EC 201 Chapter 14 Quiz

Which of the following is an example of price discrimination? Select one: a. tax-exempt status for non-profit organizations b. senior citizen discounts c. holiday sales at retail stores d. value meals at fast food restaurants

b. senior citizen discounts

To succeed at price discrimination the monopolist must prevent arbitrage. Select one: a. True b. False

a. True

How did IBM price discriminate its laser printers? Select one: a. IBM offered two different printers: a fast printer and a slow printer. b. IBM offered printers in different colors. c. IBM charged seniors lower prices than businesses. d. IBM provided special financing terms to different customers.

a. IBM offered two different printers: a fast printer and a slow printer

Insurance companies charge men a higher price for automobile insurance than women. The costs of insuring men are higher because they get into more accidents than do women. Which of the following statements is true? Select one: a. The insurance companies are not practicing price discrimination. b. The insurance companies are using a bundling/tying strategy. c. The insurance companies are practicing inter-temporal price discrimination. d. The insurance companies are practicing price discrimination.

a. The insurance companies are not practicing price discrimination

GlaxoSmithKline attempts to prevent arbitrage of its drug Combivir by selling different color pills, which are in special bar-coded packages, to identify and track distributors in different markets. Select one: a. True b. False

a. True

Bundling and tying are: Select one: a. different practices of price discrimination. b. the same practices, in essence. c. considered illegal in many countries. d. often done at the same time.

a. different practices of price discrimination

Why are patients who suffer from rare terminal diseases more likely to die if the cost of new drug development is about the same for rare and more common terminal diseases? Select one: a. The market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases. b. Drug firms practice perfect price discrimination. c. Drugs for rare and common diseases can be sold as bundled goods. d. Federal regulations require that drugs for common diseases get developed before drugs for rare diseases.

a. the market is larger for more common diseases and so it is more likely drugs would be developed for the common diseases

Perfect price discrimination results in: Select one: a. zero dollars of consumer surplus. b. marginal revenue being in excess of the price charged for the good. c. marginal revenue becoming equal to the marginal cost of the product for every unit sold. d. maximization of consumer surplus.

a. zero dollars of consumer surplus

Although price discrimination may increase the profits of drug companies, it reduces the incentive for drug companies to develop new drugs. Select one: a. True b. False

b. False

Arbitrage is ________ in one market and ________ in another market. Select one: a. buying high; selling low b. None of the answers is correct. c. selling high; buying high d. selling low; buying high

b. None of these answers is correct

After a severe hurricane in South Carolina, the price of electric generators quadrupled. People living outside of South Carolina purchased electric generators in their home states and drove them to South Carolina to sell at a much higher price. What is this an example of? Select one: a. perfect price discrimination b. arbitrage c. marginal-price geography d. price gouging

b. arbitrage

(Figure: Market for Lithotripters) Suppose that a German manufacturer can sell its product, a kidney lithotripter, in two markets: Country X and Country Y. If this firm is interested in maximizing profits, it should set a price of ________ in Country X and ________ in Country Y. Select one: a. a; d b. b; z c. b; d d. d; z

b. b;z

Bundle pricing makes sense for cable operators because: Select one: a. the cost of operation decreases with bundle pricing. b. customers have a high willingness to pay for some channels and a low willingness to pay for other channels. c. customers are more satisfied with more channels being offered. d. the marginal costs of adding additional channels is high.

b. customers have a high willingness to pay for some channels and a low willingness to pay for other channels

Pfizer sells Atgam in New Zealand for $14/pill and Brazil for $8/pill. This implies that the demand curve in New Zealand must be ________ than in Brazil. Select one: a. more elastic b. more inelastic c. less inelastic d. closer to perfectly elastic

b. more inelastic

Suppose there are two types of cable TV viewers. The first type places a high value on sports channels (e.g., ESPN, Fox Sports, and The Golf Channel) and a low value on all other channels. The second type places a high value on music channels (VH1, MTV3, and CMT) and a low value on all other channels. In this case, we would expect cable operators to: Select one: a. use "à la carte" pricing. b. sell only sports channels to the first type of viewers and sell only music channels to the second type of viewers. c. sell sports and music channels in one bundle to both types of viewers. d. use fixed-cost pricing.

c. sell sports and music channels in one bundle to both types of viewers

Why is student financial aid a profit maximizing decision for universities? Select one: a. because the university is able to charge no more than a dollar over the marginal cost of attending classes b. because universities only give financial aid to a very small number of students c. because the university gains goodwill by providing financial aid d. because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit

d. because as long as the students on financial aid pay some amount that is still greater than the marginal cost of attending the classes, the university still gains positive marginal profit

To perfectly price discriminate, a firm must have full information of: Select one: a. efficient level of output. b. total cost of production. c. market price. d. every customer's willingness to pay.

d. every customer's willingness to pay

Airlines try to differentiate their customers by willingness to pay based on: Select one: a. a person's weight. b. the ethnicity of a person's last name. c. All of the answers are correct. d. how long in advance a person books their flight.

d. how long in advance a person books their flight

A museum in Russia has two entrances: one for locals (written in Russian) and one for tourists (written in English). People who enter through the entrance written in Russian will end up paying 81.93 Rubles ($3.00). English-speaking tourists will use the entrance written in English, but they will end up paying 409.67 Rubles ($15.00). This practice is an example of: Select one: a. price exploitation. b. international price mediation. c. price manipulation. d. price discrimination.

d. price discrimination

(Figure: Perfect Price Discrimination) Refer to the figure above. Which curve represents the Marginal Revenue (MR) curve for the monopolist who practices perfect price discrimination? Select one: a. the average cost curve b. a downward sloping line that lies beneath the demand curve. c. the marginal cost curve d. the demand curve

d. the demand curve