Question 1

If an ordinary price discrimination monopolist charges a higher price in one market than another, it must mean that at the profit- maximising level of output in each market the:
A)monopolist is implementing perfect price discrimination.
B)price- elasticity of demand is higher in the high- price market.
C)price- elasticity of demand is lower in the high- price market.
D)reservation prices are generally higher in the high- price market.

Accepted Answer

If the monopolist charges a higher price in one market than another, it means that demand in the high-price market is less elastic than in the low-price market. This implies that consumers in the high-price market are less responsive to changes in price, meaning their price elasticity of demand is lower. Therefore, choice C, "price-elasticity of demand is lower in the high-price market," is the correct answer. Neither A nor D are correct because the monopolist is not implementing perfect price discrimination and reservation prices are not necessarily higher in the high-price market.

Question 2

Which of the following can practice price discrimination the easiest?
A)a book publisher
B)a record store
C)a grocery store
D)an oral surgeon

Accepted Answer

An oral surgeon can easily practice price discrimination by charging different prices to patients with different levels of income or insurance coverage. They can also vary their fees based on the complexity of the procedure or the urgency of the treatment. This is because the pricing of healthcare services is not transparent and often negotiated directly between the provider and the patient or insurance company. The other options are less likely to practice price discrimination as their products are more standardized and the pricing is more transparent.

Question 3

An ordinary price- discriminating monopolist that faces a downward- sloping demand curve in one market and a horizontal demand curve in another market will:
A)charge the same price in both markets.
B)sell an aggregate output corresponding to the aggregate marginal revenue equaling marginal cost.
C)charge p = MR where it has market power, and p = AR in the others.
D)charge p = MR in both markets.

Accepted Answer

The answer of An ordinary price- discriminating monopolist that faces...

Question 4

A firms sells an identical product to two groups of consumers, A and B. The firm has decided that ordinary price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?
A)MRA = MRB = MC.
B)(MRA - MRB)= (1 - MC).
C)PA = PB = MC.
D)MRA = MRB.

Accepted Answer

To maximize profits through price discrimination, a firm should set marginal revenue equal for all groups (MRA = MRB) and equal to marginal cost (MC). This ensures that the firm is producing at the most efficient level for each group and maximizing the total profit.

Question 5

On a recent trip to Starbucks we noticed that the price of coffee per ounce is highest for the short size, slightly lower for the tall, even lower for the grande, and lowest for the venti. Why do they price this way?
A)marginal cost curve is downward sloping
B)the price of the short size captures all the consumer surplus and the others don't
C)average cost curve is downward sloping
D)each size has a different elasticity

Accepted Answer

The answer of On a recent trip to Starbucks we...

Question 6

Firms with monopoly power will price discriminate when ever possible because
A)it makes the price of the last unit sold lower which makes customers happy
B)discrimination increases profits
C)discrimination reduces costs
D)it reduces the dead weight loss and is better for society

Accepted Answer

Price discrimination allows firms with monopoly power to charge different prices for the same good or service, based on the willingness and ability of different consumers to pay. This allows the firm to capture more consumer surplus as additional profit, thereby increasing profits. Option A is not necessarily true, as not all customers will necessarily be happy with price discrimination (those who are charged a higher price may feel disadvantaged). Option C is incorrect, as price discrimination may actually increase costs (e.g. if the firm has to spend more on advertising to target different types of consumers). Option D is incorrect, as while price discrimination may reduce deadweight loss, it is not necessarily better for society as a whole (some consumers may be worse off).

Question 7

In order to maximize revenue from the sale of a fix quantity of output in two markets, a monopolist engaged in ordinary price discrimination would:
A)sell half the goods in each market.
B)make sure it sells all the units of the good.
C)allocate output so that MC is the same in both markets.
D)allocate output so that MR is the same in both markets.

