Question 1

Which of the following conditions must be TRUE so that a firm can profitably price discriminate?
A)The firm must have market power.
B)The firm must be able to identify how its consumers' demand curves differ.
C)The firm must be able to limit or prevent resale.
D)All of the above.

Accepted Answer

All three conditions must be true for a firm to profitably price discriminate. Without market power, the firm would not have the ability to charge different prices to different customer segments. Without identifying how its consumers' demand curves differ, the firm would not know how to set prices for each segment. And without limiting or preventing resale, customers could purchase the low-priced product and resell it to those who would have paid a higher price, thus eliminating the potential profit from price discrimination.

Question 2

If resale is easy, then
A)price discrimination won't work, because then only low-priced goods are sold.
B)consumers' demand curves will shift to the low-priced good.
C)firms will stop providing the good.
D)price discrimination results in lower consumer surplus.

Accepted Answer

When resale is easy, consumers can buy goods at the lower price and sell them to others, undermining the ability of firms to segment the market and charge different prices to different consumers. This makes price discrimination less effective because the firm cannot maintain different prices for different consumers if those consumers can simply buy the product at the lower price and resell it.

Question 3

Price discrimination
A)is a type of nonuniform pricing.
B)is a way to legally charge a higher price to people you don't like.
C)forces producers to make a tradeoff between charging low prices or high prices.
D)works because consumers are ignorant about the practice.

Accepted Answer

Price discrimination is defined as the act of charging different prices to different consumers for the same product or service. This is a type of nonuniform pricing as not all consumers are charged the same price. Price discrimination is not about disliking certain consumers or taking advantage of their ignorance, but rather about maximizing profits by charging different prices to different consumers based on their willingness to pay. Therefore, option B and D are incorrect. Option C is also not completely accurate as producers may use price discrimination strategies to capture the maximum consumer surplus while still maintaining a profit.

Question 4

Which of the following is likely hardest to resell?
A)An Apple iPod
B)A discount airline ticket you bought with your frequent flyer miles
C)A used car
D)The free spa treatment you won at a raffle

Accepted Answer

Discount airline tickets, especially those bought with frequent flyer miles, often have strict transfer and resale restrictions, making them hard to resell compared to tangible items or services that don't have legal or policy restrictions on transferability.

Question 5

When firms price discriminate, they
A)sell to new consumers who would not have bought at the profit-maximizing uniform price but lose sales to existing consumers because of the higher prices.
B)sell to new consumers that would not have bought at the profit-maximizing uniform price.
C)lose surplus from consumers who would have bought at the profit-maximizing uniform price.
D)None of the above.

Accepted Answer

Price discrimination allows firms to sell to new consumers who would not have bought at the profit-maximizing uniform price by offering different prices to different consumers based on their willingness to pay, without necessarily losing sales to existing consumers.

Question 6

Firms price discriminate to maximize total revenue.

Accepted Answer

Firms price discriminate to increases profit.

Question 7

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

Accepted Answer

Firms engage in price discrimination to increase profits by charging different prices to different groups of consumers based on their willingness to pay. By doing so, firms can capture more of the total consumer surplus available in the market. Price discrimination can also help a firm target different market segments with different prices, which can increase sales and profits overall. Firms engage in price discrimination to increase profits. This is done by charging different prices to different groups of consumers based on their willingness to pay. By doing so, the firm can capture more of the consumer surplus and increase overall revenue.

Question 8

Without price discrimination, a firm
A)faces a tradeoff when pricing a good that has customers with different willingness to pay.
B)cannot maximize profit.
C)has no market power.
D)does not get any producer surplus, with all of the surplus going to consumers.

Accepted Answer

Without price discrimination, a firm faces a tradeoff when pricing a good that has customers with different willingness to pay. If the firm charges a high price to capture more profits from customers with a higher willingness to pay, it may lose sales from customers with a lower willingness to pay. If the firm charges a low price to attract more sales from customers with a lower willingness to pay, it may forgo profit from customers with a higher willingness to pay. Price discrimination allows the firm to capture more profit from each customer segment by charging a different price based on willingness to pay.

Question 9

Which of the following conditions must be TRUE so that a firm can profitably 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.

Accepted Answer

Price discrimination is more effective when the good cannot be easily resold, as this prevents arbitrage between different price points set by the firm.

Question 10

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.

Accepted Answer

The answer of Charging a higher price for a motel...

Question 11

Disneyland price discriminates because
A)everyone loves going to The Happiest Place on Earth, so they'll pay whatever Disneyland wants to charge.
B)children are cheaper to service, so Disneyland can charge lower prices for a children's ticket.
C)only a certain number of people can get into Disneyland at any given time, limiting supply, and the market demand curve is nearly completely inelastic.
D)local residents likely wouldn't go to the park at prices Disneyland can charge for tourists, which would reduce Disneyland's profits.

Accepted Answer

Disneyland price discriminates by offering different prices to different groups (like local residents and tourists) to maximize profits. Local residents might not visit if prices are too high, so offering them lower prices can increase overall attendance and profits, without significantly affecting the higher prices tourists are willing to pay.

Question 12

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.

