EXAM 4

Two-part tariff pricing offers a mechanism whereby the firm charges two different prices to distinct groups of customers. can capture some or all of the consumer surplus. collects two times as much in revenue from consumers as a single-price monopoly. will reduce some of its fixed costs.

can capture some or all of the consumer surplus.

A monopolist can charge different prices for online and offline customers, this is an example of two-part tariff. bundling. third-degree price discrimination. first-degree discrimination.

third-degree price discrimination.

The figure is drawn for a monopolistically competitive firm. The firm's profit-maximizing price is 12 8 18 24

18

Suppose a firm with market power is considering implementing a two-part tariff. The firm faces two types of consumers: one that has a consumer surplus of 180 and one has a consumer surplus of 240. What should the firm set the access fee to in order to maximize profits? 360 none of the answers is correct 240 420 180

180

Which of the following has the same output as in a competitive market? Monopolistic competitive firm 1st degree price discriminating monopolist None of the answers are correct Non-price discriminating monopolist

1st degree price discriminating monopolist

Assume a company can offer customers cable television and internet service at a marginal and average cost of $15 for each individual unit. Also assume the company does not price discriminate. The table shows each customer's marginal willingness to pay for television and internet services. What is the maximum profit if the firm can bundle? Television Internet Alex $170 $150 Rebecca $140 $210 480 580 680 780

580

Diane is considering starting her own commercial airline. Her industry research yields the following facts. Airline passengers are not very loyal to particular airlines and are very price sensitive, despite frequent flyer programs. The vast majority of commercial jets are produced by Airbus and Boeing. In the United States, there are 17 major air carries and 42 other carriers. These numbers fluctuate from year to year. For instance, in 2008 there were 22 major carriers and 65 other carriers. Communication technology continues to improve, and more and more businesspeople are choosing to use communication technology for business meetings. Which of the following about the five forces analysis of the airline industry are true? The fact that "airline passengers are not very loyal to particular airlines and are very price sensitive, despite frequent flyer programs" suggests that buyer power is a strong force against airline profits. The fact that "the vast majority of commercial jets are produced by Airbus and Boeing" suggests that supplier power is a strong force against airline profits. All of the answers are correct. None of the answers is correct. The five-forces industry analysis suggests that airlines is not a profitable industry for Diane to enter.

All of the answers are correct.

Assume a company can offer customers cable television and internet service at a marginal and average cost of $20 for each individual unit. Also assume the company does not price discriminate. The table shows each customer's marginal willingness to pay for television, internet services, and for a bundle containing both. Which strategy yields the maximum profit, and what maximum profit is obtained? Television Internet Alex $200 $120 Rebecca $160 $200 Bundle and make a profit of $600. Sell separately and make a profit of $360. Sell separately and make a profit of $480. Bundle and make a profit of $560.

Bundle and make a profit of $560.

The figure is drawn for a monopolistically competitive firm. If the AC=16 at the profit-maximizing level of output, which of the following will occur in the long run in this industry? This firm will continue to earn positive economic profits. Firms will exit this industry. This firm will continue to earn negative economic profits Firms will enter this industry.

Firms will enter this industry.

A typical firm in a cartel will hold which of the following beliefs? If I suspect others are planning to cheat, I'll do best for myself by deciding not to cheat. If everyone cheats, I'm better off, and so is everyone in the cartel. If I alone cheat, I'm better off; if everyone cheats, I'm worse off. I can never do better for myself than following agreed-upon cartel rules.

If I alone cheat, I'm better off; if everyone cheats, I'm worse off.

What happens to an incumbent firm's demand curve in monopolistic competition as existing firms exit? It shifts right. Firms exiting the market will not affect an incumbent firm's demand curve. It shifts left. It becomes flatter.

It shifts right.

Which of the following firms is most likely to be in monopolistic competition? Why? McDonalds, barriers to entry None of the answers are correct Tucson Electric power, barriers to entry McDonalds, product differentiation Tucson Electric power, product differentiation

McDonalds, product differentiation

A firm that faces a flat demand curve for its product None of the answers is correct can increase profit through effective advertising. has strong brand loyalty. has successfully differentiated its product.

None of the answers is correct

Which types of markets have barriers to entry? Oligopoly and monopoly Monopolistic competition and oligopoly Only perfect competition Only monopolistic competition Only oligopoly

Oligopoly and monopoly

Suppose a monopoly sells to two identifiably different types of customers, A and B, who are unable to practice arbitrage. The inverse demand curve for group A is PA=40−2QA, and the inverse demand curve for group B is PB=30−QB. The monopolist is able to produce the good for either type of customer at a constant marginal cost of 20, and the monopolist has no fixed costs. If the monopolist practices group price discrimination, the profit maximizing prices charged to each type of customer are None of the answers is correct PA = 10 and PB = 10. PA = 7.5, and PB = 15. PA = 25, and PB = 20. PA = 30, and PB = 25.

PA = 30, and PB = 25.

A firm with market power has identified two different market segments (students and non-students) for which demand differs. Its marginal cost is constant and does not differ by market segment. The firm engages in third-degree price discrimination. After selling all of its output, the firm discovers that the marginal revenue it earned on the last unit sold to students was $300 and the marginal revenue it earned on the last unit sold to non-students was also $300. For the given amount of output that the firm produced, which of the following is true? The firm is maximizing profit at the current output and prices To maximize profit the firm should have sold less output in the student market and more in the non-student market. To maximize profit the firm should have sold more in the student market and less in the non-student market. To maximize profit the firm should have sold where MR was zero in both markets.

The firm is maximizing profit at the current output and prices

Which of the following conditions must be true so that a firm can price discriminate? The firms must be able to prevent resale The good is durable. There are no other firms in the market. Demand must be inelastic. All of the answers are correct.

The firms must be able to prevent resale

What is the aspect of monopolistic competition that is most distinct from perfect competition? zero profits perfect information free entry/exit differentiated products

differentiated products

Which of the following is NOT true? In the long run in monopolistic competition, a firm All of the answers are true. sets P > MC. has no excess capacity earns an economic profit of zero. sets MR = MC.

has no excess capacity

A monopolist has identified two different market segments and is considering charging a different price in each segment. The monopolist should charge the __________________ group a higher price. less elastic lower demand more elastic higher demand

less elastic

Sara's gift shop has constant marginal cost of $6. It has estimated that students have constant demand elasticity of -3 while non-students have a constant demand elasticity of -2. To maximize profit, Sara should charge students $9 and non-students $6. students $12 and non-students $18. students $9 and non-students $12. students $12 and non-students $15

students $9 and non-students $12.

Many cellphone plans charge a monthly plan fee as well as a per unit fee for each minute or each megabyte used. This is an example of: bundling third-degree price discrimination. second-degree price discrimination first-degree discrimination. two-part tariff.

two-part tariff.