ECON 302: Lesson 8

A monopolist can perfectly price discriminate

If it knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit

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.

An amusement park charges an entrance fee of $75 per person plus $2.50 per ride. This is an example of

a two-part tariff.

For a two-part tariff imposed on two consumers, the entry fee is based on the:

consumer surplus of the customer with lower willingness-to-pay.

A firm setting a two-part tariff with only one customer should set the entry fee equal to

consumer surplus.

When a firm charges each customer the maximum price that the customer is willing to pay, the firm

engages in first-degree price discrimination.

Under perfect price discrimination, consumer surplus

equals zero.

A firm is charging a different price for each unit purchased by a consumer. This is called

first-degree price discrimination.

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 surplus into producer surplus.

A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a

two-part tariff.