Accepted Answer

To successfully price discriminate according to residency, the golf course must be able to verify who is a local resident and who is not. Checking identification cards is a method to ensure that only local residents receive the lower fee, making it a necessary condition for this type of price discrimination.

Question 13

When firms price discriminate, they turn ________ into ________.
A)producer surplus; revenue
B)consumer surplus; profit
C)revenue; producer surplus
D)producer surplus; consumer surplus

Accepted Answer

Price discrimination allows firms to capture more of the consumer surplus, turning it into additional profit by charging different prices to different consumers or groups of consumers.

Question 14

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.

Accepted Answer

A flat demand curve indicates that all customers are willing to pay the same price for a good or service. Therefore, the firm cannot engage in price discrimination, which involves charging different prices to different customers based on their willingness to pay.

Question 15

Which of the following conditions must be TRUE so that a firm can profitably price discriminate?
A)The firm must be able to identify individual or groups of consumers with different demand curves.
B)The firm must be able to identify how its consumers' demand curves differ.
C)The good cannot be easily resold.
D)All of the above.

Accepted Answer

In order for a firm to profitably price discriminate, all three conditions mentioned in options A, B, and C must be true. The firm must be able to identify individual or groups of consumers with different demand curves, so that it can charge a higher price to those with a relatively inelastic demand and a lower price to those with a relatively elastic demand. Additionally, the firm must be able to identify how its consumers' demand curves differ, so that it can tailor prices accordingly. Finally, the good or service being sold cannot be easily resold, as this would allow consumers who are willing to pay a higher price to simply resell to others who are not willing to pay the higher price.

Question 16

All firms can increase profits using price discrimination.
A)True, because market demand curves are downward sloping
B)True, because firms can sell different versions of a product that is just right for an individual consumer
C)False, because consumers aren't forced to buy a firm's products
D)False, because some firms are in competitive markets

Accepted Answer

Price discrimination is not possible in competitive markets where firms are price takers and cannot influence prices.

Question 17

Resale is difficult when
A)the good is light-weight.
B)the good is expensive.
C)transaction costs are high.
D)transaction costs are negligible.

Accepted Answer

Resale becomes difficult when the transaction costs are high. This means that the costs incurred in finding a buyer, negotiating the price, and transferring ownership are prohibitive, leaving little incentive for the seller to resell the good. Factors that contribute to high transaction costs include information asymmetry, such as lack of knowledge about the quality or condition of the good, and regulatory barriers, such as taxes or restrictions on cross-border trade. Thus, even if the good is lightweight or inexpensive, resale may be difficult if the transaction costs are high.

Question 18

Price discrimination
A)is illegal in the U.S.
B)is a form of pricing where consumers pay different prices for a good.
C)allows firms to set a single intermediate price between consumers' low and high willingness to pay.
D)is when consumers use prices to discriminate between different quality products.

Accepted Answer

Price discrimination is the practice of charging consumers different prices for the same good or service. This is often based on differences in consumers' willingness to pay, with some customers being charged a higher price than others. This is a common practice among businesses and is not illegal in the U.S. as long as it does not violate antitrust laws. Option A is incorrect as price discrimination is legal in the U.S. under certain conditions. Option C is incorrect as price discrimination involves charging different prices to different consumers, not setting an intermediate price. Option D is incorrect as consumers do not use prices to discriminate between different quality products - this is the role of the seller.

Question 19

Why might luxury-goods retailers limit purchases on a good by consumers "due to popular demand"?
A)Because they are worried about running out of supply, leaving some of their customers unhappy that they can't buy the good.
B)Because they are trying to use scarcity as a way to improve the brand image of the good.
C)Because they are limiting the possibility of arbitrage, where consumers buy in a low price area and resell in a higher price area.
D)Because they are worried that they'll run out of the good during the all-important holiday season.

Accepted Answer

The answer of Why might luxury-goods retailers limit purchases on...

Question 20

When firms price discriminate, they
A)get additional surplus from consumers who would have bought at the profit-maximizing uniform price but lose sales because of the higher prices.
B)maintain surplus from existing consumers but pick up additional consumers that would not have bought at the profit-maximizing uniform price.
C)get additional surplus from consumers who would have bought at the profit-maximizing uniform price.
D)None of the above.

Accepted Answer

When firms price discriminate, they charge different prices for the same product to different groups of consumers based on their willingness to pay. As a result, they can get additional surplus from consumers who would have bought at the profit-maximizing uniform price but are willing to pay a higher price. In other words, price discrimination allows the firm to extract more consumer surplus than they could at a uniform price, leading to higher profits for the firm. Therefore, Choice C is the correct answer.

Quiz 10: Pricing With Market Power

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

If resale is easy, then

Price discrimination

Which of the following is likely hardest to resell?

When firms price discriminate, they

Firms price discriminate to maximize total revenue.

Why do firms engage in price discrimination?

Without price discrimination, a firm

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

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

Disneyland price discriminates because

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

When firms price discriminate, they turn into .

If a firm faces a flat demand curve,

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

All firms can increase profits using price discrimination.

Resale is difficult when

Price discrimination

Why might luxury-goods retailers limit purchases on a good by consumers "due to popular demand"?

When firms price discriminate, they