Econ 1B Ch 11 test questions

For a perfectly competitive market, calculate producer surplus.

$0

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?

$0

If the Varsity decides to practice price discrimination, what will be the amount of consumer surplus if it charges most customers $9 for a standard combo meal but charges a reduced price of $8 for only those customers who show their student identification cards?

$0

What is the amount of consumer surplus if the price is $9 per ticket?

$0

What is the amount of total consumer surplus if the Varsity offers the combo meal at the single price of $9 per meal?

$0

Assume that SkyMasters, Inc. follows the profit-maximizing rule and that the company charges a single price for skydiving. Calculate the company's total revenue.

$1,000

If the firm can price-discriminate perfectly, calculate producer surplus.

$160

If you could charge a different price to each consumer in both cities (perfect price discrimination), how much more would you earn compared to when you can charge a single price to everyone (monopoly)?

$18

What will be the amount of EJH Cinemas' total revenue if the price is $9 per ticket?

$180,000

ECON-Jammin' has recently discovered that its fans are made up of two distinct groups, which they can easily distinguish. They have decided to utilize their economic knowledge and offer a high-priced ticket of $40 per person and a low-priced ticket of $20 per person. Based on this information, what is the gain in net revenue from using price discrimination versus a single-price model?

$200

If you are a profit-maximizing firm and you can charge a single price in both cities, how much would your profit be?

$25

If ECON-Jammin' charges a single price for their concert tickets and follows the profit-maximizing rule for the perfectly competitive firm, what will be the price that is charged?

$30 per ticket

ECON-Jammin' has recently discovered that its fans are made up of two distinct groups, which they can easily distinguish. They have decided to utilize their economic knowledge and offer a high-priced ticket of $40 per person and a low-priced ticket of $20 per person. Based on this information, what is the net revenue earned by the sales of the low-priced ticket?

$300

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.

$300

If SkyMasters, Inc. could charge two different prices based on the age of the customer, what would those prices be?

$300 and $200

What is the amount of consumer surplus if the price is $7 per ticket?

$40,000

If ECON-Jammin' charges a single price to see its band in concert and follows the profit-maximizing rule for the perfectly competitive firm, how much net revenue will be generated?

$400

For a monopoly that charges a single price of $6, calculate producer surplus.

$80

What will be the amount of total revenue for the Varsity if the owners offer a single price of $8 per combo meal?

$80,000

Consider the accompanying table. You are the only provider of bottled water for three cities. Because you have access to a natural spring, the marginal cost to produce an additional bottle is $0. How many bottles of water would you need to produce to maximize your profits and at what price would you sell it?

11 bottles at $11 each

You are the only provider of bottled water for three cities. Because you have access to a natural spring, the marginal cost to produce an additional bottle is $0. If you could price-discriminate by charging a different price in each city, how many more people would have access to bottled water compared to when you charge only one price for all three cities?

2 more people

It is very hot today, and the ice cream sandwiches melt quickly after you take them out of your cooler. This gives you the advantage of being able to sell each ice cream at a different price for each person in both cities. How many ice cream sandwiches would you sell in both cities?

8

For a monopoly that charges a single price of P1, which area(s) are designated as consumer surplus?

A

For a perfectly competitive market, which area(s) are designated as consumer surplus?

A + B + C

Which of the following situations is considered price discrimination?

Barnes and Noble offers books at a lower-than-market price to members, who must pay an annual fee.

If a "smart vending machine" were placed outside your classroom and it took other factors in addition to temperature into account when setting its price, what would likely happen to prices for caffeinated beverages during spring semester's exam week?

Because demand for chemical alertness would likely be higher during this time and the weather would be warmer, we expect the price of cola to be higher.

Assuming that the airline faces a constant cost of production each month for a flight, why is it beneficial for the airline to charge different prices each month?

Because the airline is able to separate its customers into distinct groups—those who must travel during the summer months and those who can travel any time of the year—it is able to price-discriminate and enjoy higher profits.

