Econ 3
Which of the following is NOT a condition for third degree price discrimination?
Economies of scale
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product:
Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5
Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct?
The Japanese firm will sell steel at a lower price abroad than they will charge domestic users.
Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms?
When there are few firms in the market and the demand curve faced by each firm is relatively inelastic
The pricing technique known as tying:
all
Which of the following strategies are used by business firms to capture consumer surplus?
all
Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm:
is attempting to convert consumer suprlus into producer surplus
You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. You will charge the higher price in the market with the:
lower own price elasticity of demand (more inelastic demand)
We may be tempted to determine the optimal level of advertising expenditures at the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one). In general, this rule will not allow the firm to maximize profits because it ignores the:
marginal cost of additional sales generated by the advertising
A monopolist has equated marginal revenue to zero. The firm has
maximized revenue
To find the profit maximizing level of output, a firm finds the output level where
none
A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM. This is an example of:
peak-load pricing
The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q Refer to Scenario 10.3. Compared to a competitive red herring industry, the monopolistic red herring industry
produces less output at a higher price
Grocery store chains advertise more than convenience stores because:
the advertising elasticity of demand for convenience stores is near zero and is much smaller than for grocery store chains.
When a monopolist engages in perfect price discrimination
the demand curve and the maringal revenue curve are identical
A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true?
the firm should cut output
The more elastic the demand facing a firm,
the lower the value of the Lerner index
After the imposition of a tax of $2 per unit of output, what is the profit maximizing price?
with a two part tariff consumers pay
Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Refer to Scenario 10.1. The price of her product will be:
22
The demand for tickets to the Katy Perry concert (Q) is given as follows: Q = 120,000 - 2,000P The marginal revenue is given as: MR = 60 - .001Q The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point. Refer to Scenario 10.4. Given the information above, what are the profit maximizing number of tickets sold and the price of tickets?
60,000 $30
One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000. When the advertising expenditure increases to $1,400, pizza sales increase to $32,000. The arc advertising elasticity of demand is approximately:
.4
A doctor charges two different prices for medical services, and the price level depends on the patients' income such that wealthy patients are charged more than poorer ones. This pricing scheme represents a form of:
3rd degree
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What happens to profit?
It decreases by $1000
Which of the following is NOT associated with a high degree of monopoly power?
Significant price competition among firms in the market
Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true?
all
ou produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue:
all
A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. This action by the firm may be an example of using a ________ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products.
barrier to entry
I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measured using the Lerner Index: L=(P-AC)/AC
both false
A local restaurant sells strawberry pie for $3.00 per slice. However, if you order the prime rib dinner, you can get a slice of pie for only a dollar. This is an example of:
bundling
Season ticket holders for the St. Louis Rams received a surprise when they read the applications forms to renew their season tickets. In order to get their season ticket to the Rams' home games, they also had to buy tickets to the preseason games. Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders. This practice is an example of:
bundling
Refer to Figure 11.2.1 above. When the firm charges the reservation price to each consumer, the additional profit equals area
c+D
Suppose a firm has market power and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then:
consumer surplus increases, producer surplus may increase or decrease
The authors note that advertising can make the consumer demand for a product more elastic (price responsive) by expanding the potential range of consumers. As this change in demand occurs (ceteris paribus), what happens to the optimal advertising-sales ratio?
decreases
Bundling raises higher revenues than selling the goods separately when:
demands for two products are negatively correlated
Bundling is effective when the demands for the bundled products are ________ and ________ correlated.
different and negative
Second-degree price discrimination is the practice of charging:
different prices for different quantity blocks of the same good or service
You interview with an athletic footwear manufacturer that has annual advertising expenditures of $32 million and total sales revenue of $100 million, and the firm selects the profit maximizing level of advertising expenditures. If the advertising elasticity of demand is 0.4, then you know that "Rule of Thumb for Advertising" implies that the demand for the firm's products is:
elastic
At the profit-maximizing level of output, demand is
elastic, but not infinitely elastic
When a firm charges each customer the maximum price that the customer is willing to pay, the firm:
engages in first-degre price discrimination
For a perfect first-degree price discriminator, incremental revenue is
equal to the price paid for each unit of output
Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the:
firm's output is smaller than the profit maximizing quantity
When a company introduces new audio products, it often initially sets the price high and lowers the price about a year later. This is an example of
intertemporal price discrimination
When the demand curve is downward sloping, marginal revenue is:
less than price
Under perfect price discrimination, marginal profit at each level of output equal:
p-mc
When a drug company develops a new drug it is granted a ________ making it illegal for other firms to enter the market until the ________ expires
patent, patent
A local theater charges $5.00 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of
peak load pricing
Which of the following product pairs would NOT be good candidates for price discrimination through tying?
pencils and paper
A 10 percent decrease in advertising results in a 5 percent sales decrease. The advertising elasticity of demand is:
.5
What is the value of the Lerner index under perfect competition?
