1. Which of the following strategies are used by business firms to capture consumersurplus?
1. price discrimination.
2. bundling.
3. two-part tariffs.
4. d. all of the above.
2. bundling.
3. two-part tariffs.
4. d. all of the above.
2. Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm:
1. is trying to reduce its costs and therefore increase its profit.
2. is engaging in an illegal activity that is prohibited by the Sherman Antitrust Act.
3. is attempting to convert producer surplus into consumer surplus.
4. d. is attempting to convert consumer surplus into producer surplus.
5. both (a) and (c) are correct.
3. An electric power company uses block pricing for electricity sales. Block pricing is an example of
1. first-degree price discrimination.
2. second-degree price discrimination.
3. third-degree price discrimination.
4. Block pricing is not a type of price discrimination.
4. When a firm charges each customer the maximum price that the customer is willing to pay, the firm
1. engages in a discrete pricing strategy.
2. charges the average reservation price.
3. engages in second-degree price discrimination.
4. d. engages in first-degree price discrimination.
5. The maximum price that a consumer is willing to pay for each unit bought is the ______________ price.
1. market
2. b. reservation
3. consumer surplus
4. auction
5. choke
6. Second-degree price discrimination is the practice of charging
1. the reservation price to each customer.
2. b. different prices for different blocks of the same good or service.
3. different groups of customers different prices for the same products.
4. each customer the maximum price that he or she is willing to pay.
7. A firm is charging a different price for each unit purchased by a consumer. This is called
1. a. first-degree price discrimination.
2. second-degree price discrimination.
3. third-degree price discrimination.
4. fourth-degree price discrimination.
5. fifth-degree price discrimination.
100% CORRECT ANSWERS.....
8. A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing
1. first-degree price discrimination.
2. second-degree price discrimination.
3. c. third-degree price discrimination.
4. fourth-degree price discrimination.
5. fifth-degree price discrimination.
9. Discrimination based upon the quantity consumed is referred to as ______________ price discrimination.
1. first-degree
2. b. second degree
3. third-degree
4. group
10. A doctor sizes up patients' income and charges wealthy patients more than poorer ones. This pricing scheme represents a form of
1. first-degree price discrimination.
2. second-degree price discrimination.
3. c. third-degree price discrimination.
4. pricing at each consumer’s reservation price.
11. Third-degree price discrimination involves
1. charging each consumer the same two part tariff.
2. charging lower prices the greater the quantity purchased.
3. the use of increasing block rate pricing.
4. d. charging different prices to different groups based upon differences in elasticity of demand.
12. The maximum price that a consumer is willing to pay for a good is called:
1. a. the reservation price.
2. the market price.
3. the first-degree price.
4. the block price.
5. the choke price.
13. McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any special meal. This practice is an example of:
1. collusion.
2. b. price discrimination.
3. two-part tariff.
4. bundling.
5. tying.
14. In 1994, the Walt Disney Corporation ran a special promotion on tickets to Disneyland. Residents of southern California were offered admission at the special price of $22. Other visitors to Disneyland were charged about $30. This practice is an example of:
1. collusion.
2. b. price discrimination.
3. two-part tariff.
4. bundling.
5. tying.
15. Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:
1. intertemporal price discrimination.
2. b. third degree price discrimination.
3. a two-part tariff.
4. bundling.
5. none of the above.
16. Which of the following is NOT a condition for third degree price discrimination?
1. Monopoly power.
2. Different own price elasticities of demand.
3. c. Economies of scale.
4. Separate markets.
17. A third-degree price discriminating monopolist can sell its output either in the local market or on an internet auction site (or both). Having sold all of its output it discovers that the marginal revenue in the local market is $20 while its marginal revenue on the internet auction site is $30. To maximize profits the firm should
1. have sold more output in the local market and less at the internet auction site.
2. do nothing until it acquires more information on costs.
3. have sold less output in the local market and more on the internet auction site.
4. sell less in both markets until marginal revenue is zero.
5. sell more in both markets until marginal cost is zero.
18. Suppose that the marginal cost of an additional ton of steel produced by the Japanese is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct?
1. The Japanese will sell more steel abroad than they will sell in Japan.
2. The Japanese will sell more steel in Japan than they will sell abroad.
3. c. The Japanese will sell steel at a lower price abroad than they will charge domestic users.
4. The Japanese will sell steel at a higher price abroad than they will charge domestic users.
5. Insufficient information exists to determine whether the price or quantity will be higher or lower abroad.
19. You are the producer of stereo components. There are two markets, foreign and domestic. The two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination, when you have maximized profits, the marginal revenue
1. in the foreign market will equal the marginal cost.
2. in the domestic market will equal the marginal cost.