For a monopoly that charges a single price of P1, which area(s) are designated as deadweight loss?

C

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?

Customers age 40 and over would pay more.

Which of the following statements is true?

Firms that can prevent reselling can engage in price discrimination.

Your campus financial aid office uses what tool to separate students into distinct groups based on family income?

Free Application for Federal Student Aid (FAFSA)

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.

Matt

Assume that SkyMasters, Inc. follows the profit-maximizing rule and that the company charges a single price for skydiving. Which potential customer(s) will not purchase a skydiving experience?

Matt and Ivana

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?

No, because the firm will not be able to distinguish among groups of consumers

How does coupon clipping allow for price discrimination?

One price is charged to people who put forth the effort to use the coupon, while another price is charged to consumers for whom the marginal cost of finding and using the coupon is greater than the marginal benefit of a lowered price.

Teryn booked a flight to Boston for her little sister's wedding. When she boarded the plane, she found out that Frugal Fred, in the seat beside her, paid $100 less for his ticket. Why did Teryn pay a higher price for her flight?

She is more price-inelastic because she would not dream of missing her sister's wedding.

Assuming that both companies face the same market demand curves, marginal costs, and costs of production, and wield significant market power for their service area, which of the following is most likely to occur?

Sky Warriors will generate a higher net revenue than Air Adventures.

At the Kickin' Chicken Family Restaurant, which of the following menu items represents the company's attempt to price-discriminate?

The "chicken little tenders appetizer with fries" costs $8.99 while a "kickin' chicken tender basket with fries" costs $6.99; both have the same amount of tenders and fries.

In a price discrimination setting, who pays the higher price for the same good?

The consumers with the most inelastic demand pay the highest price.

If the firm can price-discriminate perfectly, which area(s) are designated as consumer surplus?

There is no consumer surplus.

For a perfectly competitive market, which area(s) are designated as deadweight loss?

There is no deadweight loss.

If the firm can perfectly price discriminate, which area(s) are designated as deadweight loss?

There is no deadweight loss.

Which of the following conditions is a requirement for price discrimination?

There is no reselling allowed in the market.

What is the change in total welfare if the firm moves from a monopolist model that charges a single price to a perfect competition model?

There would be a gain of $40 in total welfare.

Which of the following is a real-world example of an attempt at perfect price discrimination?

a car dealership selling an automobile

Which of the following best describes price discrimination?

a firm selling the same good at more than one price to different groups of customers

Another market that is well known for this practice is the market for:

airline tickets

Another market that is well known for this practice is the market for:

airline tickets.

The hotel attempts to distinguish between groups of buyers to:

assign prices based on the differing price elasticities of demand.

Your local discount store offers customers three options for printing their photos: a self-printing kiosk, one-hour photos, and next-day prints. What is the most likely reason this type of firm bothers to offer so many different options to its bargain-hunting consumers?

because the variance in impatience on the part of the consumer allows the firm to maximize profit

Firms engage in price discrimination if they:

charge different prices for the same good based on tastes.

The local coffee shop, Latté Café, has a frequent-buyer program that offers a 5% discount to customers who "like" their business page on Facebook. This allows the firm to price-discriminate because:

customers who are sensitive to price will take the time to go to the website.

When a market model moves from that of a monopoly to one in which perfect price discrimination is practiced, the deadweight loss:

decreases.

The reason economists use the term perfect for firms that are able to charge each customer a price exactly equal to the price the customer is willing to pay is because it:

describes a market outcome that produces no deadweight loss.

Hotwire.com, an online travel company specializing in cheap and discounted hotel rates and airfares, often asks customers if their travel dates are flexible when pricing their potential bookings. This practice helps Hotwire.com practice price discrimination by allowing it to:

easily distinguish between different groups of buyers.

Price discrimination allows businesses to make additional profits and allows markets to work more:

efficiently.

The main reason firms cannot price-discriminate under perfect competition is because:

firms are price-takers and cannot set prices for their goods.