0
What is the maximum value of the Lerner index?
1
Bancroft Pharmaceuticals has a patent on a new medication used to treat high blood pressure, so it is the monopoly seller of this new drug product. The marginal cost of producing one dose of the drug is $10, and the elasticity of demand for the product is -3. What is the profit maximizing monopoly price for this patented drug product?
15
Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line. This practice is an example of:
3rd degree
Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, what is the marginal cost of 5th red rubber ball?
4
Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn?
4050
A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table: Refer to Scenario 10.5. From the perspective of the firm, what is the marginal cost of the 5th garden hose?
5
The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250 - 5P MR = 50 - 0.4Q Refer to Scenario 10.3. The marginal cost of red herrings is given as: MC = 0.6Q. What is the profit-maximizing level of output?
50
The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. Refer to Scenario 10.7. How many ink pads will be produced to maximize profit?
50
The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue?
500
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing price?
52.50
The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows: MR = 100 - 2Q The profit maximizing price is:
55
Suppose there are seven firms in a market where the three largest firms supply 20% of the market-clearing quantity and the other four firms supply 10% of the market-clearing quantity. What is the five-firm concentration ratio (i.e., the share of total sales controlled by the five largest firms in the market)?
80%
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?
90
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output?
90
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 Refer to Scenario 10.2. What is the profit maximizing level of output?
95
Under perfect price discrimination, consumer surplus:
= 0
Which of the following is NOT true for monopoly?
At the profit maximizing output, price equals marginal cost.
Mixed bundling is more profitable than pure bundling when:
Both the marginal cost of each good being sold is positive and the consumers' reservation values of each good being sold are not perfectly negatively correlated with one or another are correct
Zinc Communications developed a new type of cellular telephone that has a three-dimensional (3-D) screen. The company holds a patent on this technology, so they are the only seller of the 3-D phone when it is introduced. Over time, other companies introduce phones that are similar but not identical (i.e., they do not violate the patent held by Zinc). What happens to the demand for 3-D phones facing Zinc and to the profit-maximizing price for the 3-D phone as these similar products enter the market?
Demand becomes more elastic, price declines
BioMed Pharmaceutical has held a patent on an important heart medication called Heartex, but the patent will expire in the coming year. After the patent expires, other firms can legally sell the same medication as a generic drug product. What will happens to the demand for Heartex and to the Lerner index for this product as the generic drugs enter the market?
Demand becomes more elastic; lerner index declines
Which factors determine the firm's elasticity of demand?
Elasticity of market demand, number of firms, and the nature of interaction among firms
Which of the following statements is true?
If the advertising elasticity of demand declines and consumer demand becomes more price elastic, then the optimal advertising-to-sales ratio declines
DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs?
MC -= $15
Which of the following statements is NOT compatible with explanations for why peak-load pricing is more profitable than charging a single price?
Marginal revenue must be the same across different time periods
Suppose Orange Inc. sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the market, the demand facing Orange becomes ________ elastic and the Lerner index achieved by the firm in this market ________.
More; declines
Louey's Greasy Spoon restaurant charges $15 for each dinner entree and $5 for each dessert selection, and they offer a dinner special that provide an entree and dessert for $18. If a diner at Louey's assigns zero value to dessert and $19 to an entree, what is their optimal decision?
buy only the entree
Refer to Figure 11.1.1 above. To capture the consumer surplus along the B range, the firm would ideally charge:
higher price to consumers willing to pay more and a lower price to those willing to pay less
Suppose we advertise up to the point where the last dollar spent on advertising generates an additional dollar of sales revenue (i.e, the marginal revenue of advertising equals one). If the full marginal cost of advertising is greater than one, then we will generate:
more output than the profit maximizing level
Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD?
no retail price is too high
Bindy, an 18-year-old high school graduate, and Luciana, a 40-year-old college graduate, just purchased identical hot new sports cars. Acme Insurance charges a higher rate to insure Bindy than Luciana. This practice is an example of
none
The price of on-campus parking from 8:00 AM to 5:00 PM, Monday through Friday, is $3.00. From 5:00 PM to 10:00 PM, Monday through Friday, the price is $1.00. At all other times parking is free. This is an example of
none
When the movie Jurassic Park debuted in Westwood, California, the price of tickets was $7.50. After several months the ticket price had fallen to $4.00. This is an example of:
none
McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their student ID cards, they would be given 50 cents off any medium combination meal. This practice is an example of:
price discrimination
As the manager of a firm, you calculate the marginal revenue is $152 and marginal cost is $200. You should:
reduce output until marginal revenue equals marginal cost
The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have:
relatively high short-run monopoly power that declines in the lonog run
The maximum price that a consumer is willing to pay for a good is called
reservation price
An electric power company uses block pricing for electricity sales. Block pricing is an example of
second degree price discrimination
Monopoly power results from the ability to
set price above marginal cost
