Question 1

Airlines price discriminate prominently by charging _______ more than _________.

Accepted Answer

A)  senior citizens; young adults 
B)  young adults; senior citizens 
C)  vacationers; business travelers 
D)  business travelers; vacationers 
A)  senior citizens; young adults 
B)  young adults; senior citizens 
C)  vacationers; business travelers 
D)  business travelers; vacationers

Question 2

Bundling is likely to increase total surplus if:

Accepted Answer

A)  the costs of production are U-shaped. 
B)  fixed costs are high and marginal costs are low. 
C)  most of the costs are associated with variable inputs. 
D)  all consumers have the same willingness to pay. 
A)  the costs of production are U-shaped. 
B)  fixed costs are high and marginal costs are low. 
C)  most of the costs are associated with variable inputs. 
D)  all consumers have the same willingness to pay.

Question 3

Universities practice price discrimination by:

Accepted Answer

A)  charging students with the same residency status different rates of tuition. 
B)  offering students different levels of scholarship support. 
C)  requiring freshmen to live on campus. 
D)  requiring each student take a set number of general education courses. 
A)  charging students with the same residency status different rates of tuition. 
B)  offering students different levels of scholarship support. 
C)  requiring freshmen to live on campus. 
D)  requiring each student take a set number of general education courses.

Question 4

Charging each customer his or her maximum willingness to pay is:

Accepted Answer

A)  unethical. 
B)  perfect price discrimination. 
C)  not a profit-maximizing strategy. 
D)  impossible in practice. 
A)  unethical. 
B)  perfect price discrimination. 
C)  not a profit-maximizing strategy. 
D)  impossible in practice.

Question 5

Why is it important for firms practicing price discrimination to prevent arbitrage of their product?

Accepted Answer

A)  Arbitrage is unrelated to firms' profits since the products are still being sold. 
B)  Smugglers alter product quality as they pass from market to market, hence harming the reputation and future profits of firms. 
C)  Arbitrage reduces the profits from price discrimination for firms, and it increases profits for smugglers. 
D)  Arbitrage increases deadweight loss in the market. 
A)  Arbitrage is unrelated to firms' profits since the products are still being sold. 
B)  Smugglers alter product quality as they pass from market to market, hence harming the reputation and future profits of firms. 
C)  Arbitrage reduces the profits from price discrimination for firms, and it increases profits for smugglers. 
D)  Arbitrage increases deadweight loss in the market.

Question 6

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

Accepted Answer

A)  zero consumer surplus. 
B)  as much consumer surplus as in the case of perfect competition. 
C)  as much consumer surplus as in the case of a standard monopoly. 
D)  as much consumer surplus as in the case of monopolistic competition. 
A)  zero consumer surplus. 
B)  as much consumer surplus as in the case of perfect competition. 
C)  as much consumer surplus as in the case of a standard monopoly. 
D)  as much consumer surplus as in the case of monopolistic competition.

Question 7

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?

Accepted Answer

A)  $20 for Word; $40 for Excel 
B)  $20 for Word; $90 for Excel 
C)  $100 for Word; $40 for Excel 
D)  $100 for Word; $90 for Excel 
A)  $20 for Word; $40 for Excel 
B)  $20 for Word; $90 for Excel 
C)  $100 for Word; $40 for Excel 
D)  $100 for Word; $90 for Excel

Question 8

Airlines price discriminate according to time of ticket purchase.

Accepted Answer

A) True 
 B)False

Question 9

Video game consoles are routinely sold below cost, and games are sold above cost. What would happen if someone figured out how to use the consoles as cost-effective, general-purpose, nongaming computers?

Accepted Answer

A)  People would buy the consoles as low-cost computers, never buy any games, and the console-maker would lose money. 
B)  The console maker would make more money since it would sell more consoles. 
C)  The console maker would lower the price on its consoles to sell more of them to a more elastic market. 
D)  The price of games would rise. 
A)  People would buy the consoles as low-cost computers, never buy any games, and the console-maker would lose money. 
B)  The console maker would make more money since it would sell more consoles. 
C)  The console maker would lower the price on its consoles to sell more of them to a more elastic market. 
D)  The price of games would rise.

Question 10

Using a strategy of price discrimination, a firm can increase its profits by offering lower prices to its customers who are willing to pay above the firm's:

Accepted Answer

A)  average costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  total costs. 
A)  average costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  total costs.

