Deck 9: Managerial Use of Price Discrimination

Question 1

Price discrimination is defined as:

A) selling a product at the same price to each and every consumer.
B) selling a product at more than one price.
C) selling a product at its marginal cost plus a markup.
D) selling more than one version of a product.
E) producing goods and services for sale within the firm.

Answer 1

B

Question 2

A firm with production located in a poor Georgia town sells toys locally for $10 each and ships the same toys to sell in a wealthy North Carolina town for $15 each.They are not price discriminating if:

A) laws in Georgia allow it.
B) laws in North Carolina allow it.
C) total advertising costs are $5 per unit.
D) total transportation costs are $5 per unit.
E) consumers in North Carolina would pay more than $15 for the toys.

Answer 2

D

Question 3

Women are often charged more than men for haircuts performed by the same haircutter.This is not considered price discrimination because:

A) women receive more consumer surplus from haircuts than men receive.
B) haircutters claim to spend more time on women's hair, raising the cost of the haircut to the firm.
C) firms make up the extra cost to consumers by giving women free samples of products.
D) men receive more consumer surplus from haircuts than women receive.
E) women have a lower price elasticity of demand for haircuts.

Answer 3

B

Question 4

When a movie theater charges a higher price during the evening than during the day,it is practicing:

A) peak load pricing.
B) first-degree price discrimination.
C) second-degree price discrimination.
D) third-degree price discrimination
E) fourth-degree price discrimination.

Question 5

Crusty Cakes sells donuts in Eastown and Westown.Its total costs are given by TC = 10(Q_E + Q_W).The demand in each neighborhood is given by Q_E = 100 - 2P_E and Q_W = 100 - P_W .If Crusty price discriminates between the two neighborhoods,how much are its maximized profits?

A) $850.
B) $1,200.
C) $2,475.
D) $2,825.
E) $3,250.

Question 6

The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 13 - 0.15Q during peak traffic periods and P = 7 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal off-peak load toll for crossing the bridge?

A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.6.

Question 7

The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 12 - 0.15Q during peak traffic periods and P = 9 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal off-peak load toll for crossing the bridge?

A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.6.

Question 8

If the monopolist shown in the following figure could practice first-degree price discrimination,the consumer surplus would be:

A) $0.
B) $225.
C) $450.
D) $900.
E) $1,200.

Question 9

Gliberace's Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 5(Q_LA + Q_SF).Demand for Gliberace's stones in the two cities is given by Q_LA = 70 - 2P_LA and Q_SF = 55 - P_SF.If Gliberace price discriminates between the two cities,what will its maximum profits be?

A) $750.
B) $825.
C) $1,075.
D) $975.
E) $1,175.

Question 10

When Pan United Airlines gives a $400 fare discount to persons with student IDs,they are practicing:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.

Question 11

When Exxoff Oil Corporation offers discounts based on credit card records of gas quantities purchased,they are practicing:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.

Question 12

Gliberace's Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 6(Q_LA + Q_SF).Demand for Gliberace's stones in the two cities is given by Q_LA = 70 - 2P_LA and Q_SF = 50 - P_SF.If Gliberace cannot price discriminate between the two cities,and so charges the same price in each,how many stones will it sell in Los Angeles?

A) 12.
B) 15.
C) 18.
D) 21.
E) 24.

Question 13

Cereal manufacturers' use of coupons can be partially explained by:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.

Question 14

When a utility charges homeowners less than big industrial users,it is practicing:

A) first-degree price discrimination.
B) fourth-degree price discrimination.
C) third-degree price discrimination.
D) markup pricing.
E) tying.

Question 15

When an electrical utility charges higher prices during the day than at night,it is practicing:

A) peak load pricing.
B) first-degree price discrimination.
C) second-degree price discrimination.
D) third-degree price discrimination.
E) fourth-degree price discrimination.

