Chapter 14

A perfectly price-discriminating monopolist charges consumers the average of their maximum willingness to pay.

False

On Black Fridays, most retail outlets have major storewide sales. Yet, as one of the busiest shopping days in the United States, one would expect prices to increase, not decrease. Price discrimination explains the answer to this question because: A. price-sensitive shoppers are more likely to want to stay away from Black Friday. B. price-sensitive shoppers are more likely to notice tying and bundling tricks. C. price-insensitive shoppers will stay away to avoid the crowds. D. price-insensitive shoppers tend to wait until the last minute for Christmas shopping.

price-insensitive shoppers will stay away to avoid the crowds.

Which of the following is NOT an example of price discrimination? A. peak and nonpeak rates for cell phone usage B. standby seats sold at the last minute by airlines C. children's menus in restaurants D. product innovations leading to lower prices

product innovations leading to lower prices

Price discrimination can be defined as: A. selling different products to the same consumers in the same market. B. selling the same product at two different prices in two different markets. C. selling the same product in two different markets. D. exporting goods to foreign countries.

selling the same product at two different prices in two different markets.

Movie theaters typically price discriminate by charging ______ a lower price than ______.

senior citizens; young adults

Which of the following is the main principle behind price discrimination? A. All of the answers are correct. B. If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets. C. To maximize profit the firm should set a higher price in markets with more inelastic demand. D. Arbitrage makes it difficult for a firm to set different prices in different markets, thereby reducing the profit from price discrimination.

All answers are correct

Which of the following statements is TRUE? A. Cable companies have low marginal costs and high fixed costs of production, making bundling an ineffective pricing strategy. B. Cable companies have high marginal costs and low fixed costs of production, making bundling an ineffective pricing strategy. C. Cable companies easily know which customers have a high willingness to pay for specific channels and which consumers have a low willingness to pay, making bundling an ineffective pricing strategy. D. Cable companies have a hard time knowing which customers have a high willingness to pay for specific channels and which consumers have a low willingness to pay, making bundling an effective pricing strategy.

Cable companies have a hard time knowing which customers have a high willingness to pay for specific channels and which consumers have a low willingness to pay, making bundling an effective pricing strategy.

Why are the prices of hardcover books more expensive than paperback?

Consumers who can't wait for the paperback version have a greater willingness to pay and buy the hardcover upon its release.

The difference between tying and bundling is that tied goods are sold one to one while bundled goods are sold one to many.

False

Which of the following BEST explains why it is so difficult for firms to perfectly price discriminate? A. It is illegal. B. It is difficult to measure the marginal cost of producing an additional unit. C. It is very difficult to know exactly every consumer's willingness to pay. D. Perfect price discrimination often lowers the overall profits of a monopolist.

It is very difficult to know exactly every consumer's willingness to pay

Video game consoles are routinely sold below cost, and games are sold above cost. What would happen if someone figured out how to use the consoles as cost-effective, general-purpose, nongaming computers? A. People would buy the consoles as low-cost computers and never buy any games, and the console maker would lose money. B. The price of games would rise. C. The console maker would make more money, since it would sell more consoles. D. The console maker would lower the price on its consoles to sell more of them to a more elastic market

People would buy the consoles as low-cost computers and never buy any games, and the console maker would lose money.

What is perfect price discrimination? A. This occurs when consumer surplus is maximized in a given market. B. All of the answers are correct. C. This occurs when a seller is able to charge two different prices in different markets. D. This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum willingness to pay.

This occurs when a seller charges each separate consumer an amount that is exactly equal to his or her maximum willingness to pay.

Price discrimination is selling the same good to different customers at different prices.

True

To price discriminate, firms must identify a customer's or a group of customers' willingness to pay.

True

Microsoft Word and Microsoft Excel are typically: A. separated. B. tied. C. bundled. D. aggregated.

bundled

When two goods must be bought in a package (with a fixed ratio), they are: A. aggregated. B. separated. C. tied. D. bundled.

bundled

Which of the following is NOT an example of bundling? A. McDonald's value meals B. cell phones and phone calls C. automobiles and engines D. computer software

cell phones and phone calls

HP ties its printer ink to its printers by embedding a patented printer head in its ink cartridge rather than build it into the printer. This raises the cost of producing the ink cartridge. If the government passed a law requiring HP ink to be used with HP printers, would this law increase or decrease deadweight loss? A. no change B. increase C. impossible to say D. decrease

decrease

U.S. public universities price discriminate most directly according to: A. family income level and state residency status. B. age and family income level. C. state residency status and year in school. D. age and year in school.

family income level and state residency status.