Chapter 11: Price Discrimination

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket. What will be the amount of EJH Cinemas' total revenue if the price is $7 per ticket? a. $250,000 b. $210,000 c. $180,000 d. $140,000 e. $105,000

b

Best-available rate $289 90-day-advance purchase $230 AARP member rate $260 Military/government rate $13516. The hotel attempts to distinguish between groups of buyers to: a. attract buyers who wish to practice conspicuous consumption. b. assign prices based on the differing price elasticities of demand. c. control the rising costs of hotel ownership. d. appear to offer choice to the consumer. e. deter last-minute reservations.

b.

Customer Maximum Willingness to Pay Age Harold $400 50 Jay $300 45 Leslie $350 42 Kristen $250 21 Ivana $200 20 Matt $150 18 SkyMasters, Inc. has decided to charge two different prices, a high price and a low price, based on age. Which age group would pay the higher price? a. Customers over the age of 50 would pay more. b. Customers age 40 and over would pay more. c. Customers age 21 and over would pay more. d. Customers under the age of 21 would pay more. e. Customers over the age of 16 would pay more.

b.

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.What will be the amount of EJH Cinemas' total revenue if the price is $9 per ticket? a. $250,000 b. $210,000 c. $180,000 d. $140,000 e. $105,000

c

If a firm is unable to distinguish which of their buyers has inelastic demand and which has a relatively elastic demand, then the firm will be unable to price discriminate because they will: a. not know how much of the product to offer for sale. b. not know enough about their customer base to prevent resale. c. not know which price to charge which customer. d. not know how many of their customers will buy the product when it is offered for sale. e. be unable to predict how much of their sales will be retained as profit.

c

The Varsity, located in downtown Atlanta, is the world's largest drive-in restaurant. Located near theGeorgia Tech campus, the drive-in attracts two distinct types of customers: college students and visitors toAtlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, witha maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.51.What will be the amount of total revenue for the Varsity if the owners offer a single price of $8 per combo meal? a. $90,000 b. $85,000 c. $80,000 d. $65,000 e. $40,000

c

Which of the following is a real-world example of an attempt at perfect price discrimination? a. a restaurant's blue-plate special b. a discount on preinstalled computer software c. a car dealership selling an automobiled. a college's varying tuition rates, depending on state of residence e. an advertisement for "buy one, get one free" pizza before 3:00 P.M.

c

Customer Maximum Willingness to Pay Age Harold $400 50 Jay $300 45 Leslie $350 42 Kristen $250 21 Ivana $200 20 Matt $150 18 SkyMasters, Inc. has decided to charge two different prices, a high price and low price, based on age. Calculate the increase in total revenue the company gains from its practice of price discrimination versus what it would earn if it charged a single price to all customers. a. $1,300 b. $1,200 c. $650 d. $300 e. $100

d

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.What is the amount of consumer surplus if the price is $9 per ticket? a. $120,000 b. $90,000 c. $80,000 d. $40,000 e. $0

e

The Varsity, located in downtown Atlanta, is the world's largest drive-in restaurant. Located near theGeorgia Tech campus, the drive-in attracts two distinct types of customers: college students and visitors toAtlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, witha maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.51.What is the amount of total consumer surplus if the Varsity offers the combo meal at the single price of $9 per meal? a. $20,000 b. $15,000 c. $10,000 d. $5,000 e. $0

e

A firm can be identified as practicing price discrimination when: a. consumers engage in comparison shopping to find the lowest advertised price. b. firms behave as price-takers, whereas consumers react with price-making behavior. c. buyers in a perfectly competitive market are able to influence the prices that firms set. d. producers pass on differences in costs to those price-conscious consumers willing to buy in bulk. e. producers set different prices for distinct groups of consumers, despite selling identical products to each group.

e.

Firms engage in price discrimination primarily to: a. avoid a harmful activity. b. retain monopoly power. c. use customers efficiently. d. keep prices hidden. e. make additional profits.

e.

Internet service providers such as Comcast are able to price-discriminate easily for manyreasons. Which of the following is a reason for them to price-discriminate? a. They offer better services than the competition. b. They can easily identify new customers from old customers. c. They let the customers choose from different packages based on income. d. There are many competitors providing Internet services. e. Some companies offer additional services such as cable and phone.

b.

One benefit of price discrimination is that: a. firms are able to provide goods to consumers at a consistent price. b. some consumers are able to buy the product at a lower price than would otherwise exist. c. all consumers are able to gain monopsony power. d. most firms minimize revenue. e. it exists only in theory, not in the real world.

b.

Price discrimination can help improve efficiency in the market because goods are sold to more people, thus increasing profits. If all consumers have similar tastes, will a firm be able to price-discriminate? a. Yes, because the market is homogeneous b. Yes, as long as reselling is prohibited in the market c. No, because the firm will not be able to distinguish among groups of consumers d. No, because the similarities among consumers will lead to collusion among buyers e. Yes, because there will be a monopoly in the market (because all consumers want to purchase the same goods and services)

c.

Secondary price discrimination, represented by the $5 foot-long sandwich available fromSubway, occurs when the price per unit: a. is consistent over time. b. varies from month to month. c. varies with the quantity sold. d. varies from producer to producer. e. is determined by the consumer's willingness to pay.

c.

An example of price discrimination is when: a. movie theaters do not allow children into R-rated movies without a parent or guardian. b. you can purchase a new PC for half the price of a new Mac, even though they are both computers. c. Procter & Gamble charges $9 for a bottle of Tide laundry detergent, while the store brand costs the consumer significantly less, despite being somewhat similar products. d. out-of-state students pay more for the same education as in-state students. e. a single box of Froot Loops costs $3.50, but when purchased in a case of six, it costs only $3.00 per box.

d

Customer Maximum Willingness to Pay Age Harold $400 50 Jay $300 45 Leslie $350 42 Kristen $250 21 Ivana $200 20 Matt $150 18 If SkyMasters, Inc. decides to price-discriminate based on age, which customer(s) will not skydive based on the price that should be offered to his, her, or their age group. a. Jay b. Harold and Jay c. Kristen and Harold d. Matt e. Ivana

d

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket. What is the amount of consumer surplus if the price is $7 per ticket? a. $120,000 b. $90,000 c. $80,000 d. $40,000 e. $0

d

Customer Maximum Willingness to Pay Age Harold $400 50 Jay $300 45 Leslie $350 42 Kristen $250 21 Ivana $200 20 Matt $150 18 If SkyMasters, Inc. could charge two different prices based on the age of the customer, what would those prices be? a. $300 and $200 b. $350 and $200 c. $400 and $150 d. $400 and $200 e. $250 and $100

a.

In a price discrimination setting, who pays the higher price for the same good? a. The consumers with the most inelastic demand pay the highest price. b. The consumers with the most elastic demand pay the highest price. c. All consumers pay the same high price. d. It is unknown which consumers would pay the higher price. e. The consumers with the most inelastic supply pay the highest price

a.

In a price discrimination setting, people with the most inelastic demand: a. pay the lowest price for the same good. b. pay the same price as everybody else. c. pay the highest price for the same good. d. pay either a higher or a lower price. e. do not buy the good.

c.

For a firm to be able to practice price discrimination, it must be a: a. price-maker. b. cost producer. c. price practitioner. d. price-taker. e. profit maker

a

The Varsity, located in downtown Atlanta, is the world's largest drive-in restaurant. Located near theGeorgia Tech campus, the drive-in attracts two distinct types of customers: college students and visitors toAtlanta. The owners are considering offering a student discount of $1 off their combo meal, which isregularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximumwillingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, witha maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal andthe marginal cost is $5.51. What will be the amount of the Varsity's total revenue before the offer of a student discount when the single price of $9 per combo meal goes into effect? a. $90,000 b. $85,000 c. $60,000 d. $45,000 e. $35,000

d

When a market model moves from that of a monopoly to one in which perfect price discrimination is practiced, the deadweight loss: a. increases. b. remains unchanged. c. can increase or decrease depending on the type of loss. d. decreases. e. fluctuates.

d

One reason that firms may be unable to utilize price discrimination as a viable strategy is because: a. it is always illegal to price-discriminate. b. firms are unwilling to maximize profits. c. most consumers' reservation prices are well publicized. d. firms are unable to prevent resale of the product they offer for sale. e. firms are unlikely to increase profits after paying for increased marketing costs.

d.

Price discrimination exists when a firm sells __________ goods at more than one price to__________ groups of customers. a. different; similar b. existing; distinct c. discounted; large d. identical; different e. limited; restricted

d.

In 1996, Victoria's Secret shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with higher prices for those same items. Victoria's Secret was practicing: a. monopolistic competition. b. reservation pricing. c. price retention. d. efficient pricing. e. price discrimination.

e

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone but only $7 for a ticket if you show your university identification(students, faculty, and staff), what will be the amount of consumer surplus? a. $0 b. $5,000 c. $15,000 d. $20,000 e. $25,000

a

EJH Cinemas, a movie theater next to your university, attracts two types of customers: those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area.There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone but only $7 for a ticket if you show your university identification(students, faculty, and staff), what will be the movie theater's total revenue? a. $250,000 b. $200,000 c. $180,000 d. $170,000 e. $150,000

a

Many electronic brands such as Apple, HP, and Epson typically offer refurbished products at lower prices. In this case, these companies are: a. not discriminating prices because the refurbished products are different from the new products. b. price-discriminating because they offer a similar product at a lower price. c. price-discriminating because they offer those discounts only online. d. not discriminating because people can buy the same products in retail stores. e. are not discriminating because they are price-takers, not price-makers

a

Perfect price discrimination occurs when a firm is able to: a. charge each buyer the highest price she or he is willing to pay for the good. b. identify at least two different groups of buyers. c. determine the difference between a seller's reservation price and the buyer's reserve price. d. prevent frequent reselling of its product. e. determine the prices that should be charged to generate the largest amount of consumer surplus

a

Why would the hotel require a guest to provide appropriate identification to receive theAARP member rate, the military rate, or the government rate? a. to prevent resale of discounted rooms to other buyers not eligible for the discounted price b. to honor those who serve in the military and offer support to the troops c. to encourage active membership in the American Association of Retired Persons(AARP) d. to ensure that distinguished government guests are assigned the appropriate costs e. to limit the number of patrons who receive each type of rate

a