Question 1

Airlines engage in price discrimination.

Accepted Answer

A) True 
 B)False

Question 2

To maximize profits, firms should always charge a higher price in the market with the more elastic demand.

Accepted Answer

A) True 
 B)False

Question 3

A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as:

Accepted Answer

A)  insightful pricing. 
B)  pricing market-to-market. 
C)  perfect price discrimination. 
D)  price tying. 
A)  insightful pricing. 
B)  pricing market-to-market. 
C)  perfect price discrimination. 
D)  price tying.

Question 4

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. If the programs are sold as a bundle, what is the profit-maximizing price?

Accepted Answer

A)  $90 
B)  $110 
C)  $140 
D)  $190 
A)  $90 
B)  $110 
C)  $140 
D)  $190

Question 5

A firm that spends extra money to practice tying does so to:

Accepted Answer

A)  benefit customers. 
B)  prevent competition. 
C)  advertise. 
D)  increase quality. 
A)  benefit customers. 
B)  prevent competition. 
C)  advertise. 
D)  increase quality.

Question 6

Which of the following is a real example of price discrimination?

Accepted Answer

A)  Airlines set different prices for business people and vacationers. 
B)  Publishers charge high prices on hardback and low price on paperback books. 
C)  IBM's regular version of a printer that prints at 10 pages per minute is more expensive than the Series E that prints five pages per minute. 
D)  All of these examples are real. 
A)  Airlines set different prices for business people and vacationers. 
B)  Publishers charge high prices on hardback and low price on paperback books. 
C)  IBM's regular version of a printer that prints at 10 pages per minute is more expensive than the Series E that prints five pages per minute. 
D)  All of these examples are real.

Question 7

Price discrimination increases profits for firms. This can be good because:

Accepted Answer

A)  when firms earn more, it means that consumers get less. 
B)  the government will get involved when firms earn too much profit. 
C)  it increases the incentives for research and development. 
D)  it comes at the expense of arbitrageurs. 
A)  when firms earn more, it means that consumers get less. 
B)  the government will get involved when firms earn too much profit. 
C)  it increases the incentives for research and development. 
D)  it comes at the expense of arbitrageurs.

Question 8

In the case of a perfectly price-discriminating monopoly, there is:

Accepted Answer

A)  some deadweight loss. 
B)  no deadweight loss. 
C)  as much deadweight loss as in the case of a standard monopoly. 
D)  as much deadweight loss as in the case of monopolistic competition. 
A)  some deadweight loss. 
B)  no deadweight loss. 
C)  as much deadweight loss as in the case of a standard monopoly. 
D)  as much deadweight loss as in the case of monopolistic competition.

Question 9

Use the following to answer questions:
Figure: PPD  
-(Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell:

Accepted Answer

A)  a units of output. 
B)  b units of output. 
C)  c units of output. 
D)  d units of output. 
A)  a units of output. 
B)  b units of output. 
C)  c units of output. 
D)  d units of output.

Question 10

Perfect price discrimination causes the demand curve to become the marginal revenue curve.

Accepted Answer

A) True 
 B)False

Question 11

To succeed at price discrimination the monopolist must prevent arbitrage.

Accepted Answer

A) True 
 B)False

Question 12

Women tend to pay more for haircuts than men. One possible explanation is price discrimination. Another possible explanation is that:

Accepted Answer

A)  women, on average, make less money than men. 
B)  women are more likely to be more demanding about their hair than men. 
C)  women are less likely to be bald, which pushes up demand. 
D)  women tend to take better care of their hair than men. 
A)  women, on average, make less money than men. 
B)  women are more likely to be more demanding about their hair than men. 
C)  women are less likely to be bald, which pushes up demand. 
D)  women tend to take better care of their hair than men.

Question 13

Which of the following statements is TRUE about price discrimination?

Accepted Answer

A)  Price discrimination makes consumers worse off due to higher prices. 
B)  Price discrimination leads to deadweight loss and therefore makes the market less efficient. 
C)  Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. 
D)  Price discrimination is illegal in the United States. 
A)  Price discrimination makes consumers worse off due to higher prices. 
B)  Price discrimination leads to deadweight loss and therefore makes the market less efficient. 
C)  Price-discriminating monopolists often produce more output than single-price monopolists and increase total surplus in the process. 
D)  Price discrimination is illegal in the United States.

Question 14

In markets with different demand curves for the same good, different prices generate more profit than a single price.

Accepted Answer

A) True 
 B)False

Question 15

Monopolists that are able to perfectly price discriminate will produce a level of output equal to the efficient level of output produced in a competitive market.

Accepted Answer

A) True 
 B)False

Question 16

Perfect price discrimination raises consumer surplus, expands market output, and eliminates any deadweight loss.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions:
Figure: Monopolist  
-(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-through the process of price discrimination, how much profit is the monopolist making in Market A?

Accepted Answer

A)  $270 
B)  $450 
C)  $830 
D)  $627.50 
A)  $270 
B)  $450 
C)  $830 
D)  $627.50

Question 18

Which of the following is TRUE?

Accepted Answer

A)  Bundling in the cable industry is required by the government. 
B)  There is little benefit in bundling varied TV channels, though there are added costs in doing so. 
C)  Bundling has come under attack in the cable TV industry, but not in other industries. 
D)  Bundling is rarely practiced by firms in the cable TV industry. 
A)  Bundling in the cable industry is required by the government. 
B)  There is little benefit in bundling varied TV channels, though there are added costs in doing so. 
C)  Bundling has come under attack in the cable TV industry, but not in other industries. 
D)  Bundling is rarely practiced by firms in the cable TV industry.

Question 19

Airlines try to differentiate their customers by willingness to pay based on:

Accepted Answer

A)  how long in advance a person books their flight. 
B)  a person's weight. 
C)  the ethnicity of a person's last name. 
D)  All of the answers are correct. 
A)  how long in advance a person books their flight. 
B)  a person's weight. 
C)  the ethnicity of a person's last name. 
D)  All of the answers are correct.

Question 20

Which of the following is NOT a principle of price discrimination?

Accepted Answer

A)  It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. 
B)  To maximize profit the firm should set a higher price in markets with more elastic demand. 
C)  To maximize profit the firm should set a higher price in markets with more inelastic demand. 
D)  Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination. 
A)  It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets. 
B)  To maximize profit the firm should set a higher price in markets with more elastic demand. 
C)  To maximize profit the firm should set a higher price in markets with more inelastic demand. 
D)  Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.

Exam 14: Price Discrimination

Airlines engage in price discrimination.

To maximize profits, firms should always charge a higher price in the market with the more elastic demand.

A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as:

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. If the programs are sold as a bundle, what is the profit-maximizing price?

A firm that spends extra money to practice tying does so to:

Which of the following is a real example of price discrimination?

Price discrimination increases profits for firms. This can be good because:

In the case of a perfectly price-discriminating monopoly, there is:

Use the following to answer questions: Figure: PPD -(Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell:

Perfect price discrimination causes the demand curve to become the marginal revenue curve.

To succeed at price discrimination the monopolist must prevent arbitrage.

Women tend to pay more for haircuts than men. One possible explanation is price discrimination. Another possible explanation is that:

Which of the following statements is TRUE about price discrimination?

In markets with different demand curves for the same good, different prices generate more profit than a single price.

Monopolists that are able to perfectly price discriminate will produce a level of output equal to the efficient level of output produced in a competitive market.

Perfect price discrimination raises consumer surplus, expands market output, and eliminates any deadweight loss.

Which of the following is TRUE?

Airlines try to differentiate their customers by willingness to pay based on:

Which of the following is NOT a principle of price discrimination?

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters