Deck 12: Pricing and Advertising

Question 1

When firms price discriminate they turn ________ into ________.

A) producer surplus, revenue
B) consumer surplus, profit
C) total cost, profit
D) producer surplus, consumer surplus

Answer 1

B

Question 2

A perfect price discriminator

A) charges each buyer her reservation price.
B) charges different prices to each customer based upon different costs of delivery.
C) generates a deadweight loss to society.
D) charges lower prices to customers who buy greater quantities.

Answer 2

A

Question 3

Which of the following conditions must be true so that a firm can price discriminate?

A) There are no other firms in the market.
B) The good is a non-durable.
C) The good cannot be easily resold.
D) All of the above.

Answer 3

C

Question 4

Theatres charge lower prices for a matinee and usually don't accept coupons for the night showing of movies because

A) consumers that attend the matinee have a higher price elasticity of demand.
B) consumers that attend the night show have a lower price elasticity of demand.
C) it increases profits compared to charging a single price.
D) All of the above.

Question 5

If a firm faces a flat demand curve,

A) it cannot engage in price discrimination.
B) it can only engage in two-part tariffs.
C) it can only engage in perfect price discrimination.
D) None of the above.

Question 6

Price discrimination is welfare reducing.

A) False, price discrimination can increase the coverage of a market thereby increasing welfare.
B) False, price discrimination limits the coverage of a market thereby increasing welfare.
C) True, price discrimination limits the coverage of a market thereby increasing welfare.
D) True, price discrimination can increase the coverage of a market thereby increasing welfare.

Question 7

Historically,price discrimination was considered illegal in all instances.More recently,antitrust authorities have discovered that

A) price discrimination can increase the coverage of a market thereby increasing welfare.
B) price discrimination limits the coverage of a market thereby increasing welfare.
C) price discrimination limits the coverage of a market thereby decreasing welfare.
D) price discrimination can increase the coverage of a market thereby decreasing welfare.

Question 8

Firms price discriminate to maximize total revenue.

Question 9

The deadweight loss generated by a perfect-price-discriminating monopoly

A) equals the deadweight loss of a single-price monopoly.
B) is greater than the deadweight loss of a single-price monopoly.
C) equals zero.
D) equals the sum of all lost consumer surplus.

Question 10

Explain why a firm can earn more profit by price discrimination than from setting a uniform price.

Question 11

Why do firms engage in price discrimination?

A) to decrease cost
B) to increase profits
C) to increase consumer surplus
D) to prohibit the resale of their products

Question 12

Which of the following sellers is most able to perfectly price discriminate?

A) a college or university
B) the post office
C) a clothing store
D) a grocery supermarket

Question 13

A perfect-price-discriminating monopoly's marginal revenue curve

A) lies below the demand curve.
B) is the demand curve.
C) varies for each consumer.
D) is the same as the monopolist's marginal revenue curve.

Question 14

If consumers are identical,then

A) price discrimination is impossible.
B) price discrimination can occur if each consumer has a downward-sloping demand curve for the product.
C) perfect price discrimination is the only form of price discrimination that can increase a monopoly's profit.
D) tie-in sales cannot increase a monopoly's profit.

Question 15

Mouthwash is sold in 24 oz bottles for $2.40 and in 12 oz.bottles for $1.20.This represents

A) price differentiation.
B) price discrimination.
C) marginal cost pricing.
D) None of the above.

Question 16

The case where a firm sells each unit at the maximum amount each customer is willing to pay for it is called

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third degree price discrimination.
D) nonlinear price discrimination.

Question 17

At many municipal golf courses,local residents pay a lower fee to play than other golfers do.One necessary condition for the golf course to be able to successfully price discriminate according to residency is that

A) they can check the identification cards of golfers.
B) local resident golfers and other golfers have the same price elasticity of demand to play at the municipal course.
C) there are many golf courses nearby from which golfers can choose.
D) they require all golfers to rent a cart.

