Question 1

In theory,perfect price discrimination

Accepted Answer

Perfect price discrimination means that the monopolist charges each consumer their maximum willingness to pay for the good, thus eliminating consumer surplus. This will lead to an increase in the monopolist's profits, so option A is incorrect. Deadweight loss will also be eliminated as the market will now be at its efficient level of production, so option C is incorrect. However, because some consumers may not be willing to pay the maximum price, the number of consumers who purchase the monopoly's product may decrease, but this is not a necessary outcome, so option D is incorrect.

Question 2

If a monopolist is able to perfectly price discriminate,

Accepted Answer

If a monopolist is able to perfectly price discriminate, they are able to charge each consumer the maximum amount they are willing to pay, which eliminates consumer surplus. The entire area for consumer surplus and deadweight losses is transformed into monopoly profits, leading to an increase in monopoly profits while also decreasing total surplus. Thus, not only do consumers lose, but the economy as a whole loses.

Question 3

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as

Accepted Answer

The process described is known as arbitrage. Sabotage and conspiracy refer to illegal actions with negative consequences, whereas collusion refers to a secret agreement between two or more parties to defraud or deceive others, which is also illegal.

Question 4

In reality,perfect price discrimination is

Accepted Answer

Perfect price discrimination requires the monopolist to have perfect information about each individual consumer's willingness to pay, which is rarely possible in reality. Therefore, perfect price discrimination is rarely possible.

Question 5

Scenario 15-6
An airline knows that there are two types of travelers: business travelers and vacationers.For a particular flight,there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket.There are 150 seats available on the plane.Suppose the cost to the airline of providing the flight is $20,000,which includes the cost of the pilots,flight attendants,fuel,etc.
-Refer to Scenario 15-6.How much profit will the airline earn if it engages in price discrimination?

Accepted Answer

If the airline engages in price discrimination, they will sell all 150 tickets, with 100 sold to the business travelers at $600 each and 50 sold to vacationers at $300 each. This would give the airline a total revenue of ($600 x 100) + ($300 x 50) = $75,000. The cost of providing the flight is $20,000, so the profit would be $75,000 - $20,000 = $55,000. Therefore, the best choice is C.

Question 6

With perfect price discrimination the monopoly

Accepted Answer

With perfect price discrimination, the monopolist charges each customer the maximum price they are willing to pay, which results in capturing all consumer surplus and eliminates deadweight loss. This means that the monopolist produces at the efficient level of output, resulting in no unused consumer surplus or deadweight loss. This also means that the monopolist earns the maximum possible profit, as it is able to extract all of the consumer surplus in the market. Therefore, the monopolist does not charge the same price to all customers or the marginal cost of production, eliminating options A and B. The monopolist also does not eliminate profits or increase consumer surplus, eliminating option D.

Question 7

Scenario 15-5
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area.Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel.Since Mega Media has already installed cable to all of the homes in its market area,the marginal cost of delivering the sports channel to subscribers is zero.The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit.Before setting price,she hires an economist to estimate demand for the sports channel.The economist discovers that there are two types of subscribers who value premium sporting channels.First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel.Second,the premium sports channel will appeal to about 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it.
-Refer to Scenario 15-5.What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price discriminating policy?

Accepted Answer

The answer of Scenario 15-5
Mega Media Cable TV is able...

Question 8

Scenario 15-6
An airline knows that there are two types of travelers: business travelers and vacationers.For a particular flight,there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket.There are 150 seats available on the plane.Suppose the cost to the airline of providing the flight is $20,000,which includes the cost of the pilots,flight attendants,fuel,etc.
-Refer to Scenario 15-6.How much profit will the airline earn if it sets the price of a ticket at $300?

Accepted Answer

The airline will sell all 150 seats at $300 each, earning $45,000 in revenue. Subtracting the $20,000 cost, the profit is $25,000.

Question 9

A perfectly price-discriminating monopolist is able to

Accepted Answer

A perfectly price-discriminating monopolist can charge each consumer the maximum they are willing to pay, thus capturing all consumer surplus as profit. This leads to an efficient allocation of resources, where the quantity produced and consumed matches the socially optimal level of output, as it eliminates deadweight loss.

Question 10

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

Accepted Answer

The answer of How does a competitive market compare to...

Question 11

Scenario 15-6
An airline knows that there are two types of travelers: business travelers and vacationers.For a particular flight,there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket.There are 150 seats available on the plane.Suppose the cost to the airline of providing the flight is $20,000,which includes the cost of the pilots,flight attendants,fuel,etc.
-Refer to Scenario 15-6.How much profit will the airline earn if it sets the price of a ticket at $600?

Accepted Answer

The answer of Scenario 15-6
An airline knows that there are...

Question 12

A monopolist that practices perfect price discrimination

Accepted Answer

Perfect price discrimination means that the monopolist charges each individual customer their own individualized price equal to their willingness to pay. In this case, the monopolist captures all of the available consumer surplus, and there is no deadweight loss. This is because the monopolist produces until the point where marginal cost equals marginal revenue for each individual customer, and thus produces an efficient level of output for each customer. However, while perfect price discrimination is efficient, it does not necessarily mean that it is socially desirable or fair.

Question 13

Perfect price discrimination

Accepted Answer

Perfect price discrimination occurs when a monopolist charges each consumer their maximum willingness to pay for a given quantity of the good or service. This means that there is no consumer surplus, and the entirety of the value is captured by the monopolist. As a result, there is no deadweight loss, which is the loss of economic efficiency that results when the price and quantity supplied are not at their socially optimal levels. Therefore, choice (A) is correct. Choices (B) and (C) are incorrect because perfect price discrimination actually increases profits for the monopolist and the total quantity sold may increase or remain constant, but it will never decrease. Choice (D) is also incorrect as arbitrage is not necessary for a monopolist to maximize profits under perfect price discrimination.

Question 14

Perfect price discrimination describes a situation in which the monopolist

Accepted Answer

Perfect price discrimination occurs when a monopolist is able to charge each individual customer their maximum willingness to pay, resulting in the highest possible total revenue for the monopolist. This requires the monopolist to know the exact willingness to pay of each customer, which is only possible in theory and not in practice. Therefore, option A is the correct answer. Option B is incorrect because perfect price discrimination requires charging each customer a different price based on their willingness to pay, not just two groups. Option C is incorrect because perfect price discrimination does not necessarily maximize consumer surplus or welfare. Option D is incorrect because the monopolist can still earn a profit from perfect price discrimination, even though it may not be a high enough profit to attract competitors.

Question 15

Which of the following can defeat the profit-maximizing strategy of price discrimination?

Accepted Answer

Arbitrage can defeat the profit-maximizing strategy of price discrimination because it allows customers to buy the same product at a lower price in another market and resell it in a higher-priced market, thereby equalizing prices across markets and preventing the firm from extracting the full surplus of each market segment. Consumer surplus and deadweight loss may reduce the profits earned from price discrimination, but they do not necessarily defeat the strategy altogether. Market power, on the other hand, is a necessary condition for successful price discrimination, so it cannot defeat it.

Question 16

Perfect price discrimination

Accepted Answer

Perfect price discrimination allows a firm to capture all available consumer surplus and charge each individual customer their maximum willingness to pay. As a result, the firm can increase profits while decreasing consumer surplus. However, total surplus may or may not increase, depending on the specific market conditions and elasticity of demand. Therefore, all of the above options are correct.

Question 17

A monopolist faces the following demand curve:

The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?

Accepted Answer

Under perfect price discrimination, the monopolist charges each consumer their maximum willingness to pay, which decreases as more units are sold. In this case, the marginal revenue curve is the same as the demand curve: MR = 110 – 0.1Q. Setting MR equal to marginal cost of $2, we can solve for the profit-maximizing quantity:
110 – 0.1Q = 2
108 = 0.1Q
Q = 1,080
However, since the monopolist has fixed costs of $1,000, the actual profit-maximizing quantity would be:
Q = 1,080 – 1,000 = 80
Therefore, the monopolist would sell 80 units under perfect price discrimination, generating total revenue of:
TR = 110(80) – 0.05(80)^2 = $6,400

Question 18

A market force that can prevent firms from price discriminating is

Accepted Answer

Arbitrage is the process of buying a product in a market at a low price and selling it in another market at a higher price. If a firm tries to price discriminate, it is likely that some customers will attempt to buy the product cheaper in the lower priced market and sell it in the higher priced market, thus preventing the firm from successfully price discriminating. The other options do not necessarily prevent firms from price discriminating.

Question 19

Price discrimination is a rational strategy for a profit-maximizing monopolist when

Accepted Answer

Price discrimination is effective only when the monopolist can prevent arbitrage - the process by which customers buy a good in a low-price market and resell it in a high-price market. Therefore, the best option is D, where there is no opportunity for arbitrage across market segments.

Question 20

Scenario 15-5
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area.Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel.Since Mega Media has already installed cable to all of the homes in its market area,the marginal cost of delivering the sports channel to subscribers is zero.The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit.Before setting price,she hires an economist to estimate demand for the sports channel.The economist discovers that there are two types of subscribers who value premium sporting channels.First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel.Second,the premium sports channel will appeal to about 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it.
-Refer to Scenario 15-5.If Black Box Cable TV is able to price discriminate,what would be the maximum amount of profit it could generate?

Accepted Answer

If Mega Media Cable TV is able to price discriminate and charge $150 to the 3,000 die-hard sports fans and $25 to the 20,000 occasional viewers, it would generate a total revenue of $825,000 (($150 x 3,000) + ($25 x 20,000)). Since the marginal cost of delivering the sports channel is zero, this would be the maximum amount of profit, which is $725,000 ($825,000 - $100,000). Therefore, the correct answer is B ($850,000).

Quiz 15: Monopoly

In theory,perfect price discrimination

If a monopolist is able to perfectly price discriminate,

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as

In reality,perfect price discrimination is

With perfect price discrimination the monopoly

A perfectly price-discriminating monopolist is able to

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

A monopolist that practices perfect price discrimination

Perfect price discrimination

Perfect price discrimination describes a situation in which the monopolist

Which of the following can defeat the profit-maximizing strategy of price discrimination?

Perfect price discrimination

A monopolist faces the following demand curve: The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit.If the monopolist were able to perfectly price discriminate,how many units would it sell?

A market force that can prevent firms from price discriminating is

Price discrimination is a rational strategy for a profit-maximizing monopolist when