Question 1

In Problem 1, if demand in the United States is given by Q₁ = 11,200 - 800p₁, where p₁ is the price in the United States, and if the demand in England is given by 1,600 - 200p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A) $8.
B) $3.
C) $6.
D) $0.
E) $9.

Accepted Answer

B

Question 2

Suppose that 2,000 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 5 - p, 0), where p is the price per ride. There is a constant marginal cost of $2 for providing a ride at ElvisLand. If ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

A) $2 per ride and $5 for admission
B) $2 per ride and $4.50 for admission
C) $0 per ride and $3 for admission
D) $0 per ride and $6.50 for admission
E) $5 per ride and $5 for admission

B

Accepted Answer

To find the profit-maximizing prices, we need to set up the profit function: Profit = (Price per admission - Marginal cost per admission) * Number of admissions + (Price per ride - Marginal cost per ride) * Number of rides Let A be the price for admission and R be the price per ride. Let's first find the number of admissions: Number of admissions = 2,000 Now let's find the number of rides for a given price per ride, p: Number of rides = x * Number of admissions = max{5 - p, 0} * 2,000 We can now write the profit function as: Profit = (A - 0) * 2,000 + (R - 2) * max{5 - p, 0} * 2,000 Simplifying this expression, we get: Profit = 2,000A + (R - 2) * max{5 - p, 0} * 2,000 To maximize profit, we need to choose A and R that maximize this expression. We can use the first-order conditions of profit maximization to find the optimal prices: dProfit/dA = 2,000 + 0 = 0 dProfit/dR = max{5 - p, 0} * 2,000 + (R - 2) * d{max(5 - p, 0)}/dp * (-1) * 2,000 Setting both derivatives to zero, we get: A = $4.50 max{5 - p, 0} - (R - 2) * {d(max(5 - p, 0))/dp} = 0 Since {d(max(5 - p, 0))/dp} = -1 when p < 5 and zero otherwise, we have two cases: Case 1: R - 2 = 0 (when p >= 5) In this case, we have: max{5 - p, 0} = 0 p >= 5 R = $2 Case 2: max{5 - p, 0} - (R - 2) * (-1) = 0 (when p < 5) In this case, we have: max{5 - p, 0} = R - 2 p < 5 R - 2 = 5 - p R = $7 - p Since we want to charge a positive price per ride, we need to choose R = $2 in case 1. In case 2, we need to choose R = $2 when p >= 5, and R = $5 when p < 5. This gives us three possible pricing schemes: Scheme 1: A = $4.50, R = $2 (when p >= 5) Scheme 2: A = $4.50, R = $5 - p (when p < 5) Scheme 3: A = $0, R = $5 - p (when p < 5) We need to choose the scheme that maximizes profit. To do this, we need to compare the profits of each scheme for all possible values of p: Profit(Scheme 1) = 2,000*$4.50 + ($2 - $2) * 2,000 = $9,000 Profit(Scheme 2) = 2,000*$4.50 + ($5 - p - $2) * max{5 - p, 0} * 2,000 = $9,000 + (3/2)*max{0, 5-p}*(2,000) Profit(Scheme 3) = 2,000*$0 + ($5 - p - $2) * max{5 - p, 0} * 2,000 = (3/2)*max{0, 5-p}*(2,000) From this analysis, we can see that the maximum profit occurs with Scheme 2, when p = 0. This gives us the final pricing scheme: A = $4.50 R = $5 - p (when p < 5) Therefore, the answer is B.

Question 3

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $4 in one market and $9 in the other market. At these prices, the price elasticity in the first market is -1.50 and the price elasticity in the second market is -0.40. Which of the following actions is sure to raise the monopolist's profits?

A) Lower p₂.
B) Raise p₂.
C) Raise p₁ and lower p₂.
D) Raise both p₁ and p₂.
E) Raise p₂and lower p₁.

Accepted Answer

B

Question 4

In Problem 1, if demand in the United States is given by Q₁ = 13,200 - 600p₁, where p₁ is the price in the United States, and if the demand in England is given by 9,000 - 500p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A) $4.
B) $2.
C) $0.
D) $12.
E) $6.

Accepted Answer

The answer of In Problem 1, if demand in the...

Question 5

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $2 in one market and $12 in the other market. At these prices, the price elasticity in the first market is -2.50 and the price elasticity in the second market is -0.70. Which of the following actions is sure to raise the monopolist's profits?

A) Raise p₂.
B) Raise both p₁ and p₂.
C) Lower p₂.
D) Raise p₁ and lower p₂.
E) Raise p₂and lower p₁.

Accepted Answer

The answer of A price-discriminating monopolist sells in two separate...

Question 6

If a monopolist faces an inverse demand curve, p(y) = 100 - 2y and has constant marginal costs of $8 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be

A) $2,116.
B) $23.
C) $1,058.
D) $3,174.
E) $529.

Accepted Answer

Under perfect price discrimination, the monopolist charges every customer their willingness-to-pay for each unit. With an inverse demand function of p(y) = 100 - 2y, the monopolist's profit-maximizing price for each unit sold will equal marginal cost. So, given constant marginal costs of $16, the monopolist will charge $84 per unit sold (100 - 2y = 84 → y = 8).

The monopolist can sell 8 units of output, earning a total revenue of $672 (8*84). The total variable cost will be $128 (8*$16), giving a total profit of $544.

Therefore, the total profits will be $1,764 (3*$544, since this monopolist could sell 24 units with this same price and generate three times the profit).

Question 7

If a monopolist faces an inverse demand curve, p(y) = 100 - 2y and has constant marginal costs of $8 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be

A) $2,116.
B) $23.
C) $1,058.
D) $3,174.
E) $529.

Accepted Answer

The answer of If a monopolist faces an inverse demand...

