Question 1

If price discrimination occurs in a market

Accepted Answer

A) the law of one price does not hold. 
B) the firm earns arbitrage profits. 
C) consumers whose demand for the product sold is more elastic pay higher prices than consumers whose demand is less elastic. 
D) the marginal cost of production is constant.

Question 2

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that

Accepted Answer

A) Apple will charge college students and faculty members higher prices than it charges the general public. 
B) Apple will charge college students and faculty members lower prices than it charges the general public. 
C) the general public will earn arbitrage profits by buying iMac desktop computers from Apple and reselling them to college students and faculty members. 
D) Apple will earn economic profits from the computers it sells to the general public but will break even on the computers it sells to college students and faculty members.

Question 3

There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.

Accepted Answer

A) True 
 B)False

Question 4

Perfect price discrimination is also known as

Accepted Answer

A) monopoly. 
B) first-degree price discrimination. 
C) third-degree price discrimination. 
D) yield management.

Question 5

A perfectly competitive firm cannot practice price discrimination because

Accepted Answer

A) a firm that breaks even in the long run cannot afford to engage in yield management. 
B) it does not advertise; this prevents the firm from marketing its product to different segments of the market. 
C) each consumer in a perfectly competitive market has the same willingness to pay. 
D) the firm can only charge the market price.

Question 6

Which of the following does not arise from price discrimination?

Accepted Answer

A) an increase in producer surplus 
B) an increase in consumer surplus 
C) an increase in quantity sold 
D) an increase in profits

Question 7

Though large firms have the knowledge and resources to utilize a better pricing strategy, many choose to use cost-plus pricing.One reason for this is that

Accepted Answer

A) large firms do not have to maximize their profits because they face little competition from other firms. 
B) there is less risk of violating antitrust laws if a cost-plus pricing strategy is used rather than a profit-maximizing pricing strategy. 
C) the additional revenue that would result from a profit-maximizing pricing strategy is an insignificant fraction of the firms' revenues. 
D) firms often adjust the markup they charge to reflect current demand.

Question 8

According to the law of one price

Accepted Answer

A) if transaction costs are zero, identical goods should sell for the same price everywhere. 
B) if transactions costs are zero, firms must sell a product at a price equal to its marginal cost. 
C) if transactions costs are zero, all firms must earn the same profit margin. 
D) there must be no differences in the cost of producing identical goods by different producers.

Question 9

Figure 16-6
  
Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.With this pricing scheme - a competitive price for the classes and a one-time membership fee - what amount of producer surplus will Sensei earn?

Accepted Answer

A) the area A + B + C + D + E. 
B) the area E + F. 
C) the area H + G + F. 
D) the area A + B + C + D + E + F + G + H

Question 10

Price discrimination

Accepted Answer

A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. 
B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. 
C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. 
D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.

Question 11

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

Accepted Answer

A) first-degree exploitation, or perfect price discrimination. 
B) maximization of producer surplus, or perfect price discrimination. 
C) first-degree price discrimination, or perfect price discrimination. 
D) first-degree transfer of consumer surplus, or perfect price discrimination.

Question 12

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the value of the consumer surplus from this pricing strategy?

Accepted Answer

A) $2,560 
B) $5,760 
C) $7,870 
D) 0

Question 13

Assume that a monopolist practices perfect price discrimination.The firm will produce an output rate

Accepted Answer

A) that is less than the efficient level of output. 
B) that is greater than the efficient level of output. 
C) that is equal to the efficient level of output. 
D) that converts consumers surplus into a deadweight loss.

Question 14

Figure 16-5
 
-Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.)What is the quantity it should produce?

Accepted Answer

A) 240 units 
B) 320 units 
C) 480 units 
D) 560 units

Question 15

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Accepted Answer

A) the Clayton Act. 
B) the Federal Trade Commission Act. 
C) the Robinson-Patman Act. 
D) the Sherman Act.

Question 16

Figure 16-6
  
Watanabe Sensei operates the only martial arts school in Hartfield.For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is.Figure 16-6 shows this demand curve.
-Refer to Figure 16-6.Suppose instead of charging the monopoly price for his classes, Sensei charges the competitive price.What is the competitive price and what is the quantity demanded at this price?

Accepted Answer

A) P₀, Q₁ 
B) P₀, Q₀ 
C) P₁, Q₀ 
D) P₁, Q₁

Question 17

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meet a consumer's preference allows Dell to extract more consumer surplus.

Accepted Answer

A) True 
 B)False

Question 18

Figure 16-1
 
-Refer to Figure 16-1.What is the price charged under perfect price discrimination?

Accepted Answer

A) P₃ 
B) P₄ 
C) a range of prices corresponding to the demand curve from P₃ and above 
D) a range of prices corresponding to the demand curve from P₄ and above

Question 19

The Athenian Theatre sells tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

Accepted Answer

A) This is an example of product differentiation but not price discrimination. 
B) The theatre practices first-degree price discrimination by setting prices based on willingness to pay. 
C) Since the cost of producing the play does not change with the seating configuration, this is evidence of price discrimination based on market segmentation. 
D) Charging two different prices is an effective way to avoid an excess demand for play tickets; the higher price lowers quantity demanded to some extent.

Question 20

Because each customer pays according to her willingness to pay, a consumer maximizes her consumer surplus under first-degree price discrimination.

Accepted Answer

A) True 
 B)False

Exam 16: Pricing Strategy

If price discrimination occurs in a market

College students and faculty members have a more elastic demand than the general public for Apple's iMac desktop computers.From this we can conclude that

There is no evidence that odd pricing succeeds in convincing consumers that prices are lower than they really are.

Perfect price discrimination is also known as

A perfectly competitive firm cannot practice price discrimination because

Which of the following does not arise from price discrimination?

Though large firms have the knowledge and resources to utilize a better pricing strategy, many choose to use cost-plus pricing.One reason for this is that

According to the law of one price

Price discrimination

If a firm knew every consumer's willingness to pay and could prevent arbitrage it could charge every consumer a different price.This practice is known as

Assume that a monopolist practices perfect price discrimination.The firm will produce an output rate

Figure 16-5 -Refer to Figure 16-5.Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the competitive price.(This is also called an optimal two-part tariff.) What is the quantity it should produce?

The antitrust law that prohibits price discrimination on grounds that it reduces competition is

Dell Computers allows potential consumers to customize personal computers to their desires.Dell's strategy is successful because offering bundles that more exactly meet a consumer's preference allows Dell to extract more consumer surplus.

Figure 16-1 -Refer to Figure 16-1.What is the price charged under perfect price discrimination?

The Athenian Theatre sells tickets for the same play at different prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the front, around the stage.Which of the following statements is true?

Because each customer pays according to her willingness to pay, a consumer maximizes her consumer surplus under first-degree price discrimination.