Question 1

A movie theater faces the following hourly inverse demand curves: Seniors: P_s = 12 - 0.5Q Adults: P_a = 19 - Q The marginal cost is constant at $1. If the movie theater uses segmenting, the ticket price charged to adults is $____. A) 10 B) 9 C) 8.50 D) 6.50

Accepted Answer

The correct answer is A.The profit-maximizing quantity for seniors is Qs = 10, and the profit-maximizing price for seniors is Ps = 7. The profit-maximizing quantity for adults is Qa = 9, and the profit-maximizing price for adults is Pa = 10.

Question 2

Suppose a firm faces the demand function q = 800 - 4P. The firm's total production costs are given by MC(q) = 9.5q + q². If the firm cannot price discriminate, its profit-maximizing output is ____. A) 20 B) 19.5 C) 12.75 D) 10

Accepted Answer

The answer of Suppose a firm faces the demand function...

Question 3

A utility company faces demand given by q = 40 - 0.1p, where p is the price per unit.
If the company charges only one price, the output that maximizes revenue is ____.
A) 20
B) 17
C) 12
D) 10

Accepted Answer

To maximize revenue, set marginal revenue (MR) equal to zero. Revenue R = pq = p(40 - 0.1p). Differentiate R with respect to p, set dR/dp = 0, solve for p, and substitute back into the demand equation to find q. The calculation shows q = 20.

Question 4

Hersheypark in Pennsylvania mentions the following offer on its Web page: "A military discount is available at Hersheypark during the regular summer operating schedule off of the Regular, Junior and Senior One Day admission. This discount is available to active duty military, reserves, retired military personnel, and members of the National Guard." This is _____ price discrimination.
A) first-degree
B) second-degree
C) segmenting or third-degree
D) perfect

Accepted Answer

This is an example of segmenting or third-degree price discrimination because the discount is offered based on the customer's status (in this case, their military status), dividing the market into different segments.

Question 5

A firm with market power faces the demand function q = 1,000 - 100P. The firm's marginal cost function is MC(q) = 2 + 0.08q. If the firm establishes a block-pricing structure to maximize producer surplus, the optimal price for the lower priced block is $____.
A) 3.92
B) 3.79
C) 3.83
D) 3.61

Accepted Answer

The answer of A firm with market power faces the...

Question 6

A utility company faces demand given by q = 40 - 0.1p, where p is the price per unit.
If the company charges only one price, the price per unit that maximizes revenue is $____.
A) 200
B) 170
C) 120
D) 100

Accepted Answer

The answer of A utility company faces demand given by...

Question 7

Suppose a firm faces the inverse demand curve P = 100 - Q. Marginal cost is constant at $10.
Suppose the firm uses block pricing, selling the first 45 units at $55 per unit, the next 20 units at $35 per unit, and the next 20 units at $15 per unit. The producer surplus in this case is $____.
A) 2,000
B) 2,025
C) 2,465
D) 2,625

Accepted Answer

The answer of Suppose a firm faces the inverse demand...

Question 8

(Table: MLB.TV Subscription I) The table shows each consumer's maximum willingness to pay for a monthly subscription to MLB.TV (Major League Baseball Television).  Each consumer is interested in purchasing a single subscription per month. The marginal cost of a subscription is $10. If MLB.TV can practice first-degree price discrimination, how much producer surplus will it earn from these consumers?
A) $97
B) $40
C) $57
D) $107

Accepted Answer

The answer of (Table: MLB.TV Subscription I) The table shows...

Question 9

(Table: Maximum Willingness to Pay I) Assume that the marginal cost of coffee is $0.50 and the marginal cost of cake is $0.50. Which pricing scheme leads to the highest producer surplus? 
A) $3.25 for coffee and cake
B) $1.50 for cake and $2.00 for coffee
C) $3.75 for both coffee and cake or $2.50 for cake and $2.50 for coffee
D) $5.00 for both coffee and cake or $2.75 for cake and $2.75 for coffee

Accepted Answer

The answer of (Table: Maximum Willingness to Pay I) Assume...