A price-maker is a firm that:

has some market power.

Senior citizens typically receive many discounts in movie theaters, among other places, because they:

have very elastic demands.

Selective private colleges advertise high tuition rates but have the flexibility to discount the tuition for each student on an individual basis. This type of near-perfect price discrimination practiced in the real world is most similar to that which occurs in a:

jewelry store

For the consumer, who might have to pay based on "where you live and who you are," perfect price discrimination may feel unfair because it results in a:

loss of consumer surplus

Many electronic brands such as Apple, HP, and Epson typically offer refurbished products at lower prices. In this case, these companies are:

not discriminating prices because the refurbished products are different from the new products.

Firms engage in price discrimination primarily to:

make additional profits.

The producer, who can charge each customer according to his or her willingness to pay for a product, can:

maximize profits by using perfect price discrimination.

An everyday example of this would be a discount on:

movie tickets when the customer signals that he or she is a student.

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:

not know which price to charge which customer.

Cart Vader, LLC is a new business venture aimed toward selling golf carts to be used as neighborhood recreational vehicles. The new Cart Vader business owner is uncertain about what price to charge for the golf carts. After consulting with multiple sources, the owner has decided to set a high sticker price but to allow potential buyers to negotiate down to their individual reservation price. The business owner is attempting to practice:

perfect price discrimination

The falling price of computer chips and the increasing ease of connecting to the Internet has made it practical for companies to pair daily and hourly fluctuations in demand with fluctuations in price—even if the product is a can of soda that sells for just 75 cents.

person with the most price-inelastic demand for cola.

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:

price discrimination.

For a firm to be able to practice price discrimination, it must be a:

price-maker.

A firm can be identified as practicing price discrimination when:

producers set different prices for distinct groups of consumers, despite selling identical products to each group.

Perfect price discrimination exists when a firm sells __________ good at a unique price to __________.

the same; each customer

Concession pricing in movie theaters separates moviegoers into what distinct groups?

those who want to eat while watching movies and those who do not

Why would the hotel require a guest to provide appropriate identification to receive the AARP member rate, the military rate, or the government rate?

to prevent resale of discounted rooms to other buyers not eligible for the discounted price

One of the benefits of perfect price discrimination over a monopoly is that it can increase:

total welfare.

When teams are able to change ticket prices minute to minute based on demand, they are attempting to:

transfer surplus from consumers to producers.

Secondary price discrimination, represented by the $5 foot-long sandwich available from Subway, occurs when the price per unit:

varies with the quantity sold.

Price discrimination allows firms to make more money by partitioning their customers into at least two distinct groups, those that:

will get a discount and those that are willing to pay more.

Assume that SkyMasters, Inc. follows the profit-maximizing rule and that the company can charge only one price. What should that price be?

$250

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?

$250,000

Because both cities are located quite far from each other, you can charge different prices in each, without fear of reselling. How much more would you earn in profit by charging two different prices compared to charging everyone only one price?

$3

If this cruise line is a monopoly that charges a single price of $600 per passenger, what is the amount of consumer surplus?

$400,000

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?

$45,000

You are the only provider of bottled water for three cities. Because you have access to a natural spring, the marginal cost to produce an additional bottle is $0. Imagine you could price-discriminate perfectly in this market and that you are a profit-maximizing firm. Calculate how much more profit your firm would earn if you practiced perfect price discrimination instead of practicing imperfect price discrimination (charging different prices in each city)?

$55

If the Varsity decides to practice price discrimination, what will be its total revenue if it charges most customers $9 for a standard combo meal but charges a reduced price of $8 for only those customers who show their student identification card?

$85,000

You are the only provider of bottled water for three cities. Because you have access to a natural spring, the marginal cost to produce an additional bottle is $0. As you know, firms discriminate to improve profits. How much would your firm earn in additional profit if you practice price discrimination across cities, charging a different price in each city, versus charging everyone a single price?