Question 18

Charging a higher price for a motel room to customers with dogs or cats than to customers with no pets is most likely an example of

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) actual cost differences.

Question 19

If two markets have the same price elasticity of demand at every price,a monopoly will not practice multimarket price discrimination.

Question 20

Suppose two countries,A and B,are at war with each other.Country A is very wealthy; country B is very poor.The XYZ Co.produces tanks.Is XYZ able to set a different price for the tank sold to country A than the price for the tank sold to country B? Explain.

Question 21

Which of the following helps a monopoly perfectly price discriminate?

A) unit demand by each consumer
B) the product is perishable
C) the product is personalizable
D) All of the above.

Question 22

The above figure shows the market for a given product.Defining welfare as consumer surplus plus producer surplus,calculate the social welfare associated with perfect competition,single-price monopoly,and a perfect-price-discriminating monopoly.Which market structure(s)maximize social welfare?

Question 23

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,social welfare equals

A) A.
B) A + B + C.
C) A + B + C + D + E.
D) zero.

Question 24

If a market is controlled by a perfect-price-discriminating monopoly,then

A) a deadweight loss is generated.
B) there is no consumer surplus.
C) consumer surplus is the same as under perfect competition.
D) output is less than that of a single-price monopoly.

Question 25

A perfect price discriminator receives a price equal to marginal revenue for each unit.

Question 26

A monopoly will not be able to perfectly price discriminate if

A) obtaining information about each buyer's reservation price is too costly.
B) demand is very elastic.
C) demand is very inelastic.
D) resale is impossible.

Question 27

Assume you have four tickets to a U2 concert.You decide to sell each of them separately on an auction site such as eBay.Your auctions represent

A) price differentiation.
B) perfect price discrimination amongst those who bid for your tickets.
C) perfect price discrimination amongst all people who buy tickets for the concert.
D) an illegal act, subject to state and federal prosecution.

Question 28

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,the deadweight loss equals

A) C + E.
B) A + B + C.
C) C.
D) zero.

Question 29

A perfect-price-discriminating monopoly maximizes social welfare as measured by the sum of producer surplus plus consumer surplus.

Question 30

A good example of perfect price discrimination is

A) selling concert tickets to individuals on the street corner.
B) buying concert tickets at the ticket window.
C) selling concert tickets at the ticket window.
D) buying a concert ticket on the street corner.

Question 31

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,producer surplus equals

A) A + B + C + D + E.
B) D + E.
C) E.
D) zero.

Question 32

When a firm has a monopoly in a market and also perfectly price discriminates,total welfare

A) is maximized.
B) is lower than in a perfectly competitive market.
C) is higher than in a perfectly competitive market.
D) is minimized.

Question 33

A monopoly will not be able to perfectly price discriminate if

A) each consumer does not reveal her reservation price.
B) demand is very elastic.
C) the firm's marginal cost curve is upward sloping.
D) All of the above.

Question 34

Explain using welfare measures whether consumers prefer a single price monopoly or a perfect-price-discriminating monopoly.

Question 35

Assume a firm organizes all individuals by their willingness to pay (least to most).If the firm starts to perfectly price discriminate,what is likely to happen?

A) Consumers start to arbitrage amongst themselves.
B) The firm's profits will be maximized.
C) The firm's costs will be minimized.
D) The firm starts to arbitrage with consumers.

Question 36

What is one reason car dealerships might move away from perfect price discrimination to uniform pricing?

A) Perfect price discrimination doesn't work.
B) Transaction costs erode the profit of perfect price discrimination.
C) Consumers are ill-informed and tend to complain too much.
D) Uniform pricing is always more profitable and more fair as well.

Question 37

Suppose a monopoly's inverse demand curve is P = 100 -Q,it produces a product with a constant marginal cost of 20,and it has no fixed costs.How much more or less is the deadweight loss if the monopoly can practice perfect price discrimination compared to it practicing uniform pricing?

