Question 1

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 refers to selling the same product to different consumers at different prices. The prices may vary based on factors such as the consumer's willingness to pay, the quantity of the product purchased, the time of purchase, the location of purchase, or demographic factors such as age or income. This practice allows the seller to capture more value from consumers who are willing and able to pay a higher price, while still making a profit from consumers who are only willing to pay a lower price.

Question 2

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

Price discrimination can lead to deadweight loss because it results in different prices for different consumers, which can prevent some consumers from purchasing the good even though they value it more than the marginal cost of production.

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

The answer of Suppose the government wants to encourage a...

Question 4

The table below gives the total costs for a typical firm in a competitive industry.

Accepted Answer

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

Question 5

Suppose you have the following information for a monopoly.

Accepted Answer

The answer of Suppose you have the following information for...

Question 6

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 can decrease deadweight loss compared to the practice of charging a constant price for all output in a monopoly because they can incentivize consumers to purchase more units at a lower price. This increases overall output and can reduce the gap between the monopoly price and the competitive price, which in turn reduces deadweight loss.

Question 7

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...

Question 8

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 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 not the same across different markets. In fact, price discrimination is often used as a way to maximize profits by charging higher prices to customers with lower price elasticity of demand and lower prices to customers with higher price elasticity of demand.

Question 10

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 11

When the government requires that a firm procure a license to operate a business, one can rest assured that such a regulation is always intended to protect consumers.

Accepted Answer

While some regulations and licensing requirements may be intended to protect consumers, others may be meant to restrict competition or to generate revenue for the government.

Question 12

The following table gives data for a monopolist. Fill in the missing data.

Accepted Answer

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

Question 13

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 14

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

The answer of Explain why participants in an industry would...

Question 15

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 16

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

Accepted Answer

A contestable market is actually a market in which there is a potential threat of competition for existing firms, even if there are currently no actual competitors present. This potential competition acts as a constraint on the behavior of existing firms as they must always be prepared to defend their market position if a new entrant were to appear.

Question 17

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 requires a firm to have market power, which means the ability to set prices above the competitive level without losing all its customers. Without market power, the firm cannot charge different prices to different customers. The other choices are not relevant to price discrimination.

Question 18

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

Price discrimination with a quantity discount occurs when a seller charges a lower price per unit for larger quantities purchased. D) lower long-distance charges the more you use the service is an example of this, as customers who use more of the service pay less per unit of usage.

Question 19

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 20

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.

Quiz 10: Monopoly

Price discrimination is the practice of

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