Accepted Answer

In order to maximize revenue, the monopolist must produce at the point where MR=MC. Since the monopolist is engaging in price discrimination, the prices charged in each market will be different, but the marginal revenue earned from each market will still be the same. Therefore, to maximize revenue, the monopolist should allocate output so that MR is the same in both markets. Selling half the goods in each market or making sure to sell all the units of the good does not necessarily lead to revenue maximization, and allocating output so that MC is the same in both markets is not relevant for revenue maximization in the context of price discrimination.

Question 8

Which of the following is true when comparing two part tariffs to ordinary price discrimination?
A)Both price schemes generate the same amount of profit in different ways.
B)Both price schemes generate the same amount of profit in the same way.
C)More profit is generated with two- part tariffs.
D)More profit is generated with ordinary price discrimination.

Accepted Answer

Two-part tariffs typically generate more profit than ordinary price discrimination as they allow the seller to capture some consumer surplus by charging a fixed fee in addition to the per-unit price. This can lead to higher profits for the seller without necessarily increasing prices for all buyers. However, the amount of profit generated by each method can depend on the specific market conditions and demand elasticity.

Question 9

Ordinary price discrimination entails:
A)serving only groups of customers.
B)identifying customers by groups.
C)doing business as usual.
D)serving only ordinary customers.

Accepted Answer

Ordinary price discrimination involves identifying customers by groups and charging different prices to each group based on their willingness to pay. This can be done through various means such as loyalty programs, age-based discounts, and more. The goal is to maximize profits by charging different prices to different groups without alienating any specific group. Therefore, serving only groups of customers or serving only ordinary customers is not a part of ordinary price discrimination.

Question 10

The deadweight loss emerging in the standard monopoly pricing stems from:
A)marginal cost is upward- sloping.
B)the monopolist charges the same price for all units sold.
C)price is lower than the marginal revenue.
D)the fact that monopolists are evil.

Accepted Answer

The monopolist charges the same price for all units sold, which is higher than the marginal cost. This leads to a deadweight loss, as some consumers who would be willing to pay the marginal cost are excluded from the market.

Question 11

Who is more likely to get closer to perfect price discrimination?
A)a convenience store
B)a department store
C)a supermarket
D)an accounting firm

Accepted Answer

An accounting firm is more likely to get closer to perfect price discrimination as they can easily gather information about their clients' willingness to pay and charge different prices accordingly. Convenience stores, department stores, and supermarkets typically offer fixed prices for their products and cannot gather as much information about individual customers' willingness to pay.

Question 12

An all- or- nothing demand curve:
A)tells us the total value of a given quantity.
B)tells us the marginal value of a given quantity.
C)tells us the average value of a given quantity.
D)is the same as an ordinary demand curve.

Accepted Answer

The answer of An all- or- nothing demand curve:
A)tells us...

Question 13

All- or- nothing pricing is a:
A)special instance of multi- part pricing.
B)special instance of perfect competition.
C)situation where all the goods go to one consumer.
D)situation where all the goods go to the producer.

Accepted Answer

All-or-nothing pricing is a pricing strategy where customers must either purchase all units of a product/service at a set price or none at all. This is a special instance of multi-part pricing, which involves setting a price for each unit of a product/service based on different features or attributes. It is not related to perfect competition, nor does it involve all goods going to one party.

Question 14

The most common problem encountered with two- part tariffs is that:
A)pricing at marginal cost prevents the monopolist from breaking even.
B)this pricing scheme is illegal in most jurisdictions.
C)the consumers are heterogenous.
D)the monopolist finds estimating consumer demand too costly.

Accepted Answer

The most common problem with two-part tariffs is that consumers are heterogeneous, meaning they have different levels of demand and willingness to pay. This makes it challenging for monopolists to set a single two-part tariff that maximizes profits across all consumer types.

Question 15

A tie- in sale is a form of:
A)price discrimination.
B)two- part tariff.
C)gauging the consumer.
D)extracting surplus from the customer.

Accepted Answer

A tie-in sale is a strategy used by sellers to extract more consumer surplus by bundling products together, often requiring the purchase of one product to obtain another.