A) The deadweight loss is smaller by 800.
B) The deadweight loss is greater by 800.
C) The deadweight loss is smaller by 1600.
D) The deadweight loss is greater by 1600.

Question 38

The above figure shows the market for a particular good.If the market is controlled by a perfect-price-discriminating monopoly,consumer surplus equals

A) A.
B) A + B + C.
C) C.
D) zero.

Question 39

A perfect-price-discriminating equilibrium maximizes

A) consumer surplus.
B) the associated deadweight loss.
C) the market inefficiency.
D) total welfare.

Question 40

Suppose a monopoly's inverse demand curve is P = 100 -Q,it produces a product with a constant marginal cost of 20,and it has no fixed costs.Compared to the consumer surplus if the market were perfectly competitive,consumer surplus is how much less when the monopolist practices perfect price discrimination?

A) 3200
B) 1600
C) 800
D) 0

Question 41

Pizza joints often offer substantially lower prices for pizza picked up at the shop compared to delivered pizza prices.This may be an attempt at

A) perfect price discrimination.
B) group price discrimination.
C) quantity discrimination.
D) second-degree price discrimination.

Question 42

Relative to a single-price monopoly,the effect of group price discrimination on social welfare is

A) beneficial.
B) detrimental.
C) neutral.
D) ambiguous.

Question 43

What is one reason online prices might be considerably lower than brick-and-mortar prices?

A) Online retailers engage in more price discrimination.
B) Brick-and-mortar retailers engage in more price discrimination.
C) Brick and mortar retailers may have higher costs.
D) Online retailers are more likely to have steep demand curves.

Question 44

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.If the marginal cost of installing carpet is a constant $1 per sq yard,what price does Bob charge each segment?

A) $1 in each market
B) $5.50 in the residential market and $8 in the business market
C) $1 in the residential market and $5 in the business market
D) $10 in the residential market and $15 in the business market

Question 45

Why doesn't a firm price discriminate based on income levels?

A) It would be nearly impossible to conveniently confirm any individual's income level.
B) It is illegal to ask someone their income levels.
C) It is immoral to price discriminate based on income levels.
D) It is common practice for firms to price discriminate based on income.

Question 46

If somebody posing as a vacationer were able to purchase large numbers of airline tickets from the airlines and later resell them to business travelers,

A) group price discrimination on the part of airlines would no longer be profitable.
B) group price discrimination on the part of airlines would no longer be profit maximizing.
C) the airlines would respond by raising further the price charged to business flyers.
D) this person would not earn any economic profit.

Question 47

If a firm offers a senior citizen discount,

A) the firm expects the average senior citizen to have a lower price elasticity of demand.
B) the firm expects the average senior citizen to have a higher price elasticity of demand.
C) senior citizens may be offended.
D) it may be prosecuted for discrimination.

Question 48

Which of the following is an example for group price discrimination?

A) a BMW selling for more than a VW
B) local residents receiving a discount at the local golf course
C) the fact that a razor is cheap and blades are expensive
D) a hotel charging more for a room if the customers bring pets

Question 49

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.Bob is likely to price discriminate because

A) elasticities differ across markets.
B) the installation of carpets cannot be resold.
C) Bob can probably identify which consumers belong to which segment.
D) All of the above.

Question 50

If the demand for air travel were to change so that business travelers and vacationers have the same price elasticity of demand for air travel,

A) airlines would charge the same price to each type of flyer.
B) airlines would still charge business flyers a higher fare since the traveler's employer pays anyway.
C) airlines would be driven out of business.
D) airlines would counter by charging vacationers a higher fare.

Question 51

Airlines offer lower prices to vacationers than to business travelers because

A) of government regulations requiring them to do so.
B) business travelers do not care at all about costs.
C) business travelers are less flexible in their travel plans than vacationers are.
D) airlines know that business travelers enjoy flying more than vacationers do.

Question 52

Suppose group price discrimination is possible; however,a firm sets the same price in each market.As a result,

A) price elasticity of demand is the same in each market.
B) the price-inelastic market will buy zero units.
C) marginal revenue in the more price-elastic market exceeds marginal revenue in the less price-elastic market.
D) the deadweight loss is less than if the firm price discriminated.