Question 16

If the monopolist shown in the following figure could practice first-degree price discrimination,the producer surplus would be:

A) $0.
B) $225.
C) $450.
D) $900.
E) $1,200.

Question 17

Gliberace's Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 5(Q_LA + Q_SF).Demand for Gliberace's stones in the two cities is given by Q_LA = 70 - 2P_LA and Q_SF = 55 - P_SF .If Gliberace price discriminates between the two cities,how many stones will it sell in Los Angeles?

A) 30.
B) 36.
C) 38.
D) 43.
E) 48.

Question 18

If a firm supplies separable markets with price elasticities $\eta$ ₁ = -3 and $\eta$ ₂ = -2,it should set prices P₁ and P₂ so that:

A) P₁ = P₂.
B) 3P₁ = 2P₂.
C) 2P₁ = 3P₂.
D) 2/3P₁ = 1/2P₂.
E) 2P₁ = 2/3P₂.

Question 19

The optimal level of output and price for the profit-maximizing monopolist in the following figure would be:

A) Q = 30 and P = $35.
B) Q = 60 and P = $20.
C) Q = 30 and P = $20.
D) Q = 100 and P = $35.
E) none of the above.

Question 20

If a firm supplies separable markets with price elasticities $\eta$ ₁ and $\eta$ ₂,it should set prices P₁ and P₂ so that:

A) P₁ $\eta$ ₁ = P₂ $\eta$ ₂.
B) P₁ / $\eta$ ₁ = P₂ / $\eta$ ₂.
C) P₁(1 + 1/ $\eta$ ₁) = P₂ (1 + 1/ $\eta$ ₂).
D) P₁/(1 - 1 / $\eta$ ₁) = P₂ / (1 - 1/ $\eta$ ₂).
E) P₁ = 1 - 1/ $\eta$ ₁ and P₂ = 1 - 1/ $\eta$ ₂.

Question 21

The demand for health club services is Q = 100 - 2P,and the marginal cost of providing these services is MC = -110 + 2Q.If a two-part tariff pricing system is used,what is the optimal price and quantity combination?

A) P = 18 and Q = 64.
B) P = 199 and Q = 52.
C) P = 26 and Q = 162.
D) P = 162 and Q = 26.
E) None of the above.

Question 22

The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 12 - 0.15Q during peak traffic periods and P = 9 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal peak load toll for crossing the bridge?

A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.6.

Question 23

When a monopolist requires a customer to pay an initial fee for the right to buy a product as well as a usage fee for each unit of the product bought,this is known as a(n):

A) bundling contract.
B) price differentiation.
C) oligopolistic device.
D) two-part tariff.
E) maximizing device.

Question 24

The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 13 - 0.15Q during peak traffic periods and P = 10 - 0.1Q during off-peak hours,where Q is the number of cars crossing the bridge in thousands and P is the toll in dollars.If the marginal congestion cost of using the bridge is MC = 5 + 0.2Q,what is the optimal peak load toll for crossing the bridge?

A) 6.5.
B) 8.0.
C) 8.7.
D) 9.9.
E) 10.5.

Question 25

The demand for health club services is Q = 350 - 2P and the marginal cost of providing these services is MC = 110 + 2Q.If a two-part tariff pricing system is used,what is the optimal price and quantity combination?

A) P = 52 and Q = 240.
B) P = 199 and Q = 52.
C) P = 26 and Q = 162.
D) P = 162 and Q = 26.
E) None of the above.

Question 26

If the monopolist shown in the following figure could implement a two-part tariff,the entry fee would be:

A) $0.
B) $225.
C) $450.
D) $900.
E) $1,200.

Question 27

The demand for health club services is Q = 100 - 2P,and the marginal cost of providing these services is MC = -110 + 2Q.If a two-part tariff pricing system is used,what is the optimal fixed fee?

A) 1,555.
B) 2,624.
C) 1,024.
D) 1,206.
E) None of the above.