Question 16

In Canada most people know when the Bay and Sears hold their big sales. Why is it that people shop at any other time of the year for durable or semidurable goods if they know they can get it on sale.
A)Canadians know that retailers are just trying to trick them
B)the opportunity cost of shopping during a sale is high
C)people shop when they need things
D)people aren't always utility maximizers

Accepted Answer

The answer of In Canada most people know when the...

Question 17

If a monopolist can charge an all- or- nothing price, then:
A)consumer surplus is a meaningless notion.
B)consumer surplus is captured by consumers.
C)consumer surplus is minimized.
D)consumer surplus is captured by the monopolist.

Accepted Answer

If a monopolist can charge an all-or-nothing price, it means that consumers only have one option - either pay the price or don't consume the good/service. Therefore, the monopolist has complete control over the price and can capture all of the consumer surplus. As a result, consumer surplus is not minimized or captured by consumers, but rather by the monopolist.

Question 18

In order to be able to price- discriminate, firms need:
A)government approval.
B)competitors willing to form a cartel.
C)market power.
D)inventive economists.

Accepted Answer

Market power refers to the ability of firms to control a significant portion of the market and influence prices. With market power, firms can price-discriminate by charging different prices for the same product to different groups of consumers in order to maximize profits. Therefore, firms need market power to engage in price discrimination. Government approval or supportive economists are not necessarily required, while forming a cartel with competitors could limit the ability to price-discriminate.

Question 19

Efforts to price discriminate on the part of a price searcher:
A)are bad because they reduce total surplus.
B)always maximize profits.
C)are welfare increasing because they increase consumer's surplus.
D)are less effective than other forms of pricing.

Accepted Answer

Efforts to price discriminate by a price searcher are aimed at charging different prices to different customers or groups of customers based on their willingness to pay. This enables the price searcher to capture more consumer surplus by charging a higher price to those who are willing to pay more, while still capturing the surplus from those who are willing to pay a lower price. By doing so, the price searcher can increase their total profits, which is the main goal of price discrimination. Therefore, option B is the correct choice. Options A and C are incorrect because they make assertions that are not necessarily true, while option D is incorrect as it suggests that there are more effective pricing strategies than price discrimination, which is not necessarily the case.

Question 20

Perfect price discrimination is usually not attainable because:
A)the government makes it illegal in most countries.
B)nobody is perfect.
C)monopolists find it hard to gather enough information on their customers.
D)managers of monopolies lack imagination.

Accepted Answer

Perfect price discrimination requires detailed information about each customer's willingness to pay, which is difficult for monopolists to obtain comprehensively.

Quiz 14: Price Discrimination Monopoly Practices

If an ordinary price discrimination monopolist charges a higher price in one market than another, it must mean that at the profit- maximising level of output in each market the:

Which of the following can practice price discrimination the easiest?

An ordinary price- discriminating monopolist that faces a downward- sloping demand curve in one market and a horizontal demand curve in another market will:

A firms sells an identical product to two groups of consumers, A and B. The firm has decided that ordinary price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?

On a recent trip to Starbucks we noticed that the price of coffee per ounce is highest for the short size, slightly lower for the tall, even lower for the grande, and lowest for the venti. Why do they price this way?

Firms with monopoly power will price discriminate when ever possible because

In order to maximize revenue from the sale of a fix quantity of output in two markets, a monopolist engaged in ordinary price discrimination would:

Which of the following is true when comparing two part tariffs to ordinary price discrimination?

Ordinary price discrimination entails:

The deadweight loss emerging in the standard monopoly pricing stems from:

Who is more likely to get closer to perfect price discrimination?

An all- or- nothing demand curve:

All- or- nothing pricing is a:

The most common problem encountered with two- part tariffs is that:

A tie- in sale is a form of:

In Canada most people know when the Bay and Sears hold their big sales. Why is it that people shop at any other time of the year for durable or semidurable goods if they know they can get it on sale.

If a monopolist can charge an all- or- nothing price, then:

In order to be able to price- discriminate, firms need:

Efforts to price discriminate on the part of a price searcher:

Perfect price discrimination is usually not attainable because: