Question 1

The managers of Movies Plus, a large movie theater, want to practice third- degree price discrimination. The managers have learned that college students have an own price elasticity of demand of 1.75 for tickets at Movies Plus and adults have an own price elasticity of 1.25. If the managers have correctly determined the third- degree profit- maximizing price for adults is $20, what is the third- degree profit- maximizing price to charge students?

Accepted Answer

The third-degree price discrimination strategy involves charging different prices to different groups based on their price elasticity of demand. The formula to determine the optimal price ratio between two groups is P1/P2 = E2/E1, where P1 and P2 are the prices for groups 1 and 2, and E1 and E2 are the price elasticities of demand for groups 1 and 2, respectively. Given that adults (group 1) have a price elasticity of 1.25 and are charged $20, and students (group 2) have a price elasticity of 1.75, we can set up the equation $20/P2 = 1.75/1.25. Solving for P2 gives us P2 = $20 * (1.25/1.75) = $14.29. However, since this specific answer is not an option and there seems to be a mistake in the calculation process based on the provided options, the correct approach aligns with understanding that the price charged to students should be lower than that charged to adults due to the higher elasticity. Among the provided options, $9.33 is the choice that reflects a lower price point, which is consistent with the principle of charging a lower price to the group with a higher elasticity of demand. This explanation corrects the calculation error and aligns with the principle of third-degree price discrimination, but it appears there was a mistake in the initial calculation. The correct approach involves applying the formula for price discrimination based on elasticity, but without the exact calculation leading to one of the provided options, the selection is based on the understanding of economic principles rather than a precise numerical answer.

Question 2

In third- degree price discrimination, consumer groups with the largest price elasticity of demand will pay the lowest price compared to the consumer groups with smaller price elasticities.

Accepted Answer

Third-degree price discrimination involves charging different prices to different consumer groups based on their price elasticity of demand. The group with the most elastic demand will be charged a lower price, while the group with less elastic demand will be charged a higher price. Therefore, the statement in the question is true.

Question 3

If Angelo's Pizza Restaurant has a constant marginal cost of $75 for each additional table in the restaurant and a constant marginal cost of $5 for operating each additional table, what is Angelo's long- run marginal cost per table?

Accepted Answer

Angelo's long-run marginal cost per table can be calculated by adding the marginal cost of adding a table ($75) with the marginal cost of operating a table ($5), giving a total long-run marginal cost of $80 per table. Therefore, the best choice is B.

Question 4

If High Tech Tablets brings a new personal tablet at a price of $200 for the first three months and then reduces the price of the tablet to $125, this is an example of ______.

Accepted Answer

The answer of If High Tech Tablets brings a new...

Question 5

If Angelo's Pizza Restaurant has a constant marginal cost of $50 for each additional table in the restaurant and a constant marginal cost of $12 for operating each additional table, what is Angelo's long- run marginal cost per table?

Accepted Answer

In the long run, marginal cost includes both the cost of adding an additional table ($50) and the cost of operating that table ($12), totaling $62.

Question 6

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

Accepted Answer

The question asks for what the firm does not need to determine for peak-load pricing. As such, the answer is D, long-term off-peak price, since this is not a consideration for short-term peak load pricing. A firm setting peak-load pricing would need to determine short-term off-peak and peak quantities and prices in order to maximize revenue during both high and low-demand periods.

Question 7

In third- degree price discrimination, the price markup is smaller in the markets that are less responsive to price changes.

Accepted Answer

In third-degree price discrimination, the price markup is larger in markets that are less responsive to price changes (i.e., markets with more inelastic demand), because consumers in these markets are less sensitive to price increases and thus can be charged more.

Question 8

If Angelo's Pizza Restaurant has a constant marginal cost of $100 for each additional table in the restaurant and a constant marginal cost of $40 for operating each additional table, what is Angelo's long- run marginal cost per table?

Accepted Answer

In the long-run, marginal cost includes both the cost of adding an additional table ($100) and the cost of operating that table ($40), totaling $140.

Question 9

To practice third- degree price discrimination, each of these market conditions must be met except which one?

Accepted Answer

In third-degree price discrimination, different prices are charged to different groups of customers based on their willingness to pay. Therefore, the assumption that all customers have the same own price elasticity of demand does not need to hold true. The other conditions must be met: the firm must have market power, must be able to determine which group each customer belongs to, and no arbitrage opportunities can exist between customer groups.

Question 10

If the own price elasticity of demand for a firm's product is the same across all consumers, it is not possible for the firm to practice third- degree price discrimination.

Accepted Answer

Third-degree price discrimination requires that the elasticity of demand varies among different groups of consumers, so if the elasticity is the same for all consumers, the firm cannot engage in this type of discrimination.

Question 11

If Gorgeous Sands Resort has a constant marginal cost of $20,000 for each resort unit and a constant marginal cost of $500 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

Accepted Answer

The long-run marginal cost is the sum of the constant marginal cost for each unit plus the variable cost for operating each unit. Therefore, the long-run marginal cost per resort unit for Gorgeous Sands Resort is $20,000 + $500 = $20,500.

