Question 1

To perfectly price discriminate, a firm must have full information of:

Accepted Answer

A)  efficient level of output. 
B)  market price. 
C)  total cost of production. 
D)  every customer's willingness to pay. 
A)  efficient level of output. 
B)  market price. 
C)  total cost of production. 
D)  every customer's willingness to pay.

Question 2

For price discrimination to work, the young should ________ than/to the old.

Accepted Answer

A)  be charged less for a product 
B)  be charged more for a product 
C)  sometimes be charged more and sometimes charged less 
D)  be charged a price equal to the marginal cost 
A)  be charged less for a product 
B)  be charged more for a product 
C)  sometimes be charged more and sometimes charged less 
D)  be charged a price equal to the marginal cost

Question 3

One example of price discrimination occurs in the airline industry as airlines typically set a high price for business people and a low price for vacationers. Use this example to demonstrate and graphically illustrate the rationale of airlines' price-discrimination pricing strategy.

Accepted Answer

Airlines set different prices according

Question 4

If arbitrage becomes extensive, a price-discriminating monopolist selling its patented drug in two markets will:

Accepted Answer

A)  quit selling the product in the market with the inelastic demand. 
B)  begin to charge the same price in both markets. 
C)  increase the price in the inelastic market and lower the price in the elastic market. 
D)  raise the price in both markets. 
A)  quit selling the product in the market with the inelastic demand. 
B)  begin to charge the same price in both markets. 
C)  increase the price in the inelastic market and lower the price in the elastic market. 
D)  raise the price in both markets.

Question 5

Which of the following is the main principle behind price discrimination?

Accepted Answer

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

Question 6

Price discriminators will set a higher price in a more elastic market.

Accepted Answer

A) True 
 B)False

Question 7

In the case of a perfectly price-discriminating monopolist, the demand curve lies:

Accepted Answer

A)  above the marginal revenue curve. 
B)  below the marginal revenue curve. 
C)  with the marginal revenue curve. 
D)  tangent to the marginal revenue curve at the equilibrium point. 
A)  above the marginal revenue curve. 
B)  below the marginal revenue curve. 
C)  with the marginal revenue curve. 
D)  tangent to the marginal revenue curve at the equilibrium point.

Question 8

Which of the following lists of products and services would be the most resistant to arbitrage?

Accepted Answer

A)  gasoline, movie tickets, consumer bleach 
B)  dental root canals, haircuts, and cosmetic surgery 
C)  third-party car stereos, full-service restaurant meals, and novels 
D)  computer software, computer hardware, and tickets to sporting events 
A)  gasoline, movie tickets, consumer bleach 
B)  dental root canals, haircuts, and cosmetic surgery 
C)  third-party car stereos, full-service restaurant meals, and novels 
D)  computer software, computer hardware, and tickets to sporting events

Question 9

Under perfect price discrimination, there is never any deadweight loss.

Accepted Answer

A) True 
 B)False

Question 10

DVDs may be encoded with one of six region codes, preventing videos sold in one region of the world from being used in another region. Why might film distributors use region codes?

Accepted Answer

A)  to prevent people from buying videos in a low-price region and then reselling them in a high-price region 
B)  to make it easier to charge the same price in different locations 
C)  to minimize the menu costs of frequent price changes 
D)  to reduce the cost of collecting sales taxes, especially in areas with different tax rates 
A)  to prevent people from buying videos in a low-price region and then reselling them in a high-price region 
B)  to make it easier to charge the same price in different locations 
C)  to minimize the menu costs of frequent price changes 
D)  to reduce the cost of collecting sales taxes, especially in areas with different tax rates

Question 11

In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to HP ink cartridges, and:

Accepted Answer

A)  no firm can enter the market for HP ink. 
B)  no firm can enter the market for HP printers. 
C)  HP must sell its printers at relatively high price. 
D)  HP must always sell its printers and ink cartridges in a package. 
A)  no firm can enter the market for HP ink. 
B)  no firm can enter the market for HP printers. 
C)  HP must sell its printers at relatively high price. 
D)  HP must always sell its printers and ink cartridges in a package.

Question 12

Why would firms use the practice of tying?

Accepted Answer

A)  It allows firms to tie goods that are highly valued together with goods that are not highly valued, hence increasing profits for firms. 
B)  It is a way to force consumers to buy more than what they would without tying. 
C)  It is a subtle way to raise prices for those consumers who have a low willingness to pay. 
D)  It is a subtle way to charge higher prices to those consumers with a high willingness to pay, and a lower price to consumers with a low willingness to pay. 
A)  It allows firms to tie goods that are highly valued together with goods that are not highly valued, hence increasing profits for firms. 
B)  It is a way to force consumers to buy more than what they would without tying. 
C)  It is a subtle way to raise prices for those consumers who have a low willingness to pay. 
D)  It is a subtle way to charge higher prices to those consumers with a high willingness to pay, and a lower price to consumers with a low willingness to pay.

Question 13

Two months after Apple introduced the iPhone in 2007, the company reduced the price from $600 to $400. How is this drop of price an example of price discrimination?

Accepted Answer

A)  Early adopters are less sensitive to price than late adopters. 
B)  Early adopters have a higher demand than late adopters. 
C)  Early adopters have a more elastic demand curve than late adopters. 
D)  It's not an example of price discrimination. 
A)  Early adopters are less sensitive to price than late adopters. 
B)  Early adopters have a higher demand than late adopters. 
C)  Early adopters have a more elastic demand curve than late adopters. 
D)  It's not an example of price discrimination.

