micro chapter 14

Price Discrimination:

Selling the same product at different prices to different customers

Perfect price discrimination means charging each customer

Their maximum willingness to pay

Which of the following statements is TRUE?

To maximize profits, monopolists will always set a higher price in markets with more inelastic demand curves.

Tying:

To use one good, a consumer must use a second good that is sold only by the same firm.

Price discrimination is better than single pricing if:

Total surplus increases.

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:

perfect price discrimination.

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

possibility of arbitrage for buyers between different markets

(Figure: Price-Discriminating Monopolist) Refer to the figure. In order to maximize profits, the monopolist should charge a:

price of $16 in Market A and $10 in Market B.

Which of the following is an example of tying?

restrictions that prohibit patrons from bringing their own wine to restaurants

Price discrimination can be defined as:

selling the same product at two different prices in two different markets.

Which of the following is an example of price discrimination?

senior citizen discounts

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.

To maximize profit

the firm should set a higher price in markets with more inelastic demand

Tying is:

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

Hewlett Packard's pricing scheme is to sell printers at a relatively low price and ink cartridges at a relatively high price. This practice is known as:

tying.

Bundling is expected to provide greater profits when the two bundled goods are: I. substitutes. II. goods that have high fixed costs and low marginal costs. III. very close complements.

II and III only

How does price discrimination help cover fixed costs?

If price discrimination expands the size of the market, the fixed costs can be spread over a much larger output level.

A firm with market power can use price discrimination to:

Increase profits.

Bundling:

Requiring that products be bought together in a bundle or package

Total surplus increases with the practice of price discrimination only if:

output increases.

If the demand curves are different

it is more profitable to set different prices in different markets than a single price that covers all markets

Arbitrage does what

makes it difficult for a firm to set different prices in different markets

Requiring goods to be bought together in a single package is called

Bundling

Figure: PPD Monopolist Refer to the figure. A monopolist who cannot price discriminate earns profit equal to area(s) ________, and a monopolist practicing perfect price discrimination earns profit equal to areas ________.

b; abc

The difference between tying and bundling is that:

bundled goods are sold one to one, while tied goods are sold one to many.

Under perfect price discrimination:

each customer is charged his or her maximum willingness to pay

Perfect price discrimination:

each customer is charged his or her maximum willingness to pay.

To maximize profit the monopolist should set a:

higher price in markets with more inelastic demand.

In general, price discrimination exists because:

higher prices are charged because some customers are willing to pay more.

Airlines try to differentiate their customers by willingness to pay based on:

how long in advance a person books their flight.