1.Firms with market power engage in price discrimination