Question 8

In Problem 1, if demand in the United States is given by Q₁ = 14,000 - 1,000p₁, where p₁ is the price in the United States, and if the demand in England is given by 1,600 - 200p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A) $8.
B) $0.
C) $3.
D) $6.
E) $9.

Accepted Answer

The answer of In Problem 1, if demand in the...

Question 9

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $4 in one market and $9 in the other market. At these prices, the price elasticity in the first market is -1.50 and the price elasticity in the second market is -0.40. Which of the following actions is sure to raise the monopolist's profits?

A) Lower p₂.
B) Raise p₂.
C) Raise p₁ and lower p₂.
D) Raise both p₁ and p₂.
E) Raise p₂and lower p₁.

Accepted Answer

The monopolist should raise the price in the second market because the demand is inelastic (elasticity of -0.40), meaning consumers are less sensitive to price changes, allowing the monopolist to increase revenue and profits.

Question 10

In Problem 1, if demand in the United States is given by Q₁ = 11,200 - 800p₁, where p₁ is the price in the United States, and if the demand in England is given by 1,600 - 200p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A) $8.
B) $3.
C) $6.
D) $0.
E) $9.

Accepted Answer

To find the difference in prices, set the quantities equal: 7,200 - 300p₁ = 3,600 - 200p₂. Solving for p₁ and p₂ gives p₁ = $12 and p₂ = $9. The difference is $3.

Question 11

Suppose that 3,500 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 2 - p, 0} , where p is the price per ride. There is a constant marginal cost of $1 for providing a ride at ElvisLand. ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

A) $1 per ride and $2 for admission
B) $0 per ride and $1 for admission
C) $1 per ride and $.50 for admission
D) $0 per ride and $1.50 for admission
E) $2 per ride and $2 for admission

Accepted Answer

The answer of Suppose that 3,500 people are interested in...

Question 12

Suppose that 1,000 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 6 - p, 0} , where p is the price per ride. There is a constant marginal cost of $3 for providing a ride at ElvisLand. If ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

A) $3 per ride and $6 for admission
B) $3 per ride and $4.50 for admission
C) $0 per ride and $3 for admission
D) $0 per ride and $7.50 for admission
E) $6 per ride and $6 for admission

Accepted Answer

The answer of Suppose that 1,000 people are interested in...

Question 13

If a monopolist faces an inverse demand curve, p(y) = 100 - 2y and has constant marginal costs of $8 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be

A) $2,116.
B) $23.
C) $1,058.
D) $3,174.
E) $529.

Accepted Answer

The answer of If a monopolist faces an inverse demand...

Question 14

If a monopolist faces an inverse demand curve, p(y) = 100 - 2y and has constant marginal costs of $8 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be

A) $2,116.
B) $23.
C) $1,058.
D) $3,174.
E) $529.

Accepted Answer

The answer of If a monopolist faces an inverse demand...

Question 15

Suppose that 3,500 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 2 - p, 0} , where p is the price per ride. There is a constant marginal cost of $1 for providing a ride at ElvisLand. ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

A) $1 per ride and $2 for admission
B) $0 per ride and $1 for admission
C) $1 per ride and $.50 for admission
D) $0 per ride and $1.50 for admission
E) $2 per ride and $2 for admission

Accepted Answer

The answer of Suppose that 3,500 people are interested in...

Question 16

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $4 in one market and $9 in the other market. At these prices, the price elasticity in the first market is -1.50 and the price elasticity in the second market is -0.40. Which of the following actions is sure to raise the monopolist's profits?

A) Lower p₂.
B) Raise p₂.
C) Raise p₁ and lower p₂.
D) Raise both p₁ and p₂.
E) Raise p₂and lower p₁.

Accepted Answer

The answer of A price-discriminating monopolist sells in two separate...

Question 17

Suppose that 2,500 people are interested in attending ElvisLand. Once a person arrives at ElvisLand, his or her demand for rides is given by x = max{ 3 - p, 0} , where p is the price per ride. There is a constant marginal cost of $2 for providing a ride at ElvisLand. ElvisLand charges a profit-maximizing two-part tariff, with one price for admission to ElvisLand and another price per ride for those who get in. How much should it charge per ride and how much for admission?

A) $2 per ride and $3 for admission
B) $0 per ride and $2.50 for admission
C) $2 per ride and $.50 for admission
D) $0 per ride and $1 for admission
E) $3 per ride and $3 for admission

Accepted Answer

The answer of Suppose that 2,500 people are interested in...

Question 18

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $2 in one market and $12 in the other market. At these prices, the price elasticity in the first market is -2.50 and the price elasticity in the second market is -0.70. Which of the following actions is sure to raise the monopolist's profits?

A) Raise p₂.
B) Raise both p₁ and p₂.
C) Lower p₂.
D) Raise p₁ and lower p₂.
E) Raise p₂and lower p₁.

Accepted Answer

The answer of A price-discriminating monopolist sells in two separate...

Question 19

In Problem 1, if demand in the United States is given by Q₁ = 18,000 - 900p₁, where p₁ is the price in the United States, and if the demand in England is given by 2,000 - 200p₂, where p₂ is the price in England, then the difference between the price charged in England and the price charged in the United States will be

A) $10.
B) $0.
C) $11.
D) $5.
E) $15.

Accepted Answer

The answer of In Problem 1, if demand in the...

Question 20

If a monopolist faces an inverse demand curve, p(y) = 100 - 2y and has constant marginal costs of $8 and zero fixed costs and if this monopolist is able to practice perfect price discrimination, its total profits will be

A) $2,116.
B) $23.
C) $1,058.
D) $3,174.
E) $529.

Accepted Answer

The answer of If a monopolist faces an inverse demand...

Deck 24: A: Monopoly Behavior