Question 53

What is a primary difference between rebates and coupons?

A) Coupons allow individuals to sort themselves into the high-elasticity group after the sale.
B) Neither coupons nor rebates are redeemed in high numbers.
C) Rebates allow individuals to sort themselves into the high-elasticity group after the sale.
D) Coupons are legal and rebates are illegal.

Question 54

Price discrimination reveals

A) the inherent greed of Western culture.
B) the inability for regulators to stop unethical practices.
C) that individuals have different willingness to pay.
D) that individuals have the same willingness to pay.

Question 55

A group price discriminator sells its product in Florida for three times the price it sets in New York.Assuming the firm faces the same constant marginal cost in each market and the price elasticity of demand in New York is -2.0,the demand in Florida

A) has an elasticity of -6.0.
B) is more price elastic than the demand in New York.
C) has an elasticity of -1.2.
D) has an elasticity of -0.67.

Question 56

If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible,a firm with market power will

A) set a higher price in the market that is more price elastic.
B) set a lower price in the market that is more price elastic.
C) set price so as to equate the elasticity of demand across markets.
D) set price equal to marginal cost in both markets.

Question 57

Suppose a profit-maximizing monopoly is able to employ multimarket price discrimination.The marginal cost of providing the good is constant and the same in both markets.The marginal revenue the firm earns on the last unit sold in the market with the lower price will be

A) greater than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
B) less than the marginal revenue the firm earns on the last unit sold in the market with the higher price.
C) equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price.
D) greater than the marginal cost of the last unit.

Question 58

If the price of business broadband is greater than that of residential broadband,all else equal,

A) business has greater price elasticity than residential.
B) residential has greater price elasticity than business.
C) both have positive income elasticity.
D) generally speaking, broadband is equally priced.

Question 59

Coupons represent a form of price discrimination because they offer a low-cost way for firms to

A) identify customers with apparently more elastic demand and offer them a lower price.
B) retain loyal customers who are not price sensitive.
C) offer discounts to consumers who buy larger quantities.
D) perfectly price discriminate.

Question 60

If the marginal cost of production is $10,the elasticity of demand for group 1 is -1.5,the elasticity of demand for group 2 is -2.5,and the price paid by group 1 is $15,the price for group 2 is

A) $8.33.
B) $27.
C) $15.
D) Impossible to tell.

Question 61

If you purchase one pound of apples the price is $1.50 per pound.If you buy a five pound bag of apples,the cost is $5.00.This is most likely an example of

A) quantity discounts.
B) lower marginal cost.
C) lower marginal benefit.
D) price gouging.

Question 62

The more block prices a monopoly can set instead of setting a single price,

A) the smaller the deadweight loss.
B) the more producer surplus.
C) the larger the total welfare.
D) All of the above.

Question 63

Declining-block quantity discrimination makes sense if

A) buyers of smaller quantities are more price sensitive than buyers of larger quantities.
B) buyers of smaller quantities are less price sensitive than buyers of larger quantities.
C) demand for the good is perfectly elastic.
D) the lower price for larger quantities encourages all consumers to purchase the larger quantity.

Question 64

A firm that practices multimarket price discrimination will set the lower price in the market that has the most elastic demand.

Question 65

Bob is the only carpet installer in a small isolated town.The above figure shows the demand curves of two distinct groups of customers-residential and business.If the marginal cost of installing carpet is a constant $1 per sq yard,what price does Bob charge each segment?

Question 66

Suppose a monopoly sells to two identifiably different types of customers,A and B,who are unable to practice arbitrage.The inverse demand curve for group A is P_A = 10 - Q_A,and the inverse demand curve for group B is P_B = 18 - Q_B.The monopolist is able to produce the good for either type of customer at a constant marginal cost of 2,and the monopolist has no fixed costs.If the monopolist is able to practice group price discrimination,the values of the elasticities of the two groups at the profit maximizing prices are

A) ε_A = -1.25, and ε_B = -1.5.
B) ε_A = -1.5, and ε_B = -1.25.
C) ε_A = -0.67, and ε_B = -0.8.
D) ε_A = -0.8, and ε_B = -0.67.