3. in the domestic market will equal the marginal revenue in the domestic market.
4. d. all of the above.
5. none of the above
20. You are the producer of stereo components. There are two markets, foreign and domestic. The two groups of consumers cannot trade with one another. You will charge the higher price in the market with the
1. a. lower own price elasticity of demand (more inelastic demand).
2. higher own price elasticity of demand (more elastic demand).
3. larger teenage population.
4. greater consumer incomes.
21. For a perfect first-degree price discriminator, incremental revenue is
1. greater than price if the demand curve is downward sloping.
2. the same as the marginal revenue curve if the firm is a non-discriminating monopolist.
3. c. equal to the price paid for each unit of output.
4. less than the marginal revenue for a non-discriminating monopolist.
22. In third-degree price discrimination a firm faces two markets. In the first market the firm charges $30 per unit, and in the second market it charges $22 per unit. Which of the following represents the ratio of elasticities of demand in the two markets?
1. E2 = (21/29)E1.
2. E2 = (29/21)E1
3. E2 = E1.
4. E2 = (22/30)E1.
5. e. none of these.
23. A firm sells an identical product to two groups of consumers, A and B. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price and output strategy that will maximize profits?
1. PA = PB = MC.
2. MRA = MRB.
3. c. MRA = MRB = MC.
4. (MRA - MRB) = (1 - MC).
24. Bindy, an 18 year old high school graduate, and Luciana, a 40 year old college graduate, just purchased identical hot new sports cars. Acme Insurance charges a higher rate to insure Bindy than Luciana. This practice is an example of:
1. collusion.
2. price discrimination.
3. two-part tariff.
4. bundling.
5. e. none of the above.
25. Under perfect price discrimination, marginal profit at each level of output equal
1. 0
2. P-AC.
3. c. P-MC.
4. P-AR.
26. Under perfect price discrimination, consumer surplus
1. is less than zero.
2. is greater than zero.
3. c. equals zero.
4. is maximized.
27. When a monopolist engages in perfect price discrimination,
1. the marginal revenue curve lies below the demand curve.
2. b. the demand curve and the marginal revenue curve are identical.
3. marginal cost becomes zero.
4. the marginal revenue curve becomes horizontal.
28. The manager of a firm is attempting to practice third degree price discrimination. She has equated the marginal revenue in each of her markets. By doing this her
1. profits are maximized.
2. costs are minimized given her level of output.
3. c. revenues are maximized given her level of output.
4. all of the above.
29. When a company introduces new audio products, it often initially sets the price high and about a year later it lowers the price. This is an example of
1. a two-part tariff.
2. second-degree price discrimination.
3. c. intertemporal price discrimination.
4. first-degree price discrimination.
30. Club Med, which runs a number of vacation resorts, offers vacation packages at a lower price in the winter, the "off season," than in the summer. This practice is an example of:
1. peak-load pricing.
2. intertemporal price discrimination.
3. two-part tariff.
4. bundling.
5. e. both (a) and (b) are correct.
31. In peak load pricing,
1. marginal revenue is equal in both periods.
2. b. marginal revenue in the peak period is greater than in the off-peak period.
3. marginal revenue in the peak period is less than in the off-peak period.
4. the sum of the marginal revenues is greater than the sum of the marginal costs.
32. When the movie "Jurassic Park" debuted in Westwood, California, the price of tickets was $7.50. After several months the ticket price had fallen to $4.00. This is an example of
1. peak-load pricing.
2. second-degree price discrimination.
3. a two-part tariff.
4. tying.
5. e. none of the above.
33. The price of on-campus parking from 8:00 AM to 5:00 PM, Monday through Friday, is $3.00. From 5:00 PM to 10:00 PM, Monday through Friday, the price is $1.00. At all other times parking is free. This is an example of
1. bundling.
2. second-degree price discrimination.
3. a two-part tariff.
4. tying.
5. e. none of the above.
34. A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM. This is an example of
1. a. peak-load pricing.
2. second-degree price discrimination.
3. a two-part tariff.
4. tying.
5. none of the above.
35. A local theater prices every ticket in the theater at $5.00 for matinees. During the evening, ticket prices are much higher. This is an example of
1. a. peak-load pricing.
2. second-degree price discrimination.
3. a two-part tariff.
4. bundling.
5. none of the above.
36. An amusement park charges an entrance fee of $75 per person, then $2.50 per ride. This is an example of
1. first-degree price discrimination.
2. b. a two-part tariff.
3. second-degree price discrimination.
4. bundling.
5. tying.
37. When people pay a monthly fee to have a hookup to the telephone company's line plus a fee for each call actually made, we would say that the telephone company is using
1. limit pricing.
2. b. a two-part tariff.
3. second-degree price discrimination.
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