scheme?

A)The monopolist charges prices that capture consumer surplus.
B)The monopolist charges a zero price on the monopoly good and a high price on the tied- good.
C)The monopolist charges a lower than equilibrium price on the monopoly good and higher than equilibrium price on the tied- good.
D)The monopolist charges prices that generate dead weight loss.

Question 74

In all cases of price discrimination it is important to:

A)offer significant rebates to the customers.
B)hide the actions from the government.
C)hide the actions from the consumer
D)gather information about the demand function.

Question 75

Casual observation would confirm that no two (unrelated)passengers aboard a given flight paid the same amount for the ticket. Usual criteria to separate the markets are:

A)traveler's home country.
B)method of payment.
C)time of purchasing the ticket.
D)sex.

Question 76

The optimal two part tariff strategy is to charge:

A)an entry fee equal to consumer surplus and a zero price.
B)an entry fee equal to producer surplus and a zero price.
C)an entry fee equal to producer surplus and a price equal to marginal cost.
D)an entry fee equal to consumer surplus and a price equal to marginal cost.

Question 77

A necessary condition for a monopolist to successfully practice ordinary price discrimination is the:

A)identification of buyers' reservation prices in all isolated markets.
B)ability to segment its total market.
C)identification of different price elasticities for each buyer.
D)existence of profitable arbitrage between markets.

Question 78

A tennis instructor charges $15 per hour for tennis lessons for children, and $30 per hour for tennis lessons for adults. The instructor is practicing:

A)two part tariff.
B)block pricing.
C)ordinary price discrimination.
D)perfect price discrimination.

Question 79

Perfect price discrimination is unlikely to exist in real life because:

A)monopolists are willing to cut their customers some slack.
B)price discrimination is just a theoretical concept.
C)information asymmetries are present.
D)economics is not a perfect science.

Question 80

Ordinary price discrimination draws its name from the fact that:

A)it is not the firms' first choice.
B)it is inefficient.
C)information asymmetries are usually not so severe to prevent this type of price discrimination.
D)all firms engage in this sort of price discrimination.