Multiple choice
Price discrimination is...
Common in the economy and Charging different prices for the same good
In order to implement third degree price discrimination, a firm must be able to
Identify consumer groups by some observable characteristic
Firms wishing to price discriminate confront two problems:
Identifying different types of customers and avoiding arbitrage by customers
Third degree price discrimination is also known as
Linear pricing
If the monopolist engages in third degree price discrimination selling the same product to two distinct markets 1 and 2, what is one profit maximizing rule that must be followed?
MRmarket1 = MRmarket2
Standard oil enjoyed the benefits of second degree price discrimination in the form of price rebates from the railroads. Standard Oil received these rebates in part because it operated as an evener for the railroads. What does this imply?
Standard oil evened out shipments between railroads to keep them from pricing too low.
Under first degree price discrimination, social welfare (total surplus)
always increases
Increasing total welfare always means
consumer surplus increases, consumer surplus remains static, consumer surplus declines
In practicing third degree price discrimination, firms must follow this rule:
consumers with low elasticity of demand should be charged a higher price
Under horizontal product differentiation, firms serve different types of customers by offering products with:
different characteristics
A tie in sale normally implies
different users are charged different prices depending on usage
Under first degree price discrimination, the firm ends up
extracting the whole consumer surplus
The decision by firms to bundle products
must be decided on a case by case basis
One of the reasons the Standard Oil Trust Act was created in 1882 was:
to combine all of the standard oil companies into one group, to make them more efficient
Second degree price discrimination is called "non-linear" because
unit price depends on quantity purchased
