ECON test 4

What are the necessary conditions for price discrimination

1. firm must operate in imperfect competition and must be price maker with a downwardly sloping demand curve 2. firm must be able to separate markets and prevent resale 3. different consumer groups must have elasticities of demand

a monopolist that practices perfect price discrimination does what...

1.charges each consumer the maximum price the consumer is willing to pay 2. drives consumer surplus to zero 3. produces the perfectly competitive level of output

Which of the following is not true in a monopolistically competitive market? A. all firms are price takers B. Each firms demand curve is more elastic than the market demand curve C. there is no free entry and exit d. firms sell differentiated products that are highly substitutable with each other but not perfectly substitutable

A. all firms are price takers

which of the following is true at the long run equilibrium in a monopolistically competitive market A.Each firm's output is at the point that minimizes its long run average costs B. price is equal to marginal cost C. Each firm earns zero economic profit D. All of the above

C each firm earns zero economic profit

Which of the following is true of cartels

cartel members have an incentive to cheat on cartel agreements

imperfect price discrimination

charging a few different prices based on estimates of customers' reservation prices

block pricing

charging different prices for different quantities of blocks of a good

second degree price discrimination

charging different prices per unit for different quantities of the same good or service ex. single roll costs $5 but a box of four rolls of the same product costs $14

perfect price discrimination

charging each consumer exactly what he or she is willing to pay

when firms price discriminate they turn ___________ into ________ what are the blanks

consumer surplus into profit

what are the characteristics of a monopolistically competitive market

degree of substitution among products - high entry and exit- free type of product- differentiated

characteristics of monopolistic competition

differentiated products, highly substituble easy entry and exit ex. illegal petes, toothpastes, food places

two part tariff

form of pricing in which consumers are charged on entry and usage fee ex theme park and mini golf club

difference between monopolist and perfect competitors in the short run

in the short run monopolist may operate even if they are incurring economic loss while perfect competitors cannot operate if they are incurring economic loss

Single priced monopolist has....

its marginal revenue lower than its price

reservation price

maximum price that a customer is willing to pay for a good

a firm in ________ will engage In _______ to try to earn an economic profit

monopolistic competition, product differetiation

characteristics of a monopoly

no close substitutes high barriers to entry

characteristics of a perfect competition

no product differentiation perfect substitutes

profit maximizing output

output at which marginal revenue is equal to marginal cost MR=MC

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 loading

practice of charging higher prices during peak periods when capacity constraints cause marginal costs 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. ( senior discounts and student discounts)

inter temporal price discrimination

separating consumers with different demand functions into different groups by charging different prices at different points of time

variable profit

sum of profits on each incremental unite produced by a firm... profit ignoring fixed costs

if a monopolist can perfectly price discriminate then...

there will be no consumer surplus

when a monopolist engages in a perfect price discrimination what happens to the demand curve and the marginal revenue curve...

they become identical

when is bundling the most profitable

when consumers have a high reservation price for good 1 and a low reservation price for good 2 vice versa