Question 1

Which of the following statements is TRUE?

Accepted Answer

A)  It is easier to practice arbitrage for services than for goods. 
B)  A monopolist prefers markets that are not segmented. 
C)  The government requires that ethanol fuel be poisoned to prevent arbitrage. 
D)  Arbitrage is the practice of buying products on credit. 
A)  It is easier to practice arbitrage for services than for goods. 
B)  A monopolist prefers markets that are not segmented. 
C)  The government requires that ethanol fuel be poisoned to prevent arbitrage. 
D)  Arbitrage is the practice of buying products on credit.

Question 2

PCs are typically ______ with a Windows operating system.

Accepted Answer

A)  tied 
B)  bundled 
C)  aggregated 
D)  separated 
A)  tied 
B)  bundled 
C)  aggregated 
D)  separated

Question 3

Price discrimination is selling the same good to different customers at different prices.

Accepted Answer

A) True 
 B)False

Question 4

Figure: Monopolist's Profits under Price Discrimination   
Refer to the figure. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make.

Accepted Answer

If the monopolist price discriminates, i

Question 5

One example of price discrimination occurs in the publishing industry when a publisher initially releases an expensive hardcover edition of a popular novel, and later releases a cheaper paperback edition. Use this example to demonstrate both the benefits as well as the potential pitfalls of a price discrimination pricing strategy.

Accepted Answer

The answer should address the three basi

Question 6

Which of the following is NOT an easy way to split markets in order to practice price discrimination?

Accepted Answer

A)  using age of customers 
B)  releasing different versions of a product over time 
C)  relying on the self-reported marital status of customers 
D)  using characteristics that are correlated with a consumer's willingness to pay 
A)  using age of customers 
B)  releasing different versions of a product over time 
C)  relying on the self-reported marital status of customers 
D)  using characteristics that are correlated with a consumer's willingness to pay

Question 7

Which of the following statements is FALSE?
I. If the demand curves are different, it is more profitable to set a single price than different prices in markets.
II. To maximize profit the firm should set a lower price in markets with more elastic demand.
III. The presence of arbitrage makes it easy for a firm to price discriminate.

Accepted Answer

A)  I and II only 
B)  II only 
C)  III only 
D)  I and III only 
A)  I and II only 
B)  II only 
C)  III only 
D)  I and III only

Question 8

The difference between tying and bundling in pricing strategies is that:

Accepted Answer

A)  they both are strategies that firms use to maximize profit. 
B)  tying does not require the purchase of both goods, but bundling does. 
C)  tying involves the combination of goods that are complements, whereas bundling involves the combination of substitutes. 
D)  tying does not lead to as much profit as bundling does. 
A)  they both are strategies that firms use to maximize profit. 
B)  tying does not require the purchase of both goods, but bundling does. 
C)  tying involves the combination of goods that are complements, whereas bundling involves the combination of substitutes. 
D)  tying does not lead to as much profit as bundling does.

Question 9

What is perfect price discrimination?

Accepted Answer

A)  This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum willingness to pay. 
B)  This occurs when a seller is able to charge two different prices in different markets. 
C)  This occurs when consumer surplus is maximized in a given market. 
D)  All of the answers are correct. 
A)  This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum willingness to pay. 
B)  This occurs when a seller is able to charge two different prices in different markets. 
C)  This occurs when consumer surplus is maximized in a given market. 
D)  All of the answers are correct.

Question 10

Which of the following is NOT a case of bundling?

Accepted Answer

A)  Disneyland selling many attractions for a single entrance fee 
B)  the buffet at China Garden 
C)  cable TV offering multiple channels to its customers. 
D)  HP selling printers and ink cartridges 
A)  Disneyland selling many attractions for a single entrance fee 
B)  the buffet at China Garden 
C)  cable TV offering multiple channels to its customers. 
D)  HP selling printers and ink cartridges

Question 11

Which of the following is a necessary condition for perfect price discrimination?

Accepted Answer

A)  The firm must have very good information about its customers. 
B)  The firm can only have one market. 
C)  The demand curve for the product must be inelastic. 
D)  The firm must have no competition. 
A)  The firm must have very good information about its customers. 
B)  The firm can only have one market. 
C)  The demand curve for the product must be inelastic. 
D)  The firm must have no competition.

Question 12

To maximize profits, the monopolist should set a higher price in a market with ______ demand.

Accepted Answer

A)  more elastic 
B)  unit elastic 
C)  more inelastic 
D)  weaker 
A)  more elastic 
B)  unit elastic 
C)  more inelastic 
D)  weaker

Question 13

A perfectly price-discriminating monopolist produces until:

Accepted Answer

A)  P = MC. 
B)  MR = MC. 
C)  P = MR. 
D)  MR = AC. 
A)  P = MC. 
B)  MR = MC. 
C)  P = MR. 
D)  MR = AC.

