Question 1

Which of the following is NOT a principle of price discrimination?
A) It is more profitable to set different prices in markets with different demand curves than a single price that covers all markets.
B) To maximize profit the firm should set a higher price in markets with more elastic demand.
C) To maximize profit the firm should set a higher price in markets with more inelastic demand.
D) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.

Accepted Answer

B

Question 2

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.
A) more inelastic
B) less inelastic
C) more elastic
D) closer to perfectly elastic

Accepted Answer

The higher price in New Zealand suggests that consumers there are less sensitive to price changes, indicating a more inelastic demand curve compared to Brazil.

Question 3

Price discrimination can be defined as:
A) selling different products to the same consumers in the same market.
B) selling the same product in two different markets.
C) selling the same product at two different prices in two different markets.
D) exporting goods to foreign countries.

Accepted Answer

Price discrimination involves selling the same product at different prices in different markets or to different customers. Option C is the best choice that describes this definition. Option A focuses on selling different products, not the same product, so it is incorrect. Option B mentions different markets, but it does not specify selling the same product at different prices, so it is also incorrect. Option D is unrelated to price discrimination, so it is incorrect.

Question 4

Price discrimination is defined as selling:
A) the same products at the same prices to the same customers.
B) different products at the different prices to the same customers.
C) the same product at different prices to different customers.
D) different products at the same prices to different customers.

Accepted Answer

Price discrimination is when the same product is sold at different prices to different customers. This can be done based on various factors such as location, income, age, and other characteristics of the customer.

Question 5

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-through the process of price discrimination, how much profit is the monopolist making in Market B?
A) $260
B) $780
C) $1,040
D) $520

Accepted Answer

The answer of  Reference: Ref 14-1 (Figure: Monopolist) Refer...

Question 6

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?
A) arbitrage
B) perfect price discrimination
C) price gouging
D) marginal-price geography

Accepted Answer

The answer of After a severe hurricane in South Carolina,...

Question 7

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-if the monopolist were to charge a uniform price of $10 in both markets, how much profit would the monopolist lose?
A) $234.75
B) $146.25
C) $48.75
D) $97.50

Accepted Answer

The answer of  Reference: Ref 14-1 (Figure: Monopolist) Refer...

Question 8

(Figure: Market for Lithotripters) Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y. 
A) d; z
B) b; d
C) b; z
D) a; d

Accepted Answer

The German manufacturer should charge a higher price in Country X (b) where demand is more inelastic and a lower price in Country Y (z) where demand is more elastic. This will maximize profits as the firm can charge a higher price where demand is less flexible and a lower price where demand is more responsive to changes in price.

Question 9

A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 Rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of:
A) price manipulation.
B) price exploitation.
C) international price mediation.
D) price discrimination.

Accepted Answer

This is an example of price discrimination, as the price for locals and tourists is different based on their different characteristics (language spoken).

Question 10

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market A?
A) $5
B) $10
C) $7
D) any price higher than $10.

Accepted Answer

The answer of  Reference: Ref 14-1 (Figure: Monopolist) Refer...

Question 11

Figure: Monopolist  Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market B?
A) $9
B) $5
C) $7
D) any price higher than $5.

Accepted Answer

The answer of Figure: Monopolist  Reference: Ref 14-1 (Figure:...

Question 12

The chapter opens with a story about GlaxoSmithKline (GSK) and Combivir, the anti-AIDS drug. What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?
A) It is much cheaper to produce the drug in Africa than in Europe.
B) Government regulations in Europe forced it to charge higher prices.
C) African governments imposed price ceilings.
D) Lower prices were charged for humanitarian reasons.

Accepted Answer

GSK was selling Combivir for lower prices in Africa as a humanitarian initiative, to address the high prevalence of AIDS in Africa and make the medication more accessible to those who needed it.

Question 13

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-through the process of price discrimination, how much profit is the monopolist making in Market A?
A) $270
B) $450
C) $830
D) $627.50

Accepted Answer

The answer of  Reference: Ref 14-1 (Figure: Monopolist) Refer...

Question 14

To maximize profit the monopolist should set a:
A) lower price in markets with less elastic demand.
B) lower price in markets with more inelastic demand.
C) higher price in markets with more elastic demand.
D) higher price in markets with more inelastic demand.

