Microeconomics Final Exam

Jonathan values Word at $100 and Excel at $90, and Ashley values Word at $80 and Excel at $60. If the programs are sold as a bundle, what is the profit- maximizing price?

$140

Although price discrimination my increase the profits of drug companies, it reduces the incentive for drug companies to develop new drugs.

False

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of?

arbitrage

Which of the following industries would find it easier to establish a cartel

automobile manufacturing

Which of the following is NOT an example of tying?

automobiles and engines

If arbitrage becomes extensive, a price-discriminating monopolist selling its patented drug in two markets will:

begin to charge the same price in both markets.

LexisNexis sells _____ access to online periodicals

bundled

Bundle pricing makes sense for cable operators because:

customers have a high willingness to pay for some channels and a low willingness to pay for others

Major league basketball, the NBA, is cartelized to:

keep down players' salaries

(Table: Oil Output)Refer to the table. The situation between Iraq and Iran is similar to a:

prisoners dilemma

Which of the following is NOT an example of price discrimination?

product innovations leading to lower prices

One would expect more arbitrage to occur between two markets if:

products are nondifferentiated and the different markets have good transportation networks between them.

Price discrimination is used when a seller faces different demand curves in different markets because:

profits are greater than when selling a a single price

Bundling increases _______ and hence increases the incentives to ________

profits; innovate

Which of the following is NOT an easy way to split markets in order to practice price discrimination?

relying on the self-reported marital status of customers

Which of the following is an example of tying?

restrictions that prohibit patrons from bringing their own wine to restaurants

Movie theaters typically price discriminate by charging _____ a lower price than _____

senior citizens; young adults

(Table: Myrtle Beach Golf) Refer to the table. Assume that marginal costs of production are zero. If the resort bundles a one-night stay with a round of golf, how much profit will it make on David and John?

$260

Suppose that there are four consumers whose maximum willingness to pay for a good are $20, $15, $8, and $4, respectively. A firm can produce and sell the good at a constant marginal cost of $6. If the firm practiced perfect price discrimination, its total revenues would equal:

$43

(Table: Willingness to Pay) Refer to the table. Assume the firm has zero costs. If the firm were to set individual prices for each of the two goods, how much total profit does it earn from good B?

$70

(Figure: Price-Discriminating Monopolist 2) The perfectly price-discriminating monopolist in this diagram will produce _____ units of output, and a single-price monopolist would produce ______ units of output.

8; 4

Which of the following is an example of price discrimination?

All of the answers are correct

Which of the following is a real example of price discrimination?

All of these examples are real

Haircuts for men are often cheaper than haircuts for women, even when they are offered by the same stylist. Why might this be price discrimination?

Demand for haircuts for women might be more inelastic than demand for haircuts for men, and haircuts are impossible to arbitrage.

Arbitrage makes it easier for a firm to set different prices in different markets

False

In markets with different demand curves for the same good, different prices generate less profit with a single price

False

Oligopolies are large dominant firms that could influence the industry output but not the industry price.

False

To maximize profit, a monopolist should charge a lower price in the market with the steeper demand curve.

False

Suppose that an industry consists of a two-firm cartel: firm A and firm B. Each firm agrees to produce and sell only 100 units of output per week. This level of output maximizes total industry profit. Which of the following is TRUE?

Firm A could increase its profit by producing and selling a little more than 100 units of output.

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases?

The market is larger for more common diseases, so it is more likely drugs would be developed for the common diseases.

Airlines engage in price discrimination.

True

Airlines price discriminate according to time of ticket purchase

True

Governments create barriers to entry with licenses or other regulations that limit entry

True

Tacit collusion occurs even without explicit agreement or communication

True

To maximize profit, a monopolist should charge a higher price in the market with the more inelastic demand curve.

True

To succeed at price discrimination the monopolist must prevent arbitrage

True

Tying is an example of price discrimination in which customers must buy a second product from the same firm that sold the first product.

True

Which of the following statements is true?

When a cartel cheater increases quantity beyond the profit-maximizing quantity of a monopoly, the cheater hurts other cartel members.

Which of the following is NOT an example of price discrimination through bundling?

a bag of chips

Tying is:

a type of price discrimination

PCs are typically _____ with a Windows operating system.

bundled

Which of the following is TRUE?

bundling has come under attack in the cable TV industry, but not in other industries

Airlines price discriminate prominently by charging _____ more than_____.

business travelers; vacationers

The National Basketball Association is a:

buyer's cartel

Arbitrage is ________ in one market and ________ in another market.

buying low; selling higher

In April 2011, Procter & Gamble and Unilever received fines of 315 million euros by the European Commission for fixing the price of laundry detergent in eight European countries. They admitted to this cartel, which resulted in a 10 percent discount in the fines. The 3-year investigation started because of a tip-off by another competitor, Henkel, who was also part of the price-fixing scheme. Henkel received no fine because of its cooperation with investigators. Besides the fines, how did investigators make maintaining this cartel difficult to continue?

by waiving the fine for just Henkel, which encourage Henkel to cheat

A company that produces men's electric shavers reasons that people who highly value being clean-shaven will buy a lot of replacement blades; on the other hand, people who place a low value on being clean shaven will rarely buy replacement blades. What type of pricing strategy will maximize profits for this company?

charge a relatively low price for the electric shaver and a relatively high price for replacement blades

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?

decrease

The more a firm knows about _____, the easier it is for them to _____

demand; price discriminate

Pharmaceuticals with high fixed costs can benefit with the practice of price discrimination because:

extra profit from customers paying low prices allows pharmaceuticals to cover part of the fixed costs.

Price discrimination is bad if total surplus increases with a decrease in output

false

Without price discrimination:

firms in industries with high fixed costs will have less incentive to innovate.

To maximize profit the monopolist should set a:

higher price in markets with more inelastic demand.

To which of the following groups would a monopolist typically charge the lowest price ?

individuals with a very elastic demand

An important lesson of price discrimination is that:

it increases profits only when the demand curves in two different markets are not the same

A firm practices price discrimination by selling at a high price in its larger market, market A, and a lower price in its smaller market, market B. If this firm is forced to sell at a single price in both markets and opts for the original price in market A, the new single-pricing strategy makes consumers in:

market A no worse off but consumers in market B worse off.

One reason cartels have limited power is that demand curves become:

more elastic over time.

If demand curves are different in two markets, it is _______ to set different prices in each market than to set a single price

more profitable

Tying is:

the practice of a firm selling one product that requires the consumer to purchase another of the firm's products.

Price discrimination is defined as selling:

the same product at different prices to different customers

Samsung makes refrigerators with water dispensers. The water dispensers work best with Samsung water filters. These two products are:

tied.

Customers are ____ refusing to join the loyalty plan only if _____of them refuse

worse off; all or most