Question 1

Airlines that charge higher prices for seats in the first class cabin are:

Accepted Answer

First class seats are a different product from regular seats so charging a higher price to fly first class is not price discrimination.

Question 2

When a consumer must take some sort of additional action to receive a lower price,the consumer is being subjected to:

Accepted Answer

The hurdle method of price discrimination requires buyers to overcome an obstacle in order to obtain the discounted price.

Question 3

Suppose a single-price monopolist is considering becoming a price discriminating monopolist.If the firm does begin to price discriminate,it can expect to:

Accepted Answer

A firm that price discriminates will sell more output and earn a higher profit.

Question 4

Suppose a monopolist charges a uniform price of $10 based on profit maximization and has constant marginal costs of $3.Cody is willing to pay $6 for the monopolist's output.Therefore:

Accepted Answer

A firm will price discriminate in order to earn a higher profit,but should only do so if the lower-priced buyer cannot re-sell the item.

Question 5

Suppose a monopolist sells one version of its output to consumers and another version to businesses.The marginal cost of the consumer version is $5 per unit while the business version has marginal costs of $5.75.If resale is impossible,one can infer that:

Accepted Answer

Price discrimination refers to the practice of selling the same item to different buyers for different prices.In this case,the versions are different products.

Question 6

Any hurdle method of price discrimination is an attempt to:

Accepted Answer

The hurdle method of price discrimination seeks to segregate buyers by their reservation prices.

Question 7

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } 
\text { Customer } & \begin{array} { c } 
\text { Reservation Price } \
\text { (\$/book) }
\end{array} \
\mathrm { Q } & 60 \
\mathrm { R } & 54 \
\mathrm {~S} & 48 \
\mathrm {~T} & 42 \
\mathrm { U } & 36 \
\mathrm {~V} & 30 \
\mathrm {~W} & 24 \
\mathrm { X } & 18
\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.If the bookstore can charge two different prices for this book,the list price for the book will be _____ and the discounted price for the book will be ____.

Accepted Answer

The answer of Campus Bookstore is the only textbook supplier...

Question 8

Which of the following situations will come closest to perfect price discrimination?

Accepted Answer

Perfect price discrimination requires individualized prices.

Question 9

A monopolist sets its price at $100 and offers a 10% rebate.For this to be a perfect hurdle,it must be the case that:

Accepted Answer

A perfect hurdle is one that segregates buyers so that those who would have purchased without the rebate do not use the rebate,but those whose reservation prices are less than the regular price but greater than the regular price minus the rebate do use it.

Question 10

A consumer goes to purchase a TV advertised for $300.As he is checking out,the clerk informs him of a $20 rebate offer for the TV,which he fills out and receives in 3 months.One can infer that the consumer had:

Accepted Answer

The customer was willing to purchase the TV for $300,so his reservation price must have been at least $300.

Question 11

Which of the following is not an example of the hurdle method of price discrimination?

Accepted Answer

Everyday low prices are available to all shoppers;the other discounts require overcoming a hurdle.

Question 12

A consumer has a reservation price of $90 for a blender.If the local store is offering the blender for $100 with a $10 rebate and he does not make the purchase,one can surmise that:

Accepted Answer

The hurdle method of price discrimination requires buyers to overcome an obstacle in order to obtain the discounted price.The cost of the blender is $100 minus the $10 rebate minus the cost of complying with the rebate rules.

Question 13

Comparing the non-price discriminating monopoly outcome to the perfectly price discriminating monopoly outcome,profits are:

Accepted Answer

A firm will price discriminate in order to earn a higher profit.

Question 14

Airlines that charge higher prices for customers who purchase their tickets at the last minute are:

Accepted Answer

Passengers with virtually identical seating often pay different prices because airlines are able to price discriminate.

Question 15

Compared to a monopolist charging a single price to everyone,perfect price discrimination makes:

Accepted Answer

A firm that price discriminates earns a higher profit,but with perfect price discrimination no consumers earn surplus because all consumers pay a price equal to their reservation prices.

Question 16

You would expect to see more mail-in rebate coupons being offered at:

Accepted Answer

Customers with lower opportunity costs are more likely to use rebate coupons.

Question 17

In order to effectively price discriminate,a seller must be able to:

Accepted Answer

To price discriminate,the firm must be able to differentiate customers by their reservation prices.

Question 18

Compared with charging a single price,all else equal,imperfect price discrimination:

Accepted Answer

Price discrimination lowers the price to some customers while increasing firm profits.

Question 19

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } 
\text { Customer } & \begin{array} { c } 
\text { Reservation Price } \
\text { (\$/book) }
\end{array} \
\mathrm { Q } & 60 \
\mathrm { R } & 54 \
\mathrm {~S} & 48 \
\mathrm {~T} & 42 \
\mathrm { U } & 36 \
\mathrm {~V} & 30 \
\mathrm {~W} & 24 \
\mathrm { X } & 18
\end{array}$$
Assume that the marginal and average total cost for each book is $12.
If the bookstore can charge two different prices for this book,the economic profit for the bookstore is ______.

Accepted Answer

By charging two different prices, the bookstore can maximize profit by setting one price for customers Q, R, S, and T, and another for U, V, W, and X. The optimal prices would be $42 for the first group and $18 for the second group. The profit is calculated as (4 books * ($42 - $12)) + (4 books * ($18 - $12)) = $120 + $24 = $144, which is greater than $120.

Question 20

Campus Bookstore is the only textbook supplier in the town,a profit-maximizing business.The table below represents the reservation prices for the eight students enrolled in the class for which this book is required. $$\begin{array} { c c } 
\text { Customer } & \begin{array} { c } 
\text { Reservation Price } \
\text { (\$/book) }
\end{array} \
\mathrm { Q } & 60 \
\mathrm { R } & 54 \
\mathrm {~S} & 48 \
\mathrm {~T} & 42 \
\mathrm { U } & 36 \
\mathrm {~V} & 30 \
\mathrm {~W} & 24 \
\mathrm { X } & 18
\end{array}$$
Assume that the marginal and average total cost for each book is $12.
Refer to the information above.If the bookstore can charge two different prices for this book,how many books will the bookstore sell?

Accepted Answer

The bookstore will sell to customers with reservation prices above the marginal cost of $12. By charging two different prices, they can maximize profit by selling to customers Q, R, S, T, U, and V, totaling 6 books.

Quiz 8: Monopoly, Oligopoly, and Monopolistic Competition