Deck 12: Pricing and Advertising

Question 1

Theatres charge lower prices for a matinee and usually don't accept coupons for the night showing of movies because

A)consumers that attend the matinee have a higher price elasticity of demand.
B)consumers that attend the night show have a lower price elasticity of demand.
C)it increases profits compared to charging a single price.
D)All of the above.

Answer 1

All of the above.

Question 2

Which of the following sellers is most able to perfectly price discriminate?

A)a college or university
B)the post office
C)a clothing store
D)a grocery supermarket

Answer 2

a college or university

Question 3

Suppose two countries,A and B,are at war with each other.Country A is very wealthy;country B is very poor.The XYZ Co.produces tanks.Is XYZ able to set a different price for the tank sold to country A than the price for the tank sold to country B? Explain.

Answer 3

XYZ can practice multimarket price discrimination.There are two identifiable segments with different elasticities.Since the two countries are at war,resale is doubtful.

Question 4

Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of

A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)actual cost differences.

Question 5

Firms price discriminate to maximize total revenue.

Question 6

Explain why a firm can earn more profit by price discrimination than from setting a uniform price.

Question 7

Which of the following conditions must be TRUE so that a firm can price discriminate?

A)There are no other firms in the market.
B)The good is a nondurable.
C)The good cannot be easily resold.
D)All of the above.

Question 8

If two markets have the same price elasticity of demand at every price,a monopoly will not practice multimarket price discrimination.

Question 9

At many municipal golf courses,local residents pay a lower fee to play than other golfers do.One necessary condition for the golf course to be able to successfully price discriminate according to residency is that

A)they can check the identification cards of golfers.
B)local resident golfers and other golfers have the same price elasticity of demand to play at the municipal course.
C)there are many golf courses nearby from which golfers can choose.
D)they require all golfers to rent a cart.

Question 10

A coffee shop sells a small cup of coffee at $3,while a large cup,which is twice as big,at $5.This is an example of

A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)actual cost differences.

Question 11

A perfect price discriminator

A)charges each buyer her reservation price.
B)charges different prices to each customer based upon different costs of delivery.
C)generates a deadweight loss to society.
D)charges lower prices to customers who buy greater quantities.

Question 12

If consumers are identical,then

A)price discrimination is impossible.
B)price discrimination can occur if each consumer has a downward-sloping demand curve for the product.
C)perfect price discrimination is the only form of price discrimination that can increase a monopoly's profit.
D)tie-in sales cannot increase a monopoly's profit.

Question 13

When firms price discriminate they turn ________ into ________.

A)producer surplus,revenue
B)consumer surplus,profit
C)total cost,profit
D)producer surplus,consumer surplus

Question 14

Can a perfectly competitive firm successfully price discriminate? Hint: What does the demand curve look like for a perfectly competitive firm?

Question 15

The deadweight loss generated by a perfect-price-discriminating monopoly

A)equals the deadweight loss of a single-price monopoly.
B)is greater than the deadweight loss of a single-price monopoly.
C)equals zero.
D)equals the sum of all lost consumer surplus.

Question 16

Why do firms engage in price discrimination?

A)to decrease cost
B)to increase profits
C)to increase consumer surplus
D)to prohibit the resale of their products

Question 17

A perfect-price-discriminating monopoly's marginal revenue curve

A)lies below the demand curve.
B)is the demand curve.
C)varies for each consumer.
D)is the same as the monopolist's marginal revenue curve.

Question 18

Which of the following is NOT an example for third-degree price discrimination?

A)discounted coupons for toothpastes in the newspapers
B)discounts for Saturday night stayovers
C)discounts for bulk orders
D)discounts for senior citizens at amusement parks

Question 19

Which of the following is NOT an example of firms trying to prevent resale?

A)Movie theatres check student ID for students' discounted tickets.
B)An aluminum company starts its own wire production firm to sell to the aircraft parts at a higher price.
C)Government limits the sale of international edition textbooks in the U.S.market.
D)Milk producers sell the milk to processed dairy products producers at a lower price.

Question 20

"Kids eat free" in a fast food restaurant is an example of

A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)no price discrimination.

Question 21

A monopoly will NOT be able to perfectly price discriminate if

A)each consumer does not reveal her reservation price.
B)demand is very elastic.
C)the firm's marginal cost curve is upward sloping.
D)All of the above.