Question 14

A firm practices price discrimination by selling at a high price in its larger market, Market A, and a lower price in its smaller market, Market B. If this firm is forced to sell at a single price in both markets and opts for the original price in Market A, the new single-pricing strategy makes consumers in:

Accepted Answer

A)  both Market A and Market B worse off. 
B)  Market A no worse off but consumers in Market B worse off. 
C)  Market B no worse off but consumers in Market A worse off. 
D)  both markets better off, as single pricing is always better for consumers than price discrimination. 
A)  both Market A and Market B worse off. 
B)  Market A no worse off but consumers in Market B worse off. 
C)  Market B no worse off but consumers in Market A worse off. 
D)  both markets better off, as single pricing is always better for consumers than price discrimination.

Question 15

Rohm and Haas were considering:

Accepted Answer

A)  putting arsenic in its plastics to prevent it from being resold to dentists. 
B)  dyeing all of its women's underwear pink so that fewer men would buy it. 
C)  charging the Pentagon 500 times the going market price for Styrofoam cups. 
D)  declaring bankruptcy to sell its granite countertops below the government mandated minimum price. 
A)  putting arsenic in its plastics to prevent it from being resold to dentists. 
B)  dyeing all of its women's underwear pink so that fewer men would buy it. 
C)  charging the Pentagon 500 times the going market price for Styrofoam cups. 
D)  declaring bankruptcy to sell its granite countertops below the government mandated minimum price.

Question 16

A perfectly price-discriminating monopolist charges consumers the average of their maximum willingness to pay.

Accepted Answer

A) True 
 B)False

Question 17

Why are the prices of hardcover books more expensive than paperback?

Accepted Answer

A)  Higher production costs accounts for the entire price difference. 
B)  Unlike paperback books, hardcover books are generally exempt from state sales taxes. 
C)  Consumers who can't wait for the paperback version have a greater willingness to pay and buy the hardback upon its release. 
D)  Hardcover books are of higher quality, and the difference in price reflects this. 
A)  Higher production costs accounts for the entire price difference. 
B)  Unlike paperback books, hardcover books are generally exempt from state sales taxes. 
C)  Consumers who can't wait for the paperback version have a greater willingness to pay and buy the hardback upon its release. 
D)  Hardcover books are of higher quality, and the difference in price reflects this.

Question 18

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-if the monopolist were to charge a uniform price PU between the two markets, in which range would the price fall?

Accepted Answer

A)  $5 U U U U < $10 
A)  $5 U U U U < $10

Question 19

How does price discrimination help cover fixed costs?

Accepted Answer

A)  If price discrimination expands the size of the market, the fixed costs can be spread over a much larger output level. 
B)  If price discrimination lowers profits, firms will produce less and have lower fixed costs. 
C)  Consumers with inelastic demand are less costly to serve, lowering the fixed costs of production. 
D)  Consumers with elastic demand are less costly to serve, lowering the fixed costs of production. 
A)  If price discrimination expands the size of the market, the fixed costs can be spread over a much larger output level. 
B)  If price discrimination lowers profits, firms will produce less and have lower fixed costs. 
C)  Consumers with inelastic demand are less costly to serve, lowering the fixed costs of production. 
D)  Consumers with elastic demand are less costly to serve, lowering the fixed costs of production.

Question 20

In general, price discrimination exists because:

Accepted Answer

A)  higher prices are required when costs are higher. 
B)  lower prices are possible when profits are not a goal of the entrepreneur. 
C)  higher prices are charged because some customers are willing to pay more. 
D)  lower prices encourage arbitrage. 
A)  higher prices are required when costs are higher. 
B)  lower prices are possible when profits are not a goal of the entrepreneur. 
C)  higher prices are charged because some customers are willing to pay more. 
D)  lower prices encourage arbitrage.

Exam 14: Price Discrimination

To perfectly price discriminate, a firm must have full information of:

For price discrimination to work, the young should ________ than/to the old.

One example of price discrimination occurs in the airline industry as airlines typically set a high price for business people and a low price for vacationers. Use this example to demonstrate and graphically illustrate the rationale of airlines' price-discrimination pricing strategy.

If arbitrage becomes extensive, a price-discriminating monopolist selling its patented drug in two markets will:

Which of the following is the main principle behind price discrimination?

Price discriminators will set a higher price in a more elastic market.

In the case of a perfectly price-discriminating monopolist, the demand curve lies:

Which of the following lists of products and services would be the most resistant to arbitrage?

Under perfect price discrimination, there is never any deadweight loss.

DVDs may be encoded with one of six region codes, preventing videos sold in one region of the world from being used in another region. Why might film distributors use region codes?

In order for the strategy of tying to work, Hewlett Packard (HP) must tie its printers to HP ink cartridges, and:

Why would firms use the practice of tying?

Two months after Apple introduced the iPhone in 2007, the company reduced the price from $600 to $400. How is this drop of price an example of price discrimination?

Rohm and Haas were considering:

A perfectly price-discriminating monopolist charges consumers the average of their maximum willingness to pay.

Why are the prices of hardcover books more expensive than paperback?

How does price discrimination help cover fixed costs?

In general, price discrimination exists because:

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