Question 1

Some retailers practice price discrimination through the hurdle method. Describe at least four ways that a seller could create a hurdle that a consumer must overcome in order to pay a lower price for a product.

Accepted Answer

The answer of Some retailers practice price discrimination through the...

Question 2

Tom is a dentist in Kentucky. Because of the nature of his business, he can charge different prices to different customers for the same service, even though the cost of serving those customers is the same. Tom is practicing:

Accepted Answer

Tom is practicing price discrimination, which occurs when a seller charges different prices to different buyers for the same product or service, even though the cost of providing those products or services is the same. In this case, Tom is able to charge different prices to different customers for dental services, even though the cost of providing those services is the same. This can be a profitable strategy for businesses, but it can also be seen as unfair to customers who are charged higher prices simply because of their willingness to pay.

Question 3

Abigail, a lawyer at Kirkland & Ellis LLP in Chicago, charges different prices to different clients for the same service without any corresponding differences in costs. Abigail thereby practices:

Accepted Answer

Abigail practices price discrimination, which is when a seller charges different prices to different customers for the same product or service without any cost justification. This can be a strategy to increase profits by charging customers with a higher willingness to pay a higher price, while still selling to customers with lower willingness to pay at a lower price.

Question 4

A doctor charges an insured patient $12,000 for a surgical procedure and an uninsured patient $5,000 for the same procedure. This is an example of:

Accepted Answer

This is an example of price discrimination because the same service is being offered at two different prices based on the patient's insurance status.

Question 5

The selling of _____ products at different prices to different consumers is the practice of _____.

Accepted Answer

The practice of selling the same products to different consumers at different prices is known as price discrimination. Therefore, option A is the correct choice as it correctly identifies the products as the same and the practice as price discrimination. The other options are not relevant to the concept of price discrimination.

Question 6

Suppose a producer initially charges each customer the same profit-maximizing price, with marginal revenue equal to _____ cost. If the producer now engages in price discrimination, the producer's profit will _____.

Accepted Answer

When engaging in price discrimination, the producer can charge different prices to different customers based on their willingness to pay. This allows the producer to capture more consumer surplus and increase their profits. In order to engage in price discrimination, the producer must have market power and be able to separate consumers into different groups with varying price elasticities of demand. As a result, the producer's marginal revenue will likely increase, leading to higher profits.

Question 7

Generally, a firm that practices price discrimination does so to:

Accepted Answer

Price discrimination allows a firm to charge different prices to different customers based on their willingness to pay. By doing so, the firm can increase its total revenue and therefore, increase profits.

Question 8

The main reason a monopoly engages in price discrimination is:

Accepted Answer

The main reason a monopoly engages in price discrimination is to increase its profits. By charging different prices to different customers based on their willingness to pay, a monopoly can extract the maximum amount of revenue from each customer and increase its overall profits.

Question 9

Monopoly profit will _____ when a monopolist goes from single-price monopoly to perfect price discrimination.

Accepted Answer

When a monopolist practices perfect price discrimination, they are able to charge each individual buyer their willingness to pay, which maximizes the monopolist's profits. This means that the monopolist is able to extract more surplus from each buyer, resulting in higher profits overall compared to single-price monopolies. Therefore, profit will increase when a monopolist goes from single-price monopoly to perfect price discrimination.

Question 10

When a monopolist engages in price discrimination, consumers _____ demand tend to pay a _____ price.

Accepted Answer

When a monopolist engages in price discrimination, they charge different prices to different customers based on their willingness to pay. The customers who value the product more are willing to pay a higher price, so the monopolist charges them a higher price. Therefore, the correct option is A) who value the product more; higher.

Question 11

Price discrimination leads to _____ prices for consumers who ____ demand.

Accepted Answer

Price discrimination can lead to lower prices for consumers who are especially price sensitive, as sellers may offer discounts or lower prices to attract or retain these customers.

Question 12

The demand for air travel in the tourism industry tends to be relatively _____. Thus, small _____ in air fares will result in relatively _____ in air travel.

Accepted Answer

The demand for air travel in the tourism industry is generally considered to be price insensitive, meaning that changes in price do not significantly affect the quantity demanded. Therefore, reductions in air fares can lead to large increases in air travel.

Question 13

A price-discriminating firm will adjust prices so that customers who _____ pay _____ customers with demand that is _____ price sensitive.

Accepted Answer

A price-discriminating firm will charge higher prices to customers who are less sensitive to price and lower prices to customers who are more price sensitive. Therefore, option B is the correct choice as it states that the firm will adjust prices so that customers who are sensitive to price will pay less than customers who are not sensitive to price.

Question 14

Most large public transit systems charge lower rider fares to senior citizens, students, and children. If this pricing strategy increases the profits of the transit system, we can conclude that individuals in the reduced fare categories have _____ demand for public transit service than other passengers have.

Accepted Answer

Individuals in the reduced fare categories likely have an especially price sensitive demand for public transit service, which is why offering lower fares to these groups can increase overall profits by encouraging more ridership among them.