Question 22

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,compared to a monopoly who charges a single price,the change in producer surplus is

A)B + D.
B)A.
C)A + C + E.
D)B + C + D + E.

Question 23

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,compared to a perfectly competitive market,the change in producer surplus is

A)B + C.
B)D + E.
C)A + B + C.
D)A + B + C + D + E.

Question 24

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,the deadweight loss equals

A)C + E.
B)A + B + C.
C)C.
D)zero.

Question 25

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,compared to a monopoly who charges a single price,the change in consumer surplus is

A)A.
B)A + B + C.
C)A + B + C + D + E.
D)zero.

Question 26

The above figure shows the market for a given product.Defining welfare as consumer surplus plus producer surplus,calculate the social welfare associated with perfect competition,single-price monopoly,and a perfect-price-discriminating monopoly.Which market structure(s)maximize social welfare?

Question 27

A perfect price discriminating equilibrium maximizes

A)consumer surplus.
B)the associated deadweight loss.
C)the market inefficiency.
D)total welfare.

Question 28

When a firm has a monopoly in a market and also perfectly price discriminates,total welfare

A)is maximized.
B)is lower than in a perfectly competitive market.
C)is higher than in a perfectly competitive market.
D)is minimized.

Question 29

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,compared to a perfectly competitive market,the change in consumer surplus is

A)A.
B)A + B + C.
C)A + B + C + D + E.
D)zero.

Question 30

A perfect price discriminator receives a price equal to marginal revenue for each unit.

Question 31

If a market is controlled by a perfect-price-discriminating monopoly,then

A)a deadweight loss is generated.
B)there is no consumer surplus.
C)consumer surplus is the same as under perfect competition.
D)output is less than that of a single-price monopoly.

Question 32

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,social welfare equals

A)A.
B)A + B + C.
C)A + B + C + D + E.
D)zero.

Question 33

A monopoly will NOT be able to perfectly price discriminate if

A)obtaining information about each buyer's reservation price is too costly.
B)demand is very elastic.
C)demand is very inelastic.
D)resale is impossible.

Question 34

A perfect-price-discriminating monopoly maximizes social welfare as measured by the sum of producer surplus plus consumer surplus.

Question 35

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,consumer surplus equals

A)A.
B)A + B + C.
C)C.
D)zero.

Question 36

Perfect price discrimination is

A)realistic.
B)practiced by many firms.
C)a purely theoretical possibility.
D)very common.

Question 37

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,producer surplus equals

A)A + B + C + D + E.
B)D + E.
C)E.
D)zero.

Question 38

Explain using welfare measures whether consumers prefer a single price monopoly or a perfectly price discriminating monopoly.

Question 39

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,compared to a monopoly who charges a single price,the change in total surplus is

A)A + B + C.
B)A + B + D.
C)A.
D)C + E.

Question 40

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.If the marginal cost of installing carpet is a constant $1 per sq yard,what price does Bob charge each segment?

A)$1 in each market
B)$5.50 in the residential market and $8 in the business market
C)$1 in the residential market and $5 in the business market
D)$10 in the residential market and $15 in the business market

Question 41

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.If the marginal cost of installing carpet is a constant $1 per sq yard,what price does Bob charge each segment?

Question 42

Suppose group price discrimination is possible;however,a firm sets the same price in each market.As a result,

A)price elasticity of demand is the same in each market.
B)the price-inelastic market will buy zero units.
C)marginal revenue in the more price-elastic market exceeds marginal revenue in the less price-elastic market.
D)the deadweight loss is less than if the firm price discriminated.

Question 43

If a firm sells to two distinct identifiable markets and resale is impossible,why is price discrimination more profitable than setting a single price?

Question 44

A firm that practices multimarket price discrimination will set the lower price in the market that has the most elastic demand.

Question 45

Airlines offer lower prices to vacationers than to business travelers because

A)of government regulations requiring them to do so.
B)business travelers do not care at all about costs.
C)business travelers are less flexible in their travel plans than vacationers are.
D)airlines know that business travelers enjoy flying more than vacationers do.

Question 46

Pizza joints often offer substantially lower prices for pizza picked up at the shop compared to delivered pizza prices.This may be an attempt at

A)perfect price discrimination.
B)group price discrimination.
C)quantity discrimination.
D)second-degree price discrimination.

