Question 1

Movie theaters typically price discriminate by charging ______ a lower price than ______.

Accepted Answer

A)  men; women 
B)  women; men 
C)  senior citizens; young adults 
D)  young adults; senior citizens 
A)  men; women 
B)  women; men 
C)  senior citizens; young adults 
D)  young adults; senior citizens

Question 2

HP ties its printer ink to its printers by embedding a patented printer head in its ink cartridge rather than build it into the printer. This raises the cost of producing the ink cartridge. If the government passed a law requiring HP ink be used with HP printers, would this law increase or decrease deadweight loss?

Accepted Answer

A)  decrease 
B)  increase 
C)  no change 
D)  impossible to say 
A)  decrease 
B)  increase 
C)  no change 
D)  impossible to say

Question 3

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

Accepted Answer

A)  more inelastic 
B)  less inelastic 
C)  more elastic 
D)  closer to perfectly elastic 
A)  more inelastic 
B)  less inelastic 
C)  more elastic 
D)  closer to perfectly elastic

Question 4

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

Accepted Answer

A)  high fixed costs create incentive for pharmaceuticals to sell more. 
B)  charging different prices to different customers generates different levels of fixed costs. 
C)  profit from customers paying high prices allows pharmaceuticals to cover part of the fixed costs. 
D)  extra profit from customers paying low prices allows pharmaceuticals to cover part of the fixed costs. 
A)  high fixed costs create incentive for pharmaceuticals to sell more. 
B)  charging different prices to different customers generates different levels of fixed costs. 
C)  profit from customers paying high prices allows pharmaceuticals to cover part of the fixed costs. 
D)  extra profit from customers paying low prices allows pharmaceuticals to cover part of the fixed costs.

Question 5

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 a units of output?

Accepted Answer

A)  A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm. 
B)  The marginal cost is less than consumers' willingness to pay for these units. 
C)  The marginal cost is greater than consumers' willingness to pay for these units. 
D)  A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units. 
A)  A firm will not sell beyond a units of output. The firm will only sell exactly a, as it is the profit-maximizing rate of output for this firm. 
B)  The marginal cost is less than consumers' willingness to pay for these units. 
C)  The marginal cost is greater than consumers' willingness to pay for these units. 
D)  A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units.

Question 6

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

Accepted Answer

A)  Federal regulations require that drugs for common diseases get developed before drugs for rare diseases. 
B)  The market is larger for more common diseases,- and so it is more likely drugs would be developed for the common diseases. 
C)  Drug firms practice perfect price discrimination. 
D)  Drugs for rare and common diseases can be sold as bundled goods. 
A)  Federal regulations require that drugs for common diseases get developed before drugs for rare diseases. 
B)  The market is larger for more common diseases,- and so it is more likely drugs would be developed for the common diseases. 
C)  Drug firms practice perfect price discrimination. 
D)  Drugs for rare and common diseases can be sold as bundled goods.

Question 7

A perfectly price-discriminating monopoly causes:

Accepted Answer

A)  no social surplus. 
B)  maximum social surplus. 
C)  as much social surplus as in the case of a standard monopoly. 
D)  as much social surplus as in the case of monopolistic competition. 
A)  no social surplus. 
B)  maximum social surplus. 
C)  as much social surplus as in the case of a standard monopoly. 
D)  as much social surplus as in the case of monopolistic competition.

Question 8

Bundling can increase efficiency especially when:

Accepted Answer

A)  both fixed costs and marginal costs are high. 
B)  both fixed costs and marginal costs are low. 
C)  fixed costs are high and marginal costs are low. 
D)  fixed costs are low and marginal costs are high. 
A)  both fixed costs and marginal costs are high. 
B)  both fixed costs and marginal costs are low. 
C)  fixed costs are high and marginal costs are low. 
D)  fixed costs are low and marginal costs are high.

Question 9

Monopolists that are able to perfectly price discriminate generate the most deadweight losses.

Accepted Answer

A) True 
 B)False

Question 10

Price discrimination discourages innovation and new product development in industries with high fixed costs.

Accepted Answer

A) True 
 B)False

Question 11

Price discrimination is considered bad when ________, but good when ________.

Accepted Answer

A)  it increases output; it decreases output 
B)  it decreases output; it increases output 
C)  it increases deadweight loss; it decreases deadweight loss 
D)  it increases prices; it decreases prices 
A)  it increases output; it decreases output 
B)  it decreases output; it increases output 
C)  it increases deadweight loss; it decreases deadweight loss 
D)  it increases prices; it decreases prices

Question 12

Bundling is expected to provide greater profits when the two bundled goods are:
I. substitutes.
II. goods that have high fixed costs and low marginal costs.
III. very close complements.

