Deck 18: Pricing Policies

Question 1

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.25 per minute,how large of a fixed monthly fee can it charge and still persuade customers to buy their service?

A) $200
B) $153.13
C) $306.25
D) $175

Answer 1

B

Question 2

Under perfect price discrimination the monopolist produces ________ a perfectly competitive market.

A) the same amount of output as a non-discriminating monopolist as well as
B) less output than an imperfectly price discriminating monopolist, but more than
C) more output than an imperfectly price discriminating monopolist, but less than
D) the same amount of output as would

Answer 2

D

Question 3

Under a perfectly price discriminating monopolist,each consumer consumes ________ a perfectly competitive market.

A) the same amount of output as they would under a non-discriminating monopolist as well as
B) less output than they would under an imperfectly price discriminating monopolist, but more than under
C) more output than they would under an imperfectly price discriminating monopolist, but less than under
D) the same amount of output as they would under

Answer 3

D

Question 4

Perfect price discrimination means:

A) charging each consumer a price exactly equal to his or her willingness to pay.
B) charging the exact same price to each consumer regardless of his or her willingness to pay.
C) charging different prices to different consumers so as to maximize consumer surplus.
D) charging each consumer a price exactly equal to the marginal cost of selling the good to that consumer.

Question 5

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute and the largest fixed fee that it can at that price,what is the difference in profit per customer compared to when it charges $0.25 per minute and the largest fixed fee that it can at that price?

A) Profit per customer is the same in both cases, and it is equal to zero.
B) Profit per customer is the same in both cases, and it is positive.
C) Profit is $3.13 per customer higher at a price of $0.50.
D) Profit is $3.13 per customer higher at a price of $0.25.

Question 6

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute and the largest fixed fee that it can,what is Always There's total profit?

A) $30,625
B) $30,000
C) $37,500
D) $7,500

Question 7

A firm engages in price discrimination when it:

A) charges different prices for different units of different goods.
B) charges the same price for different units of the same good.
C) charges a higher price for units for which the willingness to pay is high than for those units for which the willingness to pay is low.
D) charges a lower price for units for which the willingness to pay is high than for those units for which the willingness to pay is low.

Question 8

When a firm charges more per ounce for a small bottle of ketchup than for a larger one,it is engaging in:

A) price discrimination based on observable customer characteristics.
B) perfect price discrimination.
C) quantity-dependent pricing.
D) two-part tariff pricing.

Question 9

With a two-part tariff:

A) consumers simply pay a fixed fee if they buy anything at all.
B) consumers pay a fixed fee if they buy anything at all, plus a separate per-unit price for each unit they buy.
C) consumers pay a fixed fee if they buy anything at all, plus an annual fee for the right to purchase anything.
D) consumers simply pay a fee for the right to buy anything.

Question 10

Price discrimination is based on observable customer characteristics:

A) when a firm can distinguish consumers with a high versus low willingness to pay.
B) when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay.
C) when a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit.
D) in all cases.

Question 11

Price discrimination is based on self-selection:

A) when a firm can distinguish consumers with a high versus low willingness to pay.
B) when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay.
C) when a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit.
D) when monopolists decide for themselves whether to engage in price discrimination.

Question 12

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute and the largest fixed fee that it can,what is Always There's profit per customer?

A) $153.13
B) $150.00
C) $187.50
D) $37.50

Question 13

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.25 per minute and the largest fixed fee that it can,what is Always There's profit per customer?

A) $153.13
B) $196.88
C) $200
D) $175

Question 14

A telephone company that charges both a monthly fee plus a price per minute used are employing:

A) price discrimination based on observable customer characteristics.
B) perfect price discrimination.
C) a two-part tariff.
D) the profit-maximizing rule.

Question 15

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.25 per minute and the largest fixed fee that it can,what is Always There's total profit?

A) $30,625
B) $39,375
C) $40,000
D) $35,000

Question 16

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.25 per minute,how many minutes will each customer buy each month?

A) 175
B) 200
C) 2
D) 225

Question 17

A monopolist can perfectly price discriminate:

A) when it can distinguish consumers with a high versus low willingness to pay.
B) when it offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay.
C) if it knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit.
D) whenever it chooses to as a result of its market power.