$9

If ECON-Jammin' charges a single price to see its band in concert and follows the profit-maximizing rule for the perfectly competitive firm, how many people will attend the concert?

20

Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination. Which of the following statements is true about the change in welfare?

All of the surplus previously enjoyed by consumers has been shifted to producers.

Mirabella Creations is a custom jewelry company that specializes in unique, handmade, wearable artwork. Each piece of jewelry offered for sale is made after an extensive customer consultation, which results in a one-of-a-kind piece of heirloom jewelry. To maximize profits, the firm owner should charge:

a price that is close to each customer's willingness to pay.

Perfect price discrimination occurs when a firm is able to:

charge each buyer the highest price she or he is willing to pay for the good.

Perfect price discrimination transfers the gains from trade from __________, but it also creates maximum efficiency.

consumers to producers

Despite creating maximum market efficiency, perfect price discrimination is often disliked by consumers because it transfers the gains in trade from:

consumers to producers.

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of:

consumers.

Price discrimination exists when a firm sells __________ goods at more than one price to __________ groups of customers.

identical; different

For the companies that are able to engage in price discrimination, the practice:

is profitable.

Which of the following examples is the closest to perfect price discrimination?

nontransferable goods that are sold in an auction

Consider grocery shopping in the context of price discrimination, when stores try to manipulate buyers into spending more per grocery trip by:

offering larger shopping carts so you can buy more.

In a price discrimination setting, people with the most inelastic demand:

pay the highest price for the same good.

In New York City's Chinatown, tourists flock to shops to buy souvenirs from local retailers. Each store sells similar items but each salesperson tries to determine a customer's reservation price before reaching a deal. In this scenario, the salesperson is attempting:

perfect price discrimination.

In the past, the University of Georgia (UGA) sold enrolled students a pack of paper tickets that granted them discounted access to all home football games. Recently the university changed its policy to the following, "Student tickets will be inscribed on your valid UGA ID. There will be no physical tickets for home games." This rule change was most likely implemented to:

prevent students from reselling their discounted tickets to other buyers who are willing to pay full price for their tickets.

In the movie Legally Blonde, a sales associate at an exclusive boutique store attempts to convince the main character to pay full price for a dress that was on the clearance rack because the salesperson incorrectly believes that the buyer is uninformed about the quality of the product and has an inelastic demand (she has a function to attend that same evening). In this case, the salesperson is attempting to practice perfect:

price discrimination.

Airlines require every passenger with a ticket to have a matching government-issued photo identification. Price discrimination is made easier because:

this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more.

Why would the Center for Student Involvement complicate the ticket-pricing scheme by using four different ticket prices?

to separate the concert attendees into distinct groups so that they can maximize profit

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. What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

Price discrimination increases profit.

What is the firm's motivation for practicing price discrimination, despite knowing that if their customers' found out, the company could potentially experience a loss in sales?

Price discrimination increases profit.

Which price discrimination condition was satisfied by requiring students to show their ID card for their initial ticket purchase?

The concert promoter was able to prevent the resale of the product or service to another student.

Evening showtimes are more popular with moviegoers. Movie theaters discount afternoon ticket prices in order to sell more tickets during the daytime hours. What is most likely true about the customer base during the afternoon that differs from the types of customers who go to the movies in the evenings?

The customers tend to be retirees, people on vacation, and those who do not work during the day and who tend to have more price-elastic demands.

Which of the following is necessary for price discrimination to occur?

The firm is able to distinguish among groups of buyers easily.

Calculate the change in total welfare if Carnival Cruise Lines moves from a perfect price discrimination model to a monopolist model that charges a single price.

There would be a loss of $400,000.

What is the change in total welfare if the firm moves from a perfect price discrimination model to a perfect competition framework?

There would be no change in total welfare.

Internet service providers such as Comcast are able to price-discriminate easily for many reasons. Which of the following is a reason for them to price-discriminate?

They can easily identify new customers from old customers.