Accepted Answer

In markets with more inelastic demand, consumers are less sensitive to changes in price and therefore the monopolist can charge a higher price without losing many sales. This allows the monopolist to maximize their profits.

Question 15

Price discrimination is used when a seller faces different demand curves in different markets because:
A) no other pricing methods are feasible.
B) the practice eliminated waste.
C) profits are greater than selling at a single price.
D) profits are less than when selling at monopoly prices.

Accepted Answer

Price discrimination allows a seller to charge different prices according to the willingness of different buyers to pay, resulting in higher profits than selling at a single price. This is because the seller can capture more revenue from buyers who are willing to pay a higher price while still selling to those who are only willing to pay a lower price. Therefore, choice C is the correct answer.

Question 16

An important lesson of price discrimination is that:
A) price discrimination will always lead to lower profits in one of the two markets.
B) firms can increase profits by differentiating their product attributes.
C) all firms can perfectly price discriminate.
D) it only increases profits when the demand curves in two different markets are not the same.

Accepted Answer

Price discrimination only leads to increased profits when the demand curves in two different markets are not the same. If the demand curves are the same, selling at different prices in different markets will not increase profits as the firm will simply be shifting sales from one market to another. Therefore, the best choice is D.

Question 17

Which of the following statements is FALSE? I. If the demand curves are different, it is more profitable to set a single price than different prices in markets. II. To maximize profit the firm should set a lower price in markets with more elastic demand. III. The presence of arbitrage makes it easy for a firm to price discriminate.
A) I and II only
B) II only
C) III only
D) I and III only

Accepted Answer

I is false because setting different prices in markets with different demand curves can lead to price discrimination, which can increase profits. 
II is true because a lower price in markets with more elastic demand can lead to a higher quantity sold and therefore higher profits. 
III is false because the presence of arbitrage can make it harder for a firm to price discriminate, as customers can buy the good at the lower price and resell it at a higher price in the other market.

Question 18

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?
A) $5 < PU < $9
B) $5 < PU < $10
C) $9 < PU < $10
D) $7 < PU < $10

Accepted Answer

If the monopolist charges a uniform price PU, they will produce at the output level where MR=MC, which is at point E. Therefore, to determine the price, draw a horizontal line from point E to the demand curves for Market A and Market B. The price will be the point where this line intersects the demand curves, which is in the range of $9 < PU < $10.

Question 19

Arbitrage is ________ in one market and ________ in another market.
A) selling low; buying higher
B) selling high; buying higher
C) buying high; selling lower
D) buying low; selling higher

Accepted Answer

Arbitrage involves buying a security or asset at a lower price in one market and selling it at a higher price in another market to profit from the price difference. Therefore, buying low in one market and selling higher in another market is the correct choice.

Question 20

Reference: Ref 14-2 (Figure: Price Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?
A) $6 < PU < $14
B) $6 < PU < $10
C) $10 < PU < $16
D) $10 < PU < $14

Accepted Answer

The answer of  Reference: Ref 14-2 (Figure: Price Discriminating...

Quiz 14: Price Discrimination and Pricing Strategy

Which of the following is NOT a principle of price discrimination?

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil.

Price discrimination can be defined as:

Price discrimination is defined as selling:

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-through the process of price discrimination, how much profit is the monopolist making in Market B?

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-if the monopolist were to charge a uniform price of $10 in both markets, how much profit would the monopolist lose?

(Figure: Market for Lithotripters) Refer to the figure. Suppose that a German manufacturer can sell its kidney lithotripter in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of in Country X and in Country Y.

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market A?

Figure: Monopolist Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-what price should the monopolist charge in Market B?

The chapter opens with a story about GlaxoSmithKline (GSK) and Combivir, the anti-AIDS drug. What was one of the reasons that GSK was selling Combivir for such low prices in Africa as compared to Europe?

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-through the process of price discrimination, how much profit is the monopolist making in Market A?

To maximize profit the monopolist should set a:

Price discrimination is used when a seller faces different demand curves in different markets because:

An important lesson of price discrimination is that:

Reference: Ref 14-1 (Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets- Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?

Arbitrage is in one market and in another market.

Reference: Ref 14-2 (Figure: Price Discriminating Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets-Market A and Market B-if the monopolist were to charge a uniform price PU between the two markets, that price would fall in what range?