Question 14

Which of the following is TRUE about price discrimination in monopolistic markets?
I. Price discrimination may be good if it leads to higher output.
II. Price discrimination may help to offset high fixed costs, but it leads to less research and innovation.
III. Single pricing tends to increase prices for at least a subset of the market.

Accepted Answer

A)  I only 
B)  II and III only 
C)  I and III only 
D)  I and II only 
A)  I only 
B)  II and III only 
C)  I and III only 
D)  I and II only

Question 15

Under perfect price discrimination:

Accepted Answer

A)  markets are segmented and each segment is charged a markup inversely proportional to the elasticity of demand. 
B)  each customer is charged the average price that others with his or her characteristics are willing to pay. 
C)  each customer is charged his or her maximum willingness to pay. 
D)  it is easy to arbitrage. 
A)  markets are segmented and each segment is charged a markup inversely proportional to the elasticity of demand. 
B)  each customer is charged the average price that others with his or her characteristics are willing to pay. 
C)  each customer is charged his or her maximum willingness to pay. 
D)  it is easy to arbitrage.

Question 16

Why is it harder to price discriminate with shampoo than with haircuts?

Accepted Answer

A)  Haircuts are harder to resell. 
B)  There are more substitutes for shampoo. 
C)  Haircuts are a bundle of goods: location of the salon, quality of the stylist, etc. 
D)  There is less competition for selling shampoo. 
A)  Haircuts are harder to resell. 
B)  There are more substitutes for shampoo. 
C)  Haircuts are a bundle of goods: location of the salon, quality of the stylist, etc. 
D)  There is less competition for selling shampoo.

Question 17

Tying is a form of price discrimination in which one good called the ________ is tied to a second good called the ________.

Accepted Answer

A)  base good; variable good 
B)  physical; service good 
C)  physical good; nonphysical good 
D)  mother good; spawned good 
A)  base good; variable good 
B)  physical; service good 
C)  physical good; nonphysical good 
D)  mother good; spawned good

Question 18

Arbitrage enables price discrimination to exist.

Accepted Answer

A) True 
 B)False

Question 19

Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination?

Accepted Answer

A)  Everyone has the same demand for haircuts. 
B)  The marginal cost of supplying a haircut may be lower for male than for female customers, and haircutting is a competitive industry with few fixed costs. 
C)  Stylists are misogynists. 
D)  Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage. 
A)  Everyone has the same demand for haircuts. 
B)  The marginal cost of supplying a haircut may be lower for male than for female customers, and haircutting is a competitive industry with few fixed costs. 
C)  Stylists are misogynists. 
D)  Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.

Question 20

Use the following to answer questions:
Figure: PPD  
-(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond c units of output?

Accepted Answer

A)  If the firm can perfectly price discriminate it can charge a price equal to the consumers' willingness to pay, which for all units beyond c is higher than the firm's marginal cost for those units. 
B)  The firm will continue to increase profits as long as consumers' willingness to pay is greater than zero. 
C)  A firm will not sell beyond c units of output. The marginal cost is greater than consumers' willingness to pay for these units. 
D)  A firm will not sell beyond c units of output. The marginal cost is greater than the firm's marginal revenue for these units. 
A)  If the firm can perfectly price discriminate it can charge a price equal to the consumers' willingness to pay, which for all units beyond c is higher than the firm's marginal cost for those units. 
B)  The firm will continue to increase profits as long as consumers' willingness to pay is greater than zero. 
C)  A firm will not sell beyond c units of output. The marginal cost is greater than consumers' willingness to pay for these units. 
D)  A firm will not sell beyond c units of output. The marginal cost is greater than the firm's marginal revenue for these units.

Exam 14: Price Discrimination

Which of the following statements is TRUE?

PCs are typically ______ with a Windows operating system.

Price discrimination is selling the same good to different customers at different prices.

Figure: Monopolist's Profits under Price Discrimination Refer to the figure. Using the principles of price discrimination, explain and calculate how much profit the monopolist serving these markets could make.

Which of the following is NOT an easy way to split markets in order to practice price discrimination?

The difference between tying and bundling in pricing strategies is that:

What is perfect price discrimination?

Which of the following is NOT a case of bundling?

Which of the following is a necessary condition for perfect price discrimination?

To maximize profits, the monopolist should set a higher price in a market with ______ demand.

A perfectly price-discriminating monopolist produces until:

Under perfect price discrimination:

Why is it harder to price discriminate with shampoo than with haircuts?

Tying is a form of price discrimination in which one good called the ________ is tied to a second good called the ________.

Arbitrage enables price discrimination to exist.

Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination?

Use the following to answer questions: Figure: PPD -(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond c units of output?

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

Tying is a form of price discrimination in which one good called the is tied to a second good called the .