Midterm 2 Practice MC Chapter 11-18

D: The ability to set price, consumers with different reservation prices, the ability to identify the different types of consumers, and the ability to prevent or limit resales.

A monopoly currently sells its product at a single price. What conditions must be met so that the monopolist can profitably price discriminate? The firm must have: A. The ability to set a price and the ability to identify each consumer's reservation price B. Consumers with different reservation prices, the ability to identify different types of consumers, and the ability to prevent or limit resales. C. The ability to set price, consumers with different reservation prices, and the ability to prevent or limit resales. D. The ability to set price, consumers with different reservation prices, the ability to identify the different types of consumers, and the ability to prevent or limit resales.

B. the demands for the two goods are negatively correlated.

Bundling sales are most advantageous to the seller when A. there are economies of scope. B. the demands for the two goods are negatively correlated. C. the demands for the two goods are unrelated. D. the demands for the two goods are positively correlated.

C: Third degree price discrimination Explanation: Third-degree price discrimination occurs when a company charges a different price to different consumer groups.

Charging higher prices to residential customers than to industrial customers is an example of: A. Second-degree price discrimination B. Perfect price discrimination C. Third-degree price discrimination D. Non-linear price discrimination E. First-degree price discrimination

E. All of the Above are true

When a firm practices price discrimination, it A. Produces the same quantity as would be produced by a competitive market B. Charges each consumer her reservation price C. Captures all the social gain D. Takes all consumer surplus from consumers E. All of the above.

A. The average​ per-unit price is constant while the average​ lump-sum fee decreases as the quantity purchased increases.

Which of the following explains why​ two-part pricing causes customers who purchase few units to pay more per unit than customers who buy more​ units? A. The average​ per-unit price is constant while the average​ lump-sum fee decreases as the quantity purchased increases. B. Customers who purchase few units pay a larger​ lump-sum fee than those customers who buy more units. C. The average​ lump-sum fee is constant while the average​ per-unit price decreases as the quantity purchased increases. D. Customers who purchase few units pay a larger​ per-unit price than those customers who buy more units.

D. All of the above are true.

Which of the following is true for firms considering the bundling of​ products? A. By bundling when demands are negatively​ correlated, the monopoly reduces the dispersion in reservation​ prices, so it can charge more and still sell to a large number of customers. B. When a good or service is sold to different​ people, the price is determined by the purchaser with the lowest reservation price. C. If reservation prices differ substantially across​ consumers, a monopoly has to charge a relatively low price to make many sales. D. All of the above are true.

B. has at least one Nash​ equilibrium, which may involve mixed strategies.

A game with a finite number of players and a finite number of​ actions: A. may not have a Nash equilibrium at all. B. has at least one Nash​ equilibrium, which may involve mixed strategies. C. will not have a mixed strategy if it has a​ pure-strategy Nash equilibrium. D. has at least one Nash equilibrium in pure​ strategies, and possibly one in mixed strategies.

A. Charging young men more than young women for auto insurance. Explanation: Auto insurance knows that men are likely to be in a car accident more than women, therefore, the insurance charges young men for auto insurance.

Determining which price differences are rooted in cost differences and which ones are rooted in a form of price discrimination is not always straight forward. For the choices below, give some thought to the underlying costs within each market and identify which one is least likely to be an example of price discrimination A. Charging young men more than young women for auto insurance B. Charging women more than me for identical haircut C. Senior citizen discounts D. Charging children less for a ticket to the movies

A. set a lower price in the market that is more price elastic.

If two identifiable markets differ with respect to their price elasticity of demand and resale is​ impossible, a firm with market power will A. set a lower price in the market that is more price elastic. B. set a higher price in the market that is more price elastic. C. set price so as to equate the elasticity of demand across markets. D. set price equal to marginal cost in both markets.

B. depends on marginal cost because the monopoly will only sell to both groups if selling to each is separately profitable.

Does a​ monopoly's ability to price discriminate between two groups of consumers depend on its marginal cost​ curve? Why or why​ not? Consider two​ cases: (a) the marginal cost is so high that the monopoly is uninterested in selling to one​ group; (b) the marginal cost is low enough that the monopoly wants to sell to both groups. Assume there are two groups of consumers. A​ monopoly's ability to price discriminate A. does not depend on marginal cost because the monopoly will treat consumers in each group independently. B. depends on marginal cost because the monopoly will only sell to both groups if selling to each is separately profitable. C. depends on marginal cost because the monopoly will only sell to both groups if combined profits are positive. D. depends on marginal cost because the monopoly will only charge different prices if the​ groups' marginal costs are different. E. does not depend on marginal cost because the monopoly will charge different prices to prevent resale.

A. Different​ two-part prices are charged to all​ non-identical customers.

Identify the​ two-part pricing​ (also known as​ two-part tariffs) scheme that results in the highest profit for the firm. A. Different​ two-part prices are charged to all​ non-identical customers. B. Different​ two-part prices are charged to all identical customers . C. The same​ two-part prices are charged to all​ non-identical customers. D. None of the above.

C. First Degree Price Discrimination Explanation: First-degree discrimination, or perfect price discrimination, occurs when a business charges the maximum possible price for each unit consumed.

In​ 2000, Amazon was caught engaging in dynamic​ pricing, where the price it charged its customers depended on the​ customers' actions in the recent past—including what they​ bought, how much they​ paid, whether they paid for​ high-speed shipping, as well as demographic information. One customer reported that he had bought Julie​ Taylor's Titus for​ $24.49. The next​ week, he returned to Amazon and saw that the price had jumped to​ $26.24. As an​ experiment, he removed the cookie that identified​ him, and found that the price dropped to​ $22.74. Other DVDTalk.com visitors reported that regular Amazon customers were charged​ 3% to​ 5% more than new customers. Amazon announced that its pricing variations stopped as soon as it started receiving complaints from DVDTalk members.​ However, Amazon may have resumed this practice in 2007. What type of price discrimination is this dynamic​ pricing? A. Nonlinear price discrimination B. Group price discrimination C. ​First-degree price discrimination D.​ Second-degree price discrimination E.​ Third-price price discrimination

B. The point where the marginal benefit of advertising is equal to the marginal cost of advertising.

What is the​ profit-maximizing amount of​ advertising? A. The output level that maximizes total revenue. B. The point where the marginal benefit of advertising is equal to the marginal cost of advertising. C. The point where gross profit as a function of advertising is maximized. D. The point where the additional gross profit from advertising is equal to the marginal cost of production.

B. equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price.

Suppose a​ profit-maximizing monopoly is able to employ group price discrimination. The marginal cost of providing the good is constant and the same in both markets. The marginal revenue the firm earns on the last unit sold in the market with the lower price will be A. greater than the marginal revenue the firm earns on the last unit sold in the market with the higher price. B. equal to the marginal revenue the firm earns on the last unit sold in the market with the higher price. C. greater than the marginal cost of the last unit. D. less than the marginal revenue the firm earns on the last unit sold in the market with the higher price.