Question 10

(Figure: Pharmaceutical Pills Sales I) A pharmaceutical company sells its pills in foreign and domestic markets.  
Suppose the company must charge the same price in each market. The profit-maximizing quantity is ____.
A) 7
B) 5
C) 4
D) 3

Accepted Answer

The answer of (Figure: Pharmaceutical Pills Sales I) A pharmaceutical...

Question 11

(Table: Consumer Valuations for Television Networks I) The table shows consumer valuations (maximum willingness to pay per month) for two cable television networks. In which of the scenarios would a cable television company have an increase in producer surplus from using a bundling strategy as opposed to selling channel access separately? 
A) Scenario A
B) Scenario B
C) Scenario C
D) Scenario D

Accepted Answer

The answer of (Table: Consumer Valuations for Television Networks I)...

Question 12

A firm with market power faces the demand function q = 1,000 - 100P. The firm's marginal cost function is MC(q) = 2 + 0.08q. If the firm behaves as a single-price monopoly, the optimal price to charge is $____.
A) 9.2
B) 8.3
C) 7.4
D) 6.5

Accepted Answer

To find the optimal price for a monopoly, we first need to find the marginal revenue (MR) and set it equal to the marginal cost (MC). The demand function is q = 1,000 - 100P, which can be rearranged to P = 10 - 0.01q. To find MR, we take the derivative of the total revenue (TR = P*q), which is the same as taking the derivative of (10q - 0.01q^2) with respect to q, giving MR = 10 - 0.02q. Setting MR equal to MC, we get 10 - 0.02q = 2 + 0.08q. Solving for q gives q = 80. Substituting q back into the demand equation to find P, we get P = 10 - 0.01(80) = 9.2.

Question 13

(Figure: Consumer Surplus II) Suppose that a firm offers customers either (1) the ability to buy any quantity they desire for $24 per unit or (2) a price of $18 per unit for 15 or more units. Consumer surplus under the quantity discount is _____ than under the $24-per-unit pricing scheme, so the plan to charge these types of consumers a price of $24 per unit is _____ compatible. 
A) $64 more; incentive
B) $32 less; not incentive
C) $53 less; incentive
D) $41 more; not incentive

Accepted Answer

The answer of (Figure: Consumer Surplus II) Suppose that a...

Question 14

A movie theater faces the following hourly inverse demand curves: Seniors: P_s = 12 - 0.5Q Adults: P_a = 19 - Q The marginal cost is constant at $1. If the movie theater must charge everyone the same price, the profit maximizing ticket price is $____. A) 10 B) 8.50 C) 7.67 D) 6.50

Accepted Answer

7.67To find the profit-maximizing ticket price when the movie theater must charge everyone the same price, we first need to find the combined inverse demand curve. This involves adding the quantities demanded by seniors and adults at any given price.Given the inverse demand curves:Seniors: P = 12 - 0.5QsAdults: P = 19 - QaLet Q = Qs + Qa be the total quantity demanded.To find the combined demand, we set the prices equal to each other and solve for Q in terms of P:P = 12 - 0.5Qs = 19 - QaHowever, since we need to charge everyone the same price, we need to find a way to combine these demands directly. A common approach is to express each demand in terms of Q and then add them together, but since we're looking for a single price, we need to consider the market as a whole.The marginal cost (MC) is given as $1. The profit-maximizing condition for a monopolist (or a single-price seller) is to set marginal revenue (MR) equal to marginal cost (MC). However, without the explicit combined demand function, we can't directly calculate MR.Given the constraints of this problem (and the lack of explicit instructions for combining the demands), we proceed by understanding that the optimal price must be somewhere between the intercepts of the individual demand curves on the price axis (12 for seniors and 19 for adults) and above the marginal cost of $1.The correct answer, therefore, involves a calculation mistake in the explanation process. The optimal price typically would be found by setting MR = MC and solving for P, but without combining the demand curves explicitly, we cannot do this directly. The answer provided here, $7.67, suggests a calculation that considers the overall willingness to pay and the marginal cost, aiming to maximize profit by finding a price point where the added quantity demanded by lowering the price just offsets the lower price per ticket. However, without the explicit steps to combine the demand curves and calculate MR, this answer acknowledges the oversight and focuses on the principle that the optimal price must balance between attracting enough customers and maintaining a high enough price per ticket to maximize profit over the marginal cost.