Question 12

The long- run capacity decision depends on the ______period marginal revenue and the______ marginal cost.

Accepted Answer

The long-run capacity decision is concerned with the planning of a company's production capacity over a longer period of time, typically several years. Therefore, the decision should be based on peak-period marginal revenue and long-run marginal cost. Peak-period marginal revenue reflects the highest price that can be charged for goods and services during periods of high demand, while long-run marginal cost takes into account all of the costs associated with adding or reducing production capacity over a longer period of time. Optimal capacity decisions are made when marginal revenue equals marginal cost.

Question 13

To maximize overall profit in peak- load pricing, managers must determine _______ capacity that maximizes ______season profit.

Accepted Answer

Managers must determine the long-run capacity that maximizes peak-season profit in peak-load pricing, as this allows for efficient allocation and utilization of resources during peak-demand periods, resulting in higher profits.

Question 14

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

Accepted Answer

The firm must determine short-term peak price, short-term off-peak price, and long-run capacity to effectively implement peak-load pricing. However, long-term peak quantity is not a relevant consideration as demand can vary significantly over time and it is difficult to accurately predict long-term demand.

Question 15

In first- degree price discrimination, the firm's marginal revenue curve is equal to its demand curve.

Accepted Answer

In first-degree price discrimination, the firm charges each customer a different price based on their willingness to pay, which means that the marginal revenue for each customer will be equal to their demand curve. Therefore, the firm's overall marginal revenue curve will also be equal to its demand curve.

Question 16

If Deluxe Fruits offers a $1.00 coupon for their fruit cups, this is an example of______ .

Accepted Answer

The answer of If Deluxe Fruits offers a $1.00 coupon...

Question 17

To practice third- degree price discrimination, each of these market conditions must be met except which one?

Accepted Answer

The main condition for third-degree price discrimination is the existence of different groups of customers with different own price elasticities of demand. If all groups have equal own price elasticities of demand, there will be no incentive for the firm to charge different prices to different groups. Therefore, option D is not a condition that must be met for practicing third-degree price discrimination.

Question 18

If Gorgeous Sands Resort has a constant marginal cost of $15,000 for each resort unit and a constant marginal cost of $750 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

Accepted Answer

The long-run marginal cost includes both the cost of producing the resort unit and operating it. Thus, the long-run marginal cost per resort unit is the sum of the two, which is $15,000 + $750 = $15,750.

Question 19

If no consumer surplus exists in a market, it is possible for a firm to earn greater profits.

Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. If no consumer surplus exists, it means consumers are paying the maximum they are willing to pay, leaving no room for a firm to increase prices without reducing demand, thus not necessarily leading to greater profits.

Question 20

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

Accepted Answer

Peak-load pricing decisions typically involve determining prices and quantities for high-demand (peak) and low-demand (off-peak) periods, as well as the capacity needed to meet these demands. The long-term off-peak quantity is not a direct consideration in peak-load pricing strategy, as the focus is more on managing demand and capacity during different periods rather than specifying long-term quantities for off-peak times.

Quiz 10: Advanced Pricing Decisions

In third- degree price discrimination, consumer groups with the largest price elasticity of demand will pay the lowest price compared to the consumer groups with smaller price elasticities.

If Angelo's Pizza Restaurant has a constant marginal cost of $75 for each additional table in the restaurant and a constant marginal cost of $5 for operating each additional table, what is Angelo's long- run marginal cost per table?

If High Tech Tablets brings a new personal tablet at a price of $200 for the first three months and then reduces the price of the tablet to $125, this is an example of ______.

If Angelo's Pizza Restaurant has a constant marginal cost of $50 for each additional table in the restaurant and a constant marginal cost of $12 for operating each additional table, what is Angelo's long- run marginal cost per table?

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

In third- degree price discrimination, the price markup is smaller in the markets that are less responsive to price changes.

If Angelo's Pizza Restaurant has a constant marginal cost of $100 for each additional table in the restaurant and a constant marginal cost of $40 for operating each additional table, what is Angelo's long- run marginal cost per table?

To practice third- degree price discrimination, each of these market conditions must be met except which one?

If the own price elasticity of demand for a firm's product is the same across all consumers, it is not possible for the firm to practice third- degree price discrimination.

If Gorgeous Sands Resort has a constant marginal cost of $20,000 for each resort unit and a constant marginal cost of $500 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

The long- run capacity decision depends on the period marginal revenue and the marginal cost.

To maximize overall profit in peak- load pricing, managers must determine _ capacity that maximizes season profit.

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?

In first- degree price discrimination, the firm's marginal revenue curve is equal to its demand curve.

If Deluxe Fruits offers a $1.00 coupon for their fruit cups, this is an example of______ .

To practice third- degree price discrimination, each of these market conditions must be met except which one?

If Gorgeous Sands Resort has a constant marginal cost of $15,000 for each resort unit and a constant marginal cost of $750 for operating each resort unit, what is Gorgeous Sands Resort's long- run marginal cost per resort unit?

If no consumer surplus exists in a market, it is possible for a firm to earn greater profits.

A firm that faces a high- demand period followed by a low- demand period must determine all of the following for peak- load pricing except which one?