Question 1

All consumers are worse off when firms engage in price discrimination.

Accepted Answer

Price discrimination can result in lower prices for certain consumers, leading to increased access and affordability of goods or services. However, other consumers may end up paying higher prices. Therefore, while some consumers may benefit from price discrimination, others may be worse off.

Question 2

As manager of the only video rental store in town, you have noticed that on Thursday through Sunday the demand for movie rentals is much less elastic than it is on Monday through Wednesday. If you are currently charging $3 for a two -night rental, give an example of a pricing policy that might increase your revenues compared to a single-pricing strategy.

Accepted Answer

The answer of As manager of the only video rental...

Question 3

Why is it important that a firm have market power if it wishes to engage in price discrimination?

Accepted Answer

The answer of Why is it important that a firm...

Question 4

Why is it important that a firm can prevent resale of its product if it wishes to engage in price discrimination?

Accepted Answer

The answer of Why is it important that a firm...

Question 5

Price discrimination can be profitable if consumers can resell the product.

Accepted Answer

Price discrimination is more profitable when the seller can prevent or limit resale between consumers, ensuring that each consumer pays the price closest to their maximum willingness to pay. Resale undermines the ability to charge different prices to different consumers.

Question 6

Movie theaters would make more money if they offered students the same type of discounts on popcorn that they do on admission.

Accepted Answer

Movie theaters typically make a significant portion of their profits from concessions like popcorn, where the markup is very high. Offering discounts on these items would likely reduce their overall profit margins, as the cost of goods sold (e.g., the popcorn, oil, and flavorings) remains constant, while the revenue from each sale decreases.

Question 7

If a firm wants to engage in price discrimination it must have some market power.

Accepted Answer

Price discrimination involves charging different prices to different customer groups, and requires the ability to segment the market based on differences in willingness-to-pay or price elasticity of demand. This can only occur if the firm has some market power, meaning the ability to influence prices and/or quantities. A competitive firm would not be able to engage in effective price discrimination, as it would simply face competition from other firms offering lower prices to the same customers.

Question 8

Bars often offer specials on appetizers during ʺhappy hour.ʺ What does the concept of price discrimination suggest about why this might be profit-maximizing behavior?

Accepted Answer

The answer of Bars often offer specials on appetizers during...

Question 9

Why is it important that a firm have different groups of consumers with different demand elasticities if it wishes to engage in price discrimination?

Accepted Answer

The answer of Why is it important that a firm...

Question 10

The difference in price between hardback books and paperbacks is primarily explained by differences in production costs.

Accepted Answer

The answer of The difference in price between hardback books...

Question 11

When a hair stylist charges men less than women for a haircut because menʹs hair take less time to cut, the hairstylist is price discriminating.

Accepted Answer

The answer of When a hair stylist charges men less...

Question 12

Firms who engage in price discrimination usually make the same amount of money as they would if they charged one price.

Accepted Answer

Firms who engage in price discrimination typically charge different prices to different customers based on their willingness to pay. By doing so, they can capture more consumer surplus and increase their revenue. Therefore, they are likely to make more money than if they charged the same price to everyone.

Question 13

If you purchased a new model of a digital camera right after it is released you will likely pay more than if you purchase it six months after release. Why is this an example of price discrimination on the part of the firm?

Accepted Answer

The answer of If you purchased a new model of...

Question 14

You own a local sub shop in a college town. You primarily serve two groups of people: local residents both students and other local residents)and visitors to your town. Devise a price discrimination strategy that will increase your revenues compared to a single-pricing strategy.

Accepted Answer

The answer of You own a local sub shop in...

Question 15

The reason that movie videotapes cost more money immediately after they are released than they do six months later is due to price discrimination.

Accepted Answer

Price discrimination is the practice of charging different prices to different customers for the same product or service. In the case of movie videotapes, the higher initial price is aimed at consumers who are willing to pay more for early access to the movie, while the lower price after a few months targets consumers who are more price-sensitive and may be willing to wait for a cheaper option.

Question 16

If airlines give passengers under the age of 10 a 25% discount, then this is an example of price discrimination.

Accepted Answer

Price discrimination is the practice of charging different prices to different customers for the same product or service. In this case, the airline is charging a lower price to passengers under 10 years old, which is an example of age-based price discrimination.

Question 17

When a firm engages in price discrimination it sets marginal revenue equal to marginal cost for each separate set of consumers.

Accepted Answer

Price discrimination involves charging different prices to different groups of consumers for the same product, based on their willingness to pay. To maximize profit from each group, a firm sets marginal revenue equal to marginal cost for each separate set of consumers, allowing it to capture more consumer surplus.

Question 18

If a fast food restaurant gives senior citizens a 10% discount on food every day, that is an example of price discrimination. If they only give the discount on Tuesdays it is not price discrimination.

Accepted Answer

Both scenarios are examples of price discrimination, as the restaurant charges different prices to different groups (senior citizens) based on their age, regardless of the day the discount is offered.

Question 19

When an electronics company advertises on the local newspaper a 10% discount coupon , is this an example of price discrimination? Why or why not?

Accepted Answer

The answer of When an electronics company advertises on the...

Question 20

Suppose that you own a golf course that is part of a Florida resort. You primarily serve two groups of people: local residents and tourists. Devise a price discrimination strategy that will increase your revenues compared to a single-pricing strategy.

Accepted Answer

The answer of Suppose that you own a golf course...

Quiz 7: Monopoly and Price Discrimination

All consumers are worse off when firms engage in price discrimination.

Why is it important that a firm have market power if it wishes to engage in price discrimination?

Why is it important that a firm can prevent resale of its product if it wishes to engage in price discrimination?

Price discrimination can be profitable if consumers can resell the product.

Movie theaters would make more money if they offered students the same type of discounts on popcorn that they do on admission.

If a firm wants to engage in price discrimination it must have some market power.

Bars often offer specials on appetizers during ʺhappy hour.ʺ What does the concept of price discrimination suggest about why this might be profit-maximizing behavior?

Why is it important that a firm have different groups of consumers with different demand elasticities if it wishes to engage in price discrimination?

The difference in price between hardback books and paperbacks is primarily explained by differences in production costs.

When a hair stylist charges men less than women for a haircut because menʹs hair take less time to cut, the hairstylist is price discriminating.

Firms who engage in price discrimination usually make the same amount of money as they would if they charged one price.

If you purchased a new model of a digital camera right after it is released you will likely pay more than if you purchase it six months after release. Why is this an example of price discrimination on the part of the firm?

You own a local sub shop in a college town. You primarily serve two groups of people: local residents both students and other local residents)and visitors to your town. Devise a price discrimination strategy that will increase your revenues compared to a single-pricing strategy.

The reason that movie videotapes cost more money immediately after they are released than they do six months later is due to price discrimination.

If airlines give passengers under the age of 10 a 25% discount, then this is an example of price discrimination.

When a firm engages in price discrimination it sets marginal revenue equal to marginal cost for each separate set of consumers.

If a fast food restaurant gives senior citizens a 10% discount on food every day, that is an example of price discrimination. If they only give the discount on Tuesdays it is not price discrimination.

When an electronics company advertises on the local newspaper a 10% discount coupon , is this an example of price discrimination? Why or why not?

Suppose that you own a golf course that is part of a Florida resort. You primarily serve two groups of people: local residents and tourists. Devise a price discrimination strategy that will increase your revenues compared to a single-pricing strategy.