Question 18

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute,how many minutes will each customer buy each month?

A) 200
B) 150
C) 175
D) 250

Question 19

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute and the largest fixed fee that it can at that price,what is the difference in total profit compared to when it charges $0.25 per minute and the largest fixed fee that it can at that price?

A) Profit is the same in both cases, and it is equal to zero.
B) Profit is the same in both cases, and it is negative.
C) Profit is $626 higher at a price of $0.50.
D) Profit is $626 higher at a price of $0.25.

Question 20

Always There Wireless is wireless monopolist in a rural area.There are 200 customers,each of whom has a monthly demand curve for wireless minutes of Q^d = 200 - 100P,where P is the per-minute price in dollars and Q is the number of wireless minutes.The marginal cost of providing the wireless service is $0.25 per minute.If Always There charges $0.50 per minute,how large of a fixed monthly fee can it charge and still persuade customers to buy their service?

A) $200
B) $150
C) $225
D) $112.50

Question 21

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.What is the highest fixed fee Always There Wireless could charge without losing the low-demand consumers?

A) $28.13
B) $56.26
C) $24.50
D) $49.00

Question 22

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.How many minutes will high-demand consumers purchase?

A) 60
B) 30
C) 70
D) 170

Question 23

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.What is the monopolist's profit from both students and adults?

A) $2,900
B) $2,500
C) $2,100
D) $4,900

Question 24

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.How many tickets does the theater sell to adults to maximize profits?

A) 2500
B) 500
C) 200
D) 600

Question 25

If a monopoly is price discriminating between two groups,A and B,based on observable customer characteristics,there is no difference in the marginal cost of selling to the two groups,and the elasticity of demand for group A is -1.5 while the elasticity of demand for group B is -2.1,which of the following is true?

A) The markup and price for group A customers will be higher than for group B customers.
B) The markup and price for group B customers will be higher than for group A customers.
C) The markup for group A customers will be higher than for group B customers, but there is not enough information to determine which price will be higher.
D) The price for group A customers will be higher than for group B customers, but there is not enough information to determine which markup will be higher.

Question 26

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.What is the monopolist's profit from adults?

A) $400
B) $2,400
C) $2,500
D) $0

Question 27

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what are the profits from sales to each of the low-demand consumers?

A) $9.38
B) $28.13
C) $153.13
D) $1.00

Question 28

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.How many minutes will low-demand consumers purchase?

A) 75
B) 175
C) 200
D) 100

Question 29

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.How many minutes will high-demand consumers purchase?

A) 75
B) 175
C) 200
D) 100

Question 30

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.How many tickets does the theater sell to students to maximize profits?

A) 2500
B) 500
C) 200
D) 600

Question 31

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.What price per ticket does the theater charge students to maximize profits?

A) $4
B) $7
C) $6
D) $12

Question 32

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.How much can Always There Wireless charge as a fixed fee without losing the low-demand consumers?

A) $9.38
B) $28.13
C) $153.13
D) $1.00

Question 33

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.What is the difference in the monopolist's profit when it is able to price discriminate and when it cannot?

A) $2,500
B) $450
C) $0
D) $50

Question 34

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.What is the monopolist's profit from students?

A) $400
B) $2400
C) $2500
D) $0

Question 35

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater cannot price discriminate.What is the monopolist's profit from both students and adults?

A) $2,500
B) $4,950
C) $2,450
D) $50

Question 36

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.How many minutes will low-demand consumers purchase?

A) 60
B) 30
C) 70
D) 170

Question 37

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.What are Always There Wireless's total profits?

A) $3,750
B) $11,250
C) $61,250
D) $400

Question 38

A movie monopolist sells to students and adults.The demand function for students is Q^d_S = 600 - 100P and the demand function for adults is Q^d_A = 1,200 - 100P.The marginal cost is $2 per ticket.Suppose the movie theater can price discriminate.What price per ticket does the theater charge adults to maximize profits?

