Question 1

When a firm price-discriminates among consumers with different price elasticities of demand,it
A)has the same price-cost margin in each market.
B)sets up an auction to determine who will pay the most.
C)maximizes profit in one market while taking losses in another.
D)equates price and marginal cost in each market.
E)creates a deadweight loss in each market.

Accepted Answer

The answer of When a firm price-discriminates among consumers with...

Question 2

The following table gives data for a monopolist.Fill in the missing data.   (A)At what quantity should the monopolist produce in order to maximize profits? What will be the price at this level of output? What will be the profits?
(B)What quantity maximizes total revenue? What is the elasticity of demand at that point? Why is this not the profit-maximizing quantity?

Accepted Answer

The answer of The following table gives data for a...

Question 3

Suppose the government wants to encourage a monopolist to produce more by paying a subsidy (a negative tax)for each unit produced.Draw a diagram to explain this situation.How do price and quantity change? Show what happens to deadweight loss.

Accepted Answer

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Question 4

What do you think about the merits and demerits of the patent law that protects newly-developed products in medical research?

Accepted Answer

The answer of What do you think about the merits...

Question 5

Explain why participants in an industry would want the government to require licenses for them to operate,even if the licenses are costly to obtain.

Accepted Answer

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Question 6

Which of the following is not an example of price discrimination?
A)Charging more to send a large package than a small package
B)Airlines charging different amounts based on how early reservations are made
C)Letting children eat free when accompanied by an adult in a nice restaurant
D)Taverns charging cover charges only to men
E)Magazine publishers charging less for student subscriptions than general subscriptions

Accepted Answer

Charging more to send a large package than a small package is not an example of price discrimination; it reflects cost-based pricing, where the price difference is due to the cost of delivering packages of different sizes, not discriminating between different types of consumers based on their willingness to pay or other criteria.

Question 7

Suppose you have the following information for a monopoly.  (A)Given the data in the table,graphically show the monopoly's profit maximization position.
(B)What output and what price do you predict the monopoly will choose?
(C)Does the monopoly produce at the socially optimal level? Show any inefficiency on your graph.
(D)To improve market efficiency,the government is considering subsidizing the monopoly's production.How much should the subsidy be and how can this subsidy improve market efficiency?

Accepted Answer

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Question 8

Price discrimination is the practice of
A)selling the same product to different consumers at the same price.
B)selling the same product to different consumers at different prices.
C)selling different products to consumers at different prices.
D)selling a product at a price that no one can afford.
E)selling a product at a price that is below its average total cost.

Accepted Answer

Price discrimination is the practice of selling the same product to different consumers at different prices. This can be based on various factors such as age, income, location, etc. The goal is to maximize profits by charging a higher price to those who are willing to pay more and a lower price to those who are not. This can lead to an increase in overall consumer surplus as more consumers are able to purchase the product at a lower price.

Question 9

Price discrimination can occur only if the elasticities of demand are the same across different markets.

Accepted Answer

Price discrimination can occur even if the elasticities of demand are different across different markets. However, it may be more difficult to implement effective price discrimination if the elasticities are very different.

Question 10

A contestable market is a market in which there is no threat of competition for existing firms.

Accepted Answer

A contestable market is a market in which there is a threat of potential competition for existing firms, even if there are currently no actual competitors.

Question 11

An example of price discrimination with a quantity discount is
A)Wal-Mart selling for less by moving a large volume of merchandise.
B)charging commercial telephone users higher fees.
C)sightseeing tours.
D)lower long-distance charges the more you use the service.
E)one person buying 100 units of a good and being charged less total shipping than 100 people buying one unit each.

Accepted Answer

Lower long-distance charges the more you use the service is an example of price discrimination with a quantity discount. This is because the price per minute of a long-distance call decreases as the customer uses more minutes, providing a discount for larger quantities of usage.

Question 12

Quantity discounts have the potential to ____ deadweight loss compared to the practice of charging a constant price for all output in a monopoly.
A)increase
B)eliminate
C)decrease
D)not change
E)increase and then decrease

Accepted Answer

Quantity discounts allow the monopoly to charge different prices to different consumers based on their willingness to pay, which can lead to a decrease in deadweight loss compared to a constant price. This is because some consumers who may not be willing to purchase at the monopoly's constant price may be willing to purchase at a discounted price, leading to a potential increase in overall output and consumer surplus.

