Question 1

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 2

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 3

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

Accepted Answer

The main purpose of price discrimination is for firms to increase their profits by charging different prices to different groups of consumers based on their willingness to pay. By doing so, they can extract more surplus and increase revenue. Therefore, firms engaged in price discrimination usually make more money than if they charged one price.

Question 4

Recall the Application about the reason for the high price of movie popcorn to answer the following question(s).
-Recall the Application. Suppose a low demander is willing to pay $8 for a movie, while a high demander is willing to pay $12 for a movie and popcorn. If the theater charged $8 for admission and $2 for popcorn, the low demander would receive a consumer surplus of ________, and the high demander would receive a consumer surplus of ________.
A) $2; $6
B) $-2; $4
C) $10; $22
D) $0; $2

Accepted Answer

The low demander would pay exactly what they are willing to pay for the movie ($8), resulting in a consumer surplus of $0. The high demander is willing to pay $12 for both the movie and popcorn, but ends up paying $10 ($8 for the movie and $2 for popcorn), resulting in a consumer surplus of $2.

Question 5

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 6

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

Accepted Answer

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

Question 7

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 8

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

Accepted Answer

Price discrimination can actually benefit some consumers by offering them lower prices based on their willingness to pay or specific circumstances. However, it can also lead to higher prices for other consumers who are not eligible for discounts or deals. Therefore, the impact of price discrimination on consumer welfare depends on the specific context and conditions.

Question 9

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 10

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 customers for the same product or service, which requires the ability to exercise some level of market power. If a firm lacks market power, it would not be able to charge different prices to different segments of customers, as it would not have the ability to dictate prices in the market. Therefore, price discrimination is typically associated with firms that have some degree of market power, such as a monopoly or oligopoly.

Question 11

Recall the Application about the reason for the high price of movie popcorn to answer the following question(s).
-Recall the Application. Suppose a low demander is willing to pay $8 for a movie, while a high demander is willing to pay $12 for a movie and popcorn. The theater could charge ________ for admission and ________ for popcorn for each consumer to receive a consumer surplus of $2.
A) $8; $2
B) $10; $0
C) $6; $4
D) $9; $3

Accepted Answer

Charging $6 for admission and $4 for popcorn allows the low demander to pay $8 in total ($6 + $2 surplus) and the high demander to pay $12 in total ($6 + $4 + $2 surplus).

Question 12

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 for the same product or service based on different customers' willingness to pay. In the case of movie videotapes, the studios charge higher prices for new releases when demand is high among consumers who are willing to pay a premium for the convenience of owning the latest movies. As demand wanes over time, the studios lower the prices to appeal to consumers who are more price-sensitive and willing to wait for a better deal. This type of price discrimination is common in many industries, including airlines, hotels, and entertainment.

Question 13

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 based on their willingness to pay. In this case, the airline is giving a discount to a specific group of customers based on their age, which is a form of price discrimination.

Question 14

Recall the Application about the reason for the high price of movie popcorn to answer the following question(s).
-Recall the Application. Suppose a low demander is willing to pay $8 for a movie, while a high demander is willing to pay $12 for a movie and popcorn. If the theater charged $7 for admission and $4 for popcorn, the low demander would receive a consumer surplus of ________, and the high demander would receive a consumer surplus of ________.
A) $1; $1
B) $5; $6
C) $3; $9
D) $15; $21

Accepted Answer

The low demander would pay $7 for admission, which is $1 less than their willingness to pay ($8), resulting in a $1 consumer surplus. The high demander would pay $7 for admission and $4 for popcorn, totaling $11, which is $1 less than their willingness to pay ($12), also resulting in a $1 consumer surplus.

Question 15

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 16

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

Accepted Answer

Price discrimination is when different prices are charged to different groups of customers for the same product or service. In the given scenario, discount is offered to senior citizens every day which is not differentiating customers on the basis of their age. Therefore, it is not an example of price discrimination.

Question 17

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 18

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 19

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 20

Recall the Application about the reason for the high price of movie popcorn to answer the following question(s).
-Recall the Application. Suppose a low demander is willing to pay $8 for a movie, while a high demander is willing to pay $12 for a movie and popcorn. If the theater charged $2 for admission and $10 for popcorn, ________ would be willing to go to the movie.
A) only the low demander
B) only the high demander
C) both the low demander and the high demander
D) neither the low demander nor the high demander

Accepted Answer

Both the low demander and the high demander would be willing to go to the movie if the theater charged $2 for admission and $10 for popcorn. The low demander would pay a total of $10 ($8 for admission and $2 for popcorn) which is within their willingness to pay. The high demander would pay a total of $22 ($12 for admission and popcorn) which is also within their willingness to pay. Therefore, the theater would attract both types of customers with this pricing strategy.

Quiz 7: Monopoly and 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.

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

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

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

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?

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

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.

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.

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

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

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

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