Chapter 14

Which of the following BEST explains why it is so difficult for firms to perfectly price discriminate?

it is very difficult to know exactly every consumer's willingness to pay.

arbitrage

taking advantage of price differences for the same good in different markets by buying low in one market and selling high in another market

Karl values Word at $100 and Excel at $40, and Adam values Word at $20 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?

$100 for Word; $90 for Excel

(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?

$4.00

(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 c units of output?

A firm will not sell beyond c units of output. The marginal cost is greater than consumers' willingness to pay for these units.

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

a fixed cover charge to enter a club

Which of the following is NOT an example of tying?

automobile and engine

Which of the following conditions would prevent a firm from setting different prices in different markets?

possibility of arbitrage for buyers between different markets

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.

A sales manager at a car dealership revealed that he considers how much the customer appears to know about the car when he's negotiating a price. Ignorant people tend to pay a premium on their car. Price discrimination explains this "ignorance premium," since people who:

don't bother to research are probably less sensitive to price.

U.S. public universities price discriminate most directly according to:

family income level and state residency status

Without price discrimination:

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

A perfectly price-discriminating monopoly causes:

maximum social surplus.

Arbitrage usually makes it ______ for a firm to profitably engage in price discrimination.

more difficult

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:

price discrimination

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

tied