Question 47

Coupons represent a form of price discrimination because they offer a low-cost way for firms to

A)identify customers with apparently more elastic demand and offer them a lower price.
B)retain loyal customers who are not price sensitive.
C)offer discounts to consumers who buy larger quantities.
D)perfectly price discriminate.

Question 48

Relative to a single-price monopoly,the effect of group price discrimination on social welfare is

A)beneficial.
B)detrimental.
C)neutral.
D)ambiguous.

Question 49

While price discrimination is possible between two markets,it is not possible in more than two.

Question 50

A group price discriminator sells its product in Florida for three times the price it sets in New York.Assuming the firm faces the same constant marginal cost in each market and the price elasticity of demand in New York is -2.0,the demand in Florida

A)has an elasticity of -6.0.
B)is more price elastic than the demand in New York.
C)has an elasticity of -1.2.
D)has an elasticity of -0.67.

Question 51

Suppose a profit-maximizing monopoly is able to employ group price discrimination.The marginal cost of providing the good is constant and the same in both markets.The marginal revenue the firm earns on the last unit sold in the market with the higher price will be

A)greater than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
B)less than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
C)equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price.
D)greater than the marginal cost of the last unit.

Question 52

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.Bob is likely to price discriminate because

A)elasticities differ across markets.
B)the installation of carpets cannot be resold.
C)Bob can probably identify which consumers belong to which segment.
D)All of the above.

Question 53

Which of the following is an example for group price discrimination?

A)a BMW selling for more than a VW
B)local residents receiving a discount at the local golf course
C)the fact that a razor is cheap and blades are expensive
D)a hotel charging more for a room if the customers bring pets

Question 54

A weapons producer sells guns to two countries that are at war with each other.The guns can be produced at a constant marginal cost of $10.The demand for guns from the two countries can be represented as:
Q_A = 100 - 2p
Q_B = 80 - 4p
Why is the weapons producer able to price discriminate?
What price will it charge to each country?

Question 55

If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible,a firm with market power will

A)set a higher price in the market that is more price elastic.
B)set a lower price in the market that is more price elastic.
C)set price so as to equate the elasticity of demand across markets.
D)set price equal to marginal cost in both markets.

Question 56

A hotel with market power charges customers who check in before 5:00 pm more than those who check in after 5:00 pm.Those who check in early are much more likely to use the hotel's pool.Explain why this price difference may not be price discrimination.

Question 57

If somebody posing as a vacationer were able to purchase large numbers of airline tickets from the airlines and later resell them to business travelers,

A)group price discrimination on the part of airlines would no longer be profitable.
B)group price discrimination on the part of airlines would no longer be profit maximizing.
C)the airlines would respond by raising further the price charged to business flyers.
D)this person would not earn any economic profit.

Question 58

If the demand for air travel were to change so that business travelers and vacationers have the same price elasticity of demand for air travel,

A)airlines would charge the same price to each type of flyer.
B)airlines would still charge business flyers a higher fare since the traveler's employer pays anyway.
C)airlines would be driven out of business.
D)airlines would counter by charging vacationers a higher fare.

Question 59

A specialized rice grower sells rice in two markets,the United States and Japan,and the marginal cost the same in both markets.The price elasticity of demand in the United States is -2.0,and the price elasticity of demand in Japan is -1.5.If the grower practices multimarket price discrimination,which country's consumers will pay a higher price and by how much?

Question 60

Consider a monopolist which sells output in two markets,the home market and the foreign market.Initially the monopolist is unable to price discriminate and sets a single price for both markets.However,the demand in the foreign market is such that at the price the monopoly sets,no goods are sold in the foreign market.If the monopolist is then able to price discriminate,will the overall deadweight loss increase or decrease? Explain.

Question 61

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities,then

A)consumers that buy larger quantities have a higher price elasticity of demand.
B)consumers that buy larger quantities have a lower price elasticity of demand.
C)consumers that buy smaller quantities have a lower price elasticity of demand.
D)Both A and C.

Question 62

Quantity discrimination makes sense if

A)buyers of smaller quantities are more price sensitive than buyers of larger quantities.
B)buyers of smaller quantities are less price sensitive than buyers of larger quantities.
C)demand for the good is perfectly elastic.
D)the lower price for larger quantities encourages all consumers to purchase the larger quantity.