Accepted Answer

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

Question 13

Some bars host a "ladies' night," on which women get drinks free or at a discount. Aside from differing elasticities of demand, why might bars want to charge a lower price to women than to men?

Accepted Answer

A)  It is difficult to arbitrage drinks. 
B)  An increased quantity of drinks sold to women will attract male customers. 
C)  An increased quantity of drinks sold to men will attract female customers. 
D)  Men cost less to serve than women do. 
A)  It is difficult to arbitrage drinks. 
B)  An increased quantity of drinks sold to women will attract male customers. 
C)  An increased quantity of drinks sold to men will attract female customers. 
D)  Men cost less to serve than women do.

Question 14

Arbitrage makes it more difficult for firms to practice price discrimination.

Accepted Answer

A) True 
 B)False

Question 15

Why are seniors charged less for coffee at McDonald's than younger people?

Accepted Answer

A)  McDonald's wants to avoid ageism lawsuits. 
B)  McDonald's earns higher profits by charging seniors less. 
C)  McDonald's discovered that younger people have a more elastic demand for coffee than seniors. 
D)  McDonald's respects the elderly. 
A)  McDonald's wants to avoid ageism lawsuits. 
B)  McDonald's earns higher profits by charging seniors less. 
C)  McDonald's discovered that younger people have a more elastic demand for coffee than seniors. 
D)  McDonald's respects the elderly.

Question 16

To price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

Accepted Answer

A) True 
 B)False

Question 17

Figure: Price-Discriminating Monopolist 3   Refer to the figure. Profit for the single-price monopoly in this diagram is ______, and under perfect price discrimination, profit is ______.

Accepted Answer

A)  $9; $24 
B)  $18; $24 
C)  $4.50; $18 
D)  $15; $12 
A)  $9; $24 
B)  $18; $24 
C)  $4.50; $18 
D)  $15; $12

Question 18

Bundling increases ________ and hence increases the incentives to ________.

Accepted Answer

A)  costs; innovate 
B)  profits; innovate 
C)  revenue; price higher 
D)  demand; enhance customer service 
A)  costs; innovate 
B)  profits; innovate 
C)  revenue; price higher 
D)  demand; enhance customer service

Question 19

Tying is a legal strategy, but bundling is illegal in the United States.

Accepted Answer

A) True 
 B)False

Question 20

If a monopolist begins to perfectly price discriminate,:

Accepted Answer

A)  the deadweight loss will be eliminated as output expands to its efficient level. 
B)  consumer surplus will expand as prices fall. 
C)  the deadweight loss will increase as there are now more lost gains from trade. 
D)  consumer surplus is eliminated and the deadweight loss is maximized. 
A)  the deadweight loss will be eliminated as output expands to its efficient level. 
B)  consumer surplus will expand as prices fall. 
C)  the deadweight loss will increase as there are now more lost gains from trade. 
D)  consumer surplus is eliminated and the deadweight loss is maximized.

Exam 14: Price Discrimination

Movie theaters typically price discriminate by charging ______ a lower price than ______.

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

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 a units of output?

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

A perfectly price-discriminating monopoly causes:

Bundling can increase efficiency especially when:

Monopolists that are able to perfectly price discriminate generate the most deadweight losses.

Price discrimination discourages innovation and new product development in industries with high fixed costs.

Price discrimination is considered bad when ________, but good when ________.

Bundling is expected to provide greater profits when the two bundled goods are: I. substitutes. II. goods that have high fixed costs and low marginal costs. III. very close complements.

Some bars host a "ladies' night," on which women get drinks free or at a discount. Aside from differing elasticities of demand, why might bars want to charge a lower price to women than to men?

Arbitrage makes it more difficult for firms to practice price discrimination.

Why are seniors charged less for coffee at McDonald's than younger people?

To price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

Figure: Price-Discriminating Monopolist 3 Refer to the figure. Profit for the single-price monopoly in this diagram is ______, and under perfect price discrimination, profit is ______.

Bundling increases ________ and hence increases the incentives to ________.

Tying is a legal strategy, but bundling is illegal in the United States.

If a monopolist begins to perfectly price discriminate,:

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

Movie theaters typically price discriminate by charging a lower price than .

Price discrimination is considered bad when , but good when .

Figure: Price-Discriminating Monopolist 3 Refer to the figure. Profit for the single-price monopoly in this diagram is , and under perfect price discrimination, profit is .

Bundling increases and hence increases the incentives to .