Question 11

Disneyland sells goods that are largely:

Accepted Answer

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

Question 12

Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to:

Accepted Answer

A)  sell sports and music channels in one bundle to both types of viewers. 
B)  sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. 
C)  use "à la carte" pricing. 
D)  use fixed-cost pricing. 
A)  sell sports and music channels in one bundle to both types of viewers. 
B)  sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. 
C)  use "à la carte" pricing. 
D)  use fixed-cost pricing.

Question 13

A monopolist facing different demand curves in two separate markets maximizes profit by:

Accepted Answer

A)  setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve. 
B)  completely ignoring the market with lower demand. 
C)  completely ignoring the market with higher demand. 
D)  setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market. 
A)  setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve. 
B)  completely ignoring the market with lower demand. 
C)  completely ignoring the market with higher demand. 
D)  setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market.

Question 14

Figure: Market for Lithotripters   Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y.

Accepted Answer

A)  d; z 
B)  b; d 
C)  b; z 
D)  a; d 
A)  d; z 
B)  b; d 
C)  b; z 
D)  a; d

Question 15

Subsidized ethanol fuel is poisoned, by government decree, to prevent arbitrage into the (drinkable) alcohol market.

Accepted Answer

A) True 
 B)False

Question 16

Bundle pricing makes sense for cable operators because:

Accepted Answer

A)  customers have a high willingness to pay for some channels and a low willingness to pay for others. 
B)  customers are more satisfied with more channels being offered. 
C)  the cost of operation decreases with bundle pricing. 
D)  the marginal costs of adding additional channels is high. 
A)  customers have a high willingness to pay for some channels and a low willingness to pay for others. 
B)  customers are more satisfied with more channels being offered. 
C)  the cost of operation decreases with bundle pricing. 
D)  the marginal costs of adding additional channels is high.

Question 17

Private universities such as Williams College price discriminate most directly by:

Accepted Answer

A)  time of enrollment. 
B)  number of credit hours. 
C)  family income level. 
D)  year in school. 
A)  time of enrollment. 
B)  number of credit hours. 
C)  family income level. 
D)  year in school.

Question 18

Which of the following is the fundamental condition that would allow a firm to practice price discrimination?

Accepted Answer

A)  All customers possess identical willingness to pay for the product. 
B)  The good can be purchased at one market and resold at another market. 
C)  There are two or more different demand curves for the good. 
D)  Demand for the good is high. 
A)  All customers possess identical willingness to pay for the product. 
B)  The good can be purchased at one market and resold at another market. 
C)  There are two or more different demand curves for the good. 
D)  Demand for the good is high.

Question 19

Suppose that GSK sells one of its drugs for $25/pill in the United States and $13/pill in Canada. Which of the following statements is TRUE?
I. The price discrimination benefits the Canadians since they pay a lower price.
II. The price discrimination benefits the Americans since GSK's larger profits means more research and development of new drugs for Americans.
III. Price discrimination is beneficial in industries with large fixed costs, since price discrimination increases the size of the market, helping to spread large costs over a greater number of consumers.

Accepted Answer

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

Question 20

To maximize profit using the practice of price discrimination, firms set different prices according to the characteristics that are correlated with buyers':

Accepted Answer

A)  age. 
B)  purpose of consumption. 
C)  income. 
D)  willingness to pay. 
A)  age. 
B)  purpose of consumption. 
C)  income. 
D)  willingness to pay.

Exam 14: Price Discrimination

Airlines price discriminate prominently by charging _______ more than _________.

Bundling is likely to increase total surplus if:

Universities practice price discrimination by:

Charging each customer his or her maximum willingness to pay is:

Why is it important for firms practicing price discrimination to prevent arbitrage of their product?

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

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?

Airlines price discriminate according to time of ticket purchase.

Video game consoles are routinely sold below cost, and games are sold above cost. What would happen if someone figured out how to use the consoles as cost-effective, general-purpose, nongaming computers?

Using a strategy of price discrimination, a firm can increase its profits by offering lower prices to its customers who are willing to pay above the firm's:

Disneyland sells goods that are largely:

A monopolist facing different demand curves in two separate markets maximizes profit by:

Figure: Market for Lithotripters Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y.

Subsidized ethanol fuel is poisoned, by government decree, to prevent arbitrage into the (drinkable) alcohol market.

Bundle pricing makes sense for cable operators because:

Private universities such as Williams College price discriminate most directly by:

Which of the following is the fundamental condition that would allow a firm to practice price discrimination?

To maximize profit using the practice of price discrimination, firms set different prices according to the characteristics that are correlated with buyers':

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

Airlines price discriminate prominently by charging _ more than ___.

Figure: Market for Lithotripters Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of in Country X and in Country Y.