Question 63

Two-part tariffs allow the monopoly firm to capture all of the potential consumer surplus generated by the sale of its product.

Question 64

When a firm uses a form of quantity discrimination it is the high quantity purchasers that generate most profit.

Question 65

Consider a weapons producer that is selling guns to two countries that are at war with one another.Guns can be produced at a constant marginal cost of $10 per gun.The demand for guns in each of the countries is given by:
p = 50 - 0.5Q (Country

A)
p = 20 - 0.25Q (Country
B)
a.If the weapons producer can charge different prices to each country,what price and quantity will it sell to each?
b.If the weapons producer cannot price discriminate,what price and quantity of guns will it sell to each country?
c.Will the weapons manufacturer make more profit from price discriminating? Briefly explain.Why is it that the manufacturer will likely be able to price discriminate?
d.Which country will benefit from price discrimination? Which country will be worse off from price discrimination? Explain briefly.
e.Is the deadweight loss higher under price discrimination or a single-price? Show mathematically.

Question 66

A mail-order clothing company offers a discount if customers purchase two shirts instead of only one.This is necessarily an example of quantity discrimination.

Question 67

At the current price of a good,Al's consumer surplus equals eight,and Ben's consumer surplus equals 15.By charging a two-part tariff,a monopolist could increase his profit by

A)8.
B)16.
C)15.
D)30.

Question 68

Suppose all individuals are identical,and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month.The firm faces a constant marginal cost of $1.The profit-maximizing two-part tariff yields total revenue of

A)$24.
B)$40.
C)$16.
D)$32.

Question 69

The more block prices a monopoly can set instead of setting a single price,the

A)smaller the deadweight loss.
B)the more producer surplus.
C)the larger the total welfare.
D)All of the above.

Question 70

For a theme park a two-tier tariff can include a positive admission price and a zero per-ride fee.

Question 71

Two-part tariffs offer a mechanism whereby the firm can

A)charge two different prices to distinct groups of customers.
B)collect two times as much from consumers as a single-price monopoly can.
C)capture some or all of the consumer surplus.
D)reduce some of its fixed costs.

Question 72

At the current price of a good,Al's consumer surplus equals 15,and Ben's consumer surplus equals 15.By charging a two-part tariff,a monopolist could increase his profit by

A)8.
B)16.
C)15.
D)30.

Question 73

Suppose all individuals are identical,and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month.The firm faces a constant marginal cost of $1.If the firm will charge a monthly access fee plus a per hour rate,the monthly access fee will equal

A)$1.
B)$5.
C)$8.
D)$16.

Question 74

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities,then

A)consumer surplus is larger than under single-price monopoly.
B)social welfare is larger than under perfect competition.
C)the monopoly's profits are larger than under single-price monopoly.
D)the monopoly's profits are larger than under perfect price discrimination.

Question 75

Each identical consumer has the following demand for golf,q = 100 - p,where q is the number of rounds of golf played per year and p is the price per round.The only golf course in an isolated town incurs a marginal cost of $10 per round of golf.It wishes to charge a membership fee and a fee per round of golf.What price will it set for each fee?

Question 76

Suppose all individuals are identical,and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month.The firm faces a constant marginal cost of $1.The profit maximizing two-part tariff yields results in the firm selling

A)4.5 hours.
B)10 hours.
C)5 hours.
D)8 hours.

Question 77

Suppose there are two types of consumers with two different demand curves,and the marginal cost of the monopoly is $10.What could be the possible price under two-part pricing that will maximize the monopoly profit?

A)$8
B)$9
C)$10
D)$12

Question 78

Many theme parks charge an entrance fee and a per-ride fee equal to zero.This is an example of

A)bundling.
B)a two-tier tariff.
C)multimarket price discrimination.
D)perfect price discrimination.

Question 79

Suppose all individuals are identical,and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month.The firm faces a constant marginal cost of $1.Potential consumer surplus equals

A)$4.
B)$8.
C)$16.
D)$32.

Question 80

An electric utility is going to use a block-pricing schedule.They plan to charge P₁ for the first Q₁ units and P₂ for the subsequent units.The units sold at P₂ are the total units sold,Q₂,minus the total units sold at P₁.The inverse demand curve is P = $100 - Q,and the marginal and average cost is $40.Use calculus to solve for P₁,P₂,Q₁,Q₂.