Question 15

Assume a monopolist can prevent resale of its product and it has complete information about each one of its customers. Even though each customer has a different demand curve, the seller can identify each customer's demand curve before a purchase takes place. It faces the inverse market demand of P = 160 - 10Q with marginal cost of MC = 10 + 5Q. The producer surplus at the profit-maximizing result is $____.
A) 500
B) 400
C) 200
D) 0

Accepted Answer

Producer surplus in a monopolistic market is the area above the marginal cost curve and below the price, up to the quantity sold. Given the monopolist can perfectly price discriminate (charge each customer exactly their willingness to pay), it captures all consumer surplus as producer surplus. The total revenue for the monopolist is the area under the demand curve up to the quantity sold, and the total cost is the area under the MC curve. To find the profit-maximizing quantity, set MR = MC. Since the monopolist can perfectly price discriminate, it doesn't have a single MR curve but rather captures the entire area under the demand curve. The total cost is the integral of MC from 0 to Q, and the total revenue is the integral of the demand curve from 0 to Q. The profit (producer surplus in this case) is the total revenue minus total cost. Without explicit calculation of the integrals and the profit-maximizing quantity, the correct answer is determined by understanding the concept of perfect price discrimination leading to the monopolist capturing all possible surplus.

Question 16

(Figure: Pharmaceutical Pills Sales I) A pharmaceutical company sells its pills in foreign and domestic markets.  
Suppose the company uses segmenting. The profit-maximizing price in the Foreign Market is $____.
A) 12
B) 8.67
C) 7.67
D) 7.00

Accepted Answer

The answer of (Figure: Pharmaceutical Pills Sales I) A pharmaceutical...

Question 17

A firm with market power faces the demand function q = 1,000 - P. The firm's total cost function is TC(q) = 5q + q² + 500. If the firm behaves as a single-price monopoly, the firm's optimal output level is ____. A) 751.25 B) 510.45 C) 326.75 D) 248.75

Accepted Answer

To find the optimal output level for a monopoly, set marginal revenue (MR) equal to marginal cost (MC). The inverse demand function is P = 1000 - q, so TR = P*q = 1000q - q^2. MR is the derivative of TR, MR = 1000 - 2q. The MC is the derivative of TC, MC = 5 + 2q. Setting MR = MC: 1000 - 2q = 5 + 2q, solving gives q = 248.75.

Question 18

(Figure: Producer Surplus for Golf Instructor I) If the golf instructor set a single price to maximize profit, she would earn producer surplus of _____. If she set a price of $120 an hour for the first four hours of instruction and $80 an hour for each hour of instruction beyond four hours, she would earn producer surplus of _____. 
A) $480; $960
B) $320; $400
C) $500; $800
D) $80; $120

Accepted Answer

The answer of (Figure: Producer Surplus for Golf Instructor I)...

Question 19

(Figure: Type A and Type B I) Suppose a firm plans to use indirect price discrimination through quantity discounts. The firm cannot identify which customers are Type A or Type B before the purchase, so the firm would like to offer a regular-price plan and a quantity-discount plan to suit the customers' personal price sensitivity.  
The price the firm should set for the discount plan is $____.
A) 3.50
B) 3.00
C) 2.50
D) 2.00

Accepted Answer

The answer of (Figure: Type A and Type B I)...

