Ch. 14 Homework

A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as: a. insightful pricing. b. perfect price discrimination. c. price tying. d. pricing market-to-market.

b. perfect price discrimination.

(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—what price should the monopolist charge in market A? a. $10 b. $5 c. $7 d. any price higher than $10

$10

In which of the following industries may price discrimination be good? A. Industries with poor consumers B. Industries with high fixed costs of production C. Industries with low marginal costs of production D. price discrimination is never good as it lowers total surplus in society

B. Industries with high fixed costs of production

Economists call selling the same product at different prices to different customers: A. price racism B. price discrimination C. arbitrage D. bundling

B. price discrimination

Price discrimination is good if output: A. falls under price discrimination B. stays the same under price discrimination C. increases under price discrimination D. is no longer produced under price discrimination

C. increases under price discrimination

An important lesson of price discrimination is that: A. price discrimination always leads to lower profits in one of the two markets B. firms can increase profits by differentiating their products C. all firms can perfectly price discriminate D. it only increases profits when the demand curves in two different markets are NOT the same

D. it only increases profits when the demand curves in two different markets are NOT the same

(Figure: Perfect Price Discrimination) Refer to the figure. For a firm practicing perfect price discrimination, calculate the dollar amount of consumer surplus in this market. a. $0 b. $15,000 c. $5,000 d. $20,000

a. $0

(Table: Willingness to Pay) Refer to the table. What is John's maximum willingness to pay for the bundled goods? a. $120 b. $30 c. $105 d. $90

a. $120

(Table: Fast Food) This table represents Chris's and Jim's maximum willingness to pay for certain fast-food items. The marginal cost of making a hamburger is $0.50 and the marginal cost of an order of French fries is $0.25. If this firm sets prices individually, what price for hamburgers would maximize profits across these two consumers? a. $4.00 b. $2.00 c. $0.50 d. a price between $2.00 and $4.00

a. $4.00

(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—through the process of price discrimination, how much profit is the monopolist making in market A? a. $450 b. $270 c. $830 d. $627.50

a. $450

Adults have more money than teenagers and perhaps more inelastic demand for video games than teenage video gamers. Why might it be difficult to price discriminate based on this fact? a. Teenage gamers could exploit arbitrage opportunities, buying games at the low price and reselling them to adult gamers. b. The monopolist might not want to segment the market. c. It is impossible to tell who is a teenager and who is an adult. d. It is not true that adults have more money than teenagers.

a. Teenage gamers could exploit arbitrage opportunities, buying games at the low price and reselling them to adult gamers.

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? a. charge a relatively low price for the electric shaver and a relatively high price for replacement blades b. charge a relatively high price for the electric shaver and a relatively low price for replacement blades c. charge a relatively low price for the electric shaver and offer free replacement blades d. charge the same price for the electric shaver and replacement blades

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

Airlines price discriminate by offering both business-class and economy-class service on flights (it's not just the cost of the service that varies; the markup is higher on business class). If they wanted to ensure that everyone who could afford to travel business class did so, what might they do? a. make the seats in economy class extra small and cramped, and serve terrible food b. make the seats in business class extra small and cramped, and serve terrible food c. lower the price of traveling economy class d. hire more attractive flight attendants for all classes

a. make the seats in economy class extra small and cramped, and serve terrible food

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: a. market A no worse off but consumers in market B worse off. b. both market A and market B worse off. c. market B no worse off but consumers in market A worse off. d. both markets better off, as single pricing is always better for consumers than price discrimination.

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

(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort bundles a one-night stay with a round of golf, it will charge: a. $110. b. $130. c. $190. d. $145.

b. $130.

(Table: Maximum Willingness to Pay for Word and Excel) Refer to the table. If Microsoft bundles Word and Excel and sells them as Office, what is the maximum profit Microsoft can make from selling Office? (Assume the marginal costs of production are zero.) a. $320 b. $300 c. $210 d. $160

b. $300

(Table: Fast Food) This table represents Chris and Jim's maximum willingness to pay for certain fast-food items. The marginal cost of making a hamburger is $0.50 and the marginal cost of an order of French fries is $0.25. If this firm bundles hamburgers and French fries into a combo meal, what price should it charge for the meal to maximize profits across these two consumers? a. $2.00 b. $4.00 c. $2.50 d. $4.50

b. $4.00

(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—through the process of price discrimination, how much profit is the monopolist making in market B? a. $780 b. $520 c. $1,040 d. $260

b. $520

Airlines price discriminate prominently by charging _______ more than _________. a. senior citizens; young adults b. business travelers; vacationers c. vacationers; business travelers d. young adults; senior citizens

b. business travelers; vacationers

A monopolist that is able to perfectly price discriminate will end up producing a level of output: a. less than the efficient market output. b. equal to the efficient market output. c. less than the level of output of a monopolist that does not price discriminate. d. greater than the efficient market output.

b. equal to the efficient market output.

(Figure: Monopolist) Refer to the figure. Based on the demand curves for a monopolist's product in two different markets—market A and market B—what price should the monopolist charge in market B? a. $7 b. $5 c. $9 d. any price higher than $5

c. $9

(Figure: PPD) Refer to the figure. A firm that perfectly price discriminates will sell: a. c units of output. b. a units of output. c. b units of output. d. d units of output.

c. b units of output.

A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 rubles ($15.00). This practice is an example of: a. international price mediation. b. price manipulation. c. price discrimination. d. price exploitation.

c. price discrimination.

(Figure: Perfect Price Discrimination) Refer to the figure. Which curve represents the marginal revenue ( MR) curve for the monopolist who practices perfect price discrimination? a. the average cost curve b. a downward-sloping line that lies beneath the demand curve c. the demand curve d. the marginal cost curve

c. the demand curve

(Table: Myrtle Beach Golf) Refer to the table. Assume the firm has zero costs. If the resort sets prices for lodging and golf individually, it will charge ________ for one night's stay and ________ for one round of golf. a. $80; $57.50 b. $50; $110 c. $50; $35 d. $110; $80

d. $110; $80

A perfectly price-discriminating monopolist produces until: a. P = MR. b. MR = MC. c. MR = AC. d. P = MC.

d. P = MC.

(Figure: PPD) Refer to the figure. Which of the following statements best explains why a firm that perfectly price discriminates would sell additional units beyond a units of output? A firm will not sell beyond a units of output, since the marginal cost is greater than the marginal revenue for these units. b. A firm will not sell beyond a units of output. The firm will sell only exactly a, as it is the profit-maximizing rate of output for this firm. c. The marginal cost is greater than consumers' willingness to pay for these units. d. The marginal cost is less than consumers' willingness to pay for these units.

d. The marginal cost is less than consumers' willingness to pay for these units.

A perfect price-discriminating seller: a. maximizes consumer surplus. b. charges a single price. c. cannot prevent arbitrage. d. eliminates deadweight loss.

d. eliminates deadweight loss.

(Figure: Price-Discriminating Monopolist) Refer to the figure. In order to maximize profits, the monopolist should charge a: a. price of $16 in market A and $6 in market B. b. price of $14 in market A and $9 in market B. c. uniform price of $6 in both markets. d. price of $16 in market A and $10 in mar

d. price of $16 in market A and $10 in mar

A monopolist facing different demand curves in two separate markets maximizes profit by: a. completely ignoring the market with higher demand. b. completely ignoring the market with lower demand. c. setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve. d. setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market.

d. setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market.