Question 13

Why might a water supply company be a monopoly? What about a cell phone company? Despite the similarities,why is only water supply provided by local governments?

Accepted Answer

The answer of Why might a water supply company be...

Question 14

A firm that can divide its consumers into two classes with different price elasticities of demand will charge a higher price to the group with the higher elasticity of demand.

Accepted Answer

A firm will charge a higher price to the group with lower price elasticity of demand because they are less sensitive to price changes and more likely to continue purchasing the product despite the price increase.

Question 15

Price discrimination occurs when a seller charges different prices for its product with different production costs.

Accepted Answer

Price discrimination occurs when a seller charges different prices for the same product to different customers, not based on differences in production costs.

Question 16

Government licensing policies can eliminate monopolies.

Accepted Answer

Government licensing policies can actually create or reinforce monopolies by limiting entry into certain industries, thereby reducing competition.

Question 17

The table below gives the total costs for a typical firm in a competitive industry.  
(A)Suppose the price per unit of output is $11.What is the profit-maximizing level of production?
(B)Suppose a firm is able to monopolize this industry.Sketch a diagram showing what will happen to the total amount of consumer and producer surplus.
(C)Calculate the deadweight loss of the monopolist.

Accepted Answer

The answer of The table below gives the total costs...

Question 18

A firm can exercise price discrimination only when it
A)has market power over a product.
B)has a lot of competitors.
C)produces homogenous products.
D)has no fixed costs.
E)has very few buyers.

Accepted Answer

Price discrimination involves charging different prices for the same product to different customers. This is only possible when a firm has some degree of market power, meaning it can influence the price of the product and control supply. If the market is highly competitive, the firm may not have this power and will be unable to exercise price discrimination. Additionally, if the product is heterogenous or differentiated, it may be difficult to segment customers based on their willingness to pay, making price discrimination unlikely. Therefore, the best choice is A: a firm can exercise price discrimination only when it has market power over a product.

Question 19

Which of the following statements concerning price discrimination among consumers with different price elasticities is true?
A)Consumers are charged different prices because costs vary among consumers.
B)A firm cannot price-discriminate unless it can identify different consumer types.
C)It is possible for a competitive firm to price-discriminate.
D)Price discrimination occurs when some ethnic groups can get service and others cannot.
E)A firm can price-discriminate only if it has market power.

Accepted Answer

Price discrimination requires a firm to be able to identify different consumer types and charge them different prices based on their differing price elasticities. Choices A and D do not accurately describe price discrimination, and while choice C is possible, price discrimination is more commonly associated with monopolies or firms with market power (as stated in choice E).

Question 20

Explain why price discrimination will not work if consumers can resell the product.

Accepted Answer

The answer of Explain why price discrimination will not work...

Quiz 10: Monopoly

When a firm price-discriminates among consumers with different price elasticities of demand,it

Suppose the government wants to encourage a monopolist to produce more by paying a subsidy (a negative tax)for each unit produced.Draw a diagram to explain this situation.How do price and quantity change? Show what happens to deadweight loss.

What do you think about the merits and demerits of the patent law that protects newly-developed products in medical research?

Explain why participants in an industry would want the government to require licenses for them to operate,even if the licenses are costly to obtain.

Which of the following is not an example of price discrimination?

Price discrimination is the practice of

Price discrimination can occur only if the elasticities of demand are the same across different markets.

A contestable market is a market in which there is no threat of competition for existing firms.

An example of price discrimination with a quantity discount is

Quantity discounts have the potential to ____ deadweight loss compared to the practice of charging a constant price for all output in a monopoly.

Why might a water supply company be a monopoly? What about a cell phone company? Despite the similarities,why is only water supply provided by local governments?

A firm that can divide its consumers into two classes with different price elasticities of demand will charge a higher price to the group with the higher elasticity of demand.

Price discrimination occurs when a seller charges different prices for its product with different production costs.

Government licensing policies can eliminate monopolies.

A firm can exercise price discrimination only when it

Which of the following statements concerning price discrimination among consumers with different price elasticities is true?

Explain why price discrimination will not work if consumers can resell the product.