Question 15

To maximize profits, passenger trains will charge _____ prices to customers who _____.

Accepted Answer

To maximize profits, the passenger trains will charge higher prices to customers who value the service more because they are willing to pay more for the service. This allows the train company to charge a higher price and increase their revenue without losing these valuable customers. Charging lower prices to customers who value the service more would be counterproductive in terms of maximizing profits, and charging the lowest prices to customers who value the service least would not allow for optimal revenue generation.

Question 16

Many travelers that must fly for business have a service that purchases their tickets. Regardless of the time of year, when they must travel for a meeting, they do. As such, business travelers' demand for airline flights is relatively _____, and large increases in price will result in relatively _____ decreases in additional business travelers.

Accepted Answer

Business travelers, especially those whose tickets are purchased by their company, are typically less sensitive to price changes. Therefore, their demand for airline flights is relatively insensitive to price, and even large increases in price will result in only small decreases in additional business travelers.

Question 17

American Pacific Railroad has three fare levels-(from highest to lowest)-first class, coach, and student. Given that this pricing strategy has increased America Pacific's profits, one can conclude that students have _____ demand for America Pacific train service than other passengers.

Accepted Answer

The fact that American Pacific Railroad charges a lower fare for students suggests that they are more price-sensitive than other passengers. Therefore, they likely have a higher demand for discounts and lower fares.

Question 18

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the higher price to the group:

Accepted Answer

A monopoly practicing price discrimination will charge a higher price to the group that values the product more, as they are less sensitive to price changes and willing to pay more.

Question 19

A Canadian aluminum firm sells aluminum in the United States and Japan. Since the United States buys aluminum from more sources than Japan does, the U.S. demand for Canadian aluminum is more elastic than that of Japan. If the Canadian aluminum firm wishes to maximize its profits, it should:

Accepted Answer

Since the U.S. demand for Canadian aluminum is more elastic than that of Japan, the Canadian aluminum firm should charge a lower price in the United States and a higher price in Japan. This is because if the firm charges the same price in both countries, it would lose out on potential profits in Japan where the demand is less elastic. By charging a lower price in the United States, the firm can increase its market share and sell more units, while charging a higher price in Japan where the demand is less elastic would allow the firm to maximize its profits in that market.

Question 20

Delta Airlines price discriminates by charging higher prices to business travelers than to vacation travelers. This pricing strategy reflects the fact that business travelers' _____ air travel is _____ than that of vacation travelers.

Accepted Answer

Business travelers have less price sensitivity because their travel is usually funded or subsidized by their companies and they often have less flexibility in their travel dates and times. Vacation travelers, on the other hand, have more price sensitivity as they have more flexibility in their travel plans and may be seeking to save money on their overall vacation expenses. Therefore, Delta Airlines charges higher prices to business travelers as they have a lower price sensitivity, and lower prices to vacation travelers to attract more price-sensitive customers.

Quiz 17: Sophisticated Pricing Strategies

Some retailers practice price discrimination through the hurdle method. Describe at least four ways that a seller could create a hurdle that a consumer must overcome in order to pay a lower price for a product.

Tom is a dentist in Kentucky. Because of the nature of his business, he can charge different prices to different customers for the same service, even though the cost of serving those customers is the same. Tom is practicing:

Abigail, a lawyer at Kirkland & Ellis LLP in Chicago, charges different prices to different clients for the same service without any corresponding differences in costs. Abigail thereby practices:

A doctor charges an insured patient $12,000 for a surgical procedure and an uninsured patient $5,000 for the same procedure. This is an example of:

The selling of _ products at different prices to different consumers is the practice of _.

Suppose a producer initially charges each customer the same profit-maximizing price, with marginal revenue equal to _ cost. If the producer now engages in price discrimination, the producer's profit will _.

Generally, a firm that practices price discrimination does so to:

The main reason a monopoly engages in price discrimination is:

Monopoly profit will _____ when a monopolist goes from single-price monopoly to perfect price discrimination.

When a monopolist engages in price discrimination, consumers _ demand tend to pay a _ price.

Price discrimination leads to _ prices for consumers who demand.

The demand for air travel in the tourism industry tends to be relatively ___. Thus, small _ in air fares will result in relatively ___ in air travel.

A price-discriminating firm will adjust prices so that customers who ___ pay _ customers with demand that is ___ price sensitive.

To maximize profits, passenger trains will charge _ prices to customers who _.

American Pacific Railroad has three fare levels-(from highest to lowest) -first class, coach, and student. Given that this pricing strategy has increased America Pacific's profits, one can conclude that students have _____ demand for America Pacific train service than other passengers.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the higher price to the group:

A Canadian aluminum firm sells aluminum in the United States and Japan. Since the United States buys aluminum from more sources than Japan does, the U.S. demand for Canadian aluminum is more elastic than that of Japan. If the Canadian aluminum firm wishes to maximize its profits, it should:

Delta Airlines price discriminates by charging higher prices to business travelers than to vacation travelers. This pricing strategy reflects the fact that business travelers' _ air travel is _ than that of vacation travelers.