Question 67

If a firm sells to two distinct identifiable markets and resale is impossible,why is price discrimination more profitable than setting a single price?

Question 68

What is one reason suppliers might offer a discount for quantity purchases?

A) reduced storage costs
B) lower marginal cost
C) lower marginal benefit
D) price gouging

Question 69

What is one reason consumers might demand a discount for quantity purchases?

A) higher storage costs
B) lower marginal cost
C) lower marginal benefit
D) price gouging

Question 70

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities,then

A) consumer surplus is larger than under single-price monopoly.
B) social welfare is larger than under perfect competition.
C) the monopoly's profits are larger than under single-price monopoly.
D) the monopoly's profits are larger than under perfect price discrimination.

Question 71

While price discrimination is possible between two markets,it is not possible in more than two.

Question 72

A hotel with market power charges customers who check in before 5:00 pm more than those who check in after 5:00 pm.Those who check in early are much more likely to use the hotel's pool.Explain why this price difference may not be price discrimination.

Question 73

Suppose a monopoly sells to two identifiably different types of customers,A and B,who are unable to practice arbitrage.The inverse demand curve for group A is P_A = 10 - Q_A,and the inverse demand curve for group B is P_B = 18 - Q_B.The monopolist is able to produce the good for either type of customer at a constant marginal cost of 2,and the monopolist has no fixed costs.If the monopolist practices group price discrimination,the profit maximizing prices charged to each type of customer are

A) P_A = 6, and P_B = 10.
B) P_A = 4 and P_B = 8.
C) P_A = 10, and P_B = 6.
D) P_A = 8, and P_B = 4.

Question 74

Purchasing a season pass to the local symphony

A) is an example of first degree price discrimination.
B) is an example of second degree price discrimination.
C) is an example of third degree price discrimination.
D) All of the above.

Question 75

If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities,then

A) consumers who buy larger quantities have a higher price elasticity of demand.
B) consumers who buy larger quantities have a lower price elasticity of demand.
C) consumers who buy smaller quantities have a lower price elasticity of demand.
D) Both A and C.

Question 76

A specialized rice grower sells rice in two markets,the United States and Japan,and the marginal cost the same in both markets.The price elasticity of demand in the United States is -2.0,and the price elasticity of demand in Japan is -1.5.If the grower practices multimarket price discrimination,which country's consumers will pay a higher price and by how much?

Question 77

If firms that practice second degree price discrimination use more block prices,

A) both consumer surplus and welfare will decrease.
B) both consumer surplus and welfare will increase.
C) consumer surplus will decrease but welfare will increase.
D) consumer surplus will increase but welfare will decrease.

Question 78

A weapons producer sells guns to two countries that are at war with each other.The guns can be produced at a constant marginal cost of $10.The demand for guns from the two countries can be represented as:
Q_A = 100 - 2p
Q_B = 80 - 4p
Why is the weapons producer able to price discriminate?
What price will it charge to each country?

Question 79

Suppose a monopoly sells to two identifiably different types of customers,A and B,who are unable to practice arbitrage.The inverse demand curve for group A is P_A = 10 - Q_A,and the inverse demand curve for group B is P_B = 18 - Q_B.The monopolist is able to produce the good for either type of customer at a constant marginal cost of 2,and the monopolist has no fixed costs.If the monopoly uses uniform pricing,the deadweight loss is 36.If the monopolist is able to practice group price discrimination,the deadweight loss is

A) 30.
B) 32.
C) 34.
D) 36.

Question 80

Nonlinear price discrimination is

A) perfect price discrimination.
B) quantity price discrimination.
C) group price discrimination.
D) two-part pricing.