Question 20

A pizza monopolist employing third-degree price discrimination charges students $10 per pizza and everyone else $15 per pizza. Students must show their ID before they can get the discount. The marginal cost of this monopolist is $5 whether or not the customer is a student. The elasticity of demand for the students is _____.
A) -2.5
B) -2
C) -1.5
D) -1

Accepted Answer

The answer of A pizza monopolist employing third-degree price discrimination...

Quiz 10: Market Power and Pricing Strategies

A movie theater faces the following hourly inverse demand curves: Seniors: Ps = 12 - 0.5Q Adults: Pa = 19 - Q The marginal cost is constant at $1. If the movie theater uses segmenting, the ticket price charged to adults is $____.

Suppose a firm faces the demand function q = 800 - 4P. The firm's total production costs are given by MC(q) = 9.5q + q2. If the firm cannot price discriminate, its profit-maximizing output is ____.

A utility company faces demand given by q = 40 - 0.1p, where p is the price per unit. If the company charges only one price, the output that maximizes revenue is ____.

A firm with market power faces the demand function q = 1,000 - 100P. The firm's marginal cost function is MC(q) = 2 + 0.08q. If the firm establishes a block-pricing structure to maximize producer surplus, the optimal price for the lower priced block is $____.

A utility company faces demand given by q = 40 - 0.1p, where p is the price per unit. If the company charges only one price, the price per unit that maximizes revenue is $____.

Suppose a firm faces the inverse demand curve P = 100 - Q. Marginal cost is constant at $10. Suppose the firm uses block pricing, selling the first 45 units at $55 per unit, the next 20 units at $35 per unit, and the next 20 units at $15 per unit. The producer surplus in this case is $____.

(Table: Maximum Willingness to Pay I) Assume that the marginal cost of coffee is $0.50 and the marginal cost of cake is $0.50. Which pricing scheme leads to the highest producer surplus?

(Figure: Pharmaceutical Pills Sales I) A pharmaceutical company sells its pills in foreign and domestic markets. Suppose the company must charge the same price in each market. The profit-maximizing quantity is ____.

A firm with market power faces the demand function q = 1,000 - 100P. The firm's marginal cost function is MC(q) = 2 + 0.08q. If the firm behaves as a single-price monopoly, the optimal price to charge is $____.

A movie theater faces the following hourly inverse demand curves: Seniors: Ps = 12 - 0.5Q Adults: Pa = 19 - Q The marginal cost is constant at $1. If the movie theater must charge everyone the same price, the profit maximizing ticket price is $____.

(Figure: Pharmaceutical Pills Sales I) A pharmaceutical company sells its pills in foreign and domestic markets. Suppose the company uses segmenting. The profit-maximizing price in the Foreign Market is $____.

A firm with market power faces the demand function q = 1,000 - P. The firm's total cost function is TC(q) = 5q + q2 + 500. If the firm behaves as a single-price monopoly, the firm's optimal output level is ____.

A movie theater faces the following hourly inverse demand curves: Seniors: P_s = 12 - 0.5Q Adults: P_a = 19 - Q The marginal cost is constant at $1. If the movie theater uses segmenting, the ticket price charged to adults is $____.

Suppose a firm faces the demand function q = 800 - 4P. The firm's total production costs are given by MC(q) = 9.5q + q². If the firm cannot price discriminate, its profit-maximizing output is ____.

A movie theater faces the following hourly inverse demand curves: Seniors: P_s = 12 - 0.5Q Adults: P_a = 19 - Q The marginal cost is constant at $1. If the movie theater must charge everyone the same price, the profit maximizing ticket price is $____.

A firm with market power faces the demand function q = 1,000 - P. The firm's total cost function is TC(q) = 5q + q² + 500. If the firm behaves as a single-price monopoly, the firm's optimal output level is ____.