A) $4
B) $7
C) $6
D) $12

Question 39

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.25 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what are the profits from sales to each of the high-demand consumers?

A) $9.38
B) $28.13
C) $153.13
D) $1.00

Question 40

If a monopoly is price discriminating between two groups,A and B,based on observable customer characteristics,there is a difference in the marginal cost of selling to the two groups,and the elasticity of demand for group A is -1.5 while the elasticity of demand for group B is -2.1,which of the following is true?

A) The markup and price for group A customers will be higher than for group B customers.
B) The markup and price for group B customers will be higher than for group A customers.
C) The markup for group A customers will be higher than for group B customers, but there is not enough information to determine which price will be higher.
D) The price for group A customers will be higher than for group B customers, but there is not enough information to determine which markup will be higher.

Question 41

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is Always There Wireless's total profit?

A) $11,200
B) $13,200
C) $11,700
D) $12,700

Question 42

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.How many minutes will high-demand consumers purchase?

A) 65
B) 35
C) 75
D) 165

Question 43

Discuss the differences between perfect and imperfect price discrimination and the benefits of each to a monopolist.

Question 44

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is the profit from sales to each of the high-demand consumers?

A) $28.00
B) $24.50
C) $33.00
D) $28.13

Question 45

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.What is the highest fixed fee Always There Wireless can charge without losing the low-demand consumers?

A) $21.13
B) $42.25
C) $28.13
D) $136.13

Question 46

Bundling:

A) is the practice of selling a single product in bulk at a reduced per unit price.
B) is the practice of selling several products together as a package.
C) is the practice of selling the same good to different types of consumers at different prices.
D) is the practice of selling different goods to different types of consumers at different prices.

Question 47

Bundling always increases a multi-product monopolist's profit:

A) whenever the marginal rate of substitution is decreasing.
B) whenever an increase of a dollar in the willingness to pay for one good implies an increase of a dollar in the willingness to pay for another good and the marginal cost is zero.
C) when doing so does not alter consumers' willingness to pay for the bundle and the monopolist can extract all of aggregate surplus as profit.
D) if and only if the monopolist is also perfectly price discriminating.

Question 48

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.30 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is the profit from sales to each of the low-demand consumers?

A) $28.00
B) $24.50
C) $33.00
D) $28.13

Question 49

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is Always There Wireless's profit from sales for each high-demand consumer?

A) $27.63
B) $37.63
C) $21.13
D) $28.13

Question 50

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is Always There Wireless's total profit?

A) $11,250
B) $12,050
C) $11,050
D) $8,450

Question 51

Firms bundle their products because:

A) it is technologically efficient to do so.
B) it can increase a firm's ability to extract consumer surplus.
C) it can increase a firm's profits.
D) All of these are reasons firms bundle their products.

Question 52

Mixed bundling:

A) is the practice of selling several products together as a package.
B) is the practice of selling the same good to different types of consumers at different prices.
C) is the practice of selling several products together as a package while also offering those products for sale individually.
D) is the practice of selling goods in bulk at a reduced per unit price.

Question 53

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,which of the following is the most profitable price per minute?

A) $0.45
B) $0.49
C) $0.53
D) $0.57

Question 54

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,what is Always There Wireless's profit from sales for each low-demand consumer?

A) $27.63
B) $37.63
C) $21.13
D) $28.13

Question 55

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.Suppose Always There Wireless charges $0.35 per minute.How many minutes will low-demand consumers purchase?

A) 65
B) 35
C) 75
D) 165

Question 56

Explain bundling and mixed bundling and the benefits to a multi-product monopolist of such packaging schemes.

Question 57

Suppose Always There Wireless serves 100 high-demand wireless consumers,who each have a monthly demand curve for wireless minutes of Q^d_H = 200 - 100P,and 300 low-demand consumers,who each have a monthly demand curve for wireless minutes of Q^d_L = 100 - 100P,where P is the per-minute price in dollars.The marginal cost is $0.25 per minute.If Always There Wireless charges the highest fixed fee that it can without losing the low-demand consumers,which of the following is the most profitable price per minute?

A) $0.35
B) $0.40
C) $0.50
D) $0.60