Econ 351 Chapter 13 Key terms

A local theater charges $5.00 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of A) peak-load pricing. B) second-degree price discrimination. C) a two-part tariff. D) bundling. E) none of the above

A) peak-load pricing.

Most phone companies charge lower (or zero) prices for long distance calls in the evening and weekends than during normal business hours. This practice is an example of: A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination.

A) peak-load pricing.

In 1994, the Walt Disney Corporation ran a special promotion on tickets to Disneyland. Residents of southern California who lived near the amusement park were offered admission at the special price of $22. Other visitors to Disneyland were charged about $30. This practice is an example of: A) third-degree price discrimination B) second-degree price discrimination C) first-degree price discrimination D) intertemporal price discrimination E) peak-load pricing

A) third-degree price discrimination

What do all pricing strategies have in common?

All pricing strategies are a means of capturing Consumer Surplus and transferring it to the Producer.

Firm Epsilon is a monopolist with cost function C = 10Q The demand for Epsilon's output is QD = 260 - 2P Suppose Epsilon can first-degree price discriminate. Then Epsilon will have a profit A) 14,000 B) 14,400 C) 14,600 D) 14,200 E) None of the above

B) 14,400

Double Espresso is a coffee shop. They give you a free membership card, which you can show to the cashier every time you buy a coffee drink. Once you buy 10 drinks, Double Espresso will give you one free coffee drink. This practice is an example of: A) First-degree price discrimination B) Second-degree price discrimination C) Third-degree price discrimination D) Intertemporal price discrimination E) Two-part tariff

B) Second-degree price discrimination

An amusement park charges an entrance fee of $75 per person plus $2.50 per ride. This is an example of A) first-degree price discrimination. B) a two-part tariff. C) second-degree price discrimination. D) bundling. E) tying.

B) a two-part tariff.

A firm setting a two-part tariff with only one customer should set the entry fee equal to A) marginal cost. B) consumer surplus. C) marginal revenue. D) price.

B) consumer surplus.

Offering temporary price cuts on bathroom tissue. This practice is an example of A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination

B) intertemporal price discrimination.

Discrimination based upon the quantity consumed is referred to as -------price discrimination. A) first-degree B) second-degree C) third-degree D) group

B) second-degree

Visitors can buy a one-day ticket to Disneyland for $80, or buy an "Annual Passport" for $499. With the Annual Passport, the visitor has unlimited access to the park for one entire year. This is an example of A) third-degree price discrimination B) second-degree price discrimination C) first-degree price discrimination D) intertemporal price discrimination E) peak-load pricing

B) second-degree price discrimination

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? A) PA = PB = MC . B) MRA = MRB . C) MRA = MRB = MC . D) (MRA − MRB ) = (1 − MC ).

C) MRA = MRB = MC .

When a company introduces new audio products, it often initially sets the price high and lowers the price about a year later. This is an example of A) a two-part tariff. B) second-degree price discrimination. C) intertemporal price discrimination. D) first-degree price discrimination.

C) intertemporal price discrimination.

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 A) first-degree price discrimination. B) second-degree price discrimination C) third-degree price discrimination. D) fourth-degree price discrimination. E) fifth-degree price discrimination.

C) third-degree price discrimination.

Pricing of Gilette safety razors is an example of A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination.

C) two-part tariff.

Incremental Profit Formula

Change in Profit / Change in Q1 = [Change in (P1Q1)] / [Change in Q1] - (Change in cost / Change in Q1)

Incremental Cost from extra unit of sale

Change in cost / Change in Q1

Firm Beta is a monopolist with cost function C = 10Q Beta has a single consumer, who has a demand function QD = 260 - 2P Suppose Beta can price discriminate by using a two-part tariff. Then under the optimal two-part tariff, Beta will sell Q= units of output A) 10 B) 120 C) 60 D) 240 E) None of the above

D) 240

When a firm charges each customer the maximum price that the customer is willing to pay, the firm A) engages in a discrete pricing strategy. B) charges the average reservation price. C) engages in second-degree price discrimination. D) engages in first-degree price discrimination. E) engages in third-degree price discrimination.

D) engages in first-degree price discrimination.

Low airfares requires airline travelers to spend at least one Saturday night away from home. This practice is an example of A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination.

E) Third degree price discrimination.

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 hamburger. This practice is an example of: A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination.

E) Third degree price discrimination.

Selling food processors along with coupons that can be sent to the manufacturer for a $10 rebate. This practice is an example of A) peak-load pricing. B) intertemporal price discrimination. C) two-part tariff. D) Second degree price discrimination. E) Third degree price discrimination.

E) Third degree price discrimination.

Perfect Price Discrimination

Each consumer is charged their reservation price.

Imperfect Price Discrimination

Firm charges prices based on estimates of customers' reservation prices.

Two-Part Tariff

Form of pricing in which consumers are charged both an entry and a usage fee.

MR written in terms of elasticity of demand

MR = P(1+1/Ed)

Incremental Profit

Marginal Revenue less Marginal Cost of each unit.

Reservation Price

Maximum price that a consumer is willing to pay for a good.

Block Pricing

Practice of charging different prices for different quantities or "blocks" of a good.

Second-Degree Price Discrimination

Practice of charging different prices per unit for different quantities of the same good or service.

Price Discrimination

Practice of charging different prices to different consumers for similar goods.

First-Degree Price Discrimination

Practice of charging each customer their reservation price.

Peak-Load Pricing

Practice of charging higher prices during peak periods when capacity constraints cause MC to be high.

Third-Degree Price Discrimination

Practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group.

Intertemporal Price Discrimination

Practice of separating consumers with different demand functions into different points in time.

Total Profit of two firms (formula)

Profit = P1Q1 + P2Q2 - C(Qtotal)

Incremental revenue from extra unit of sale

[Change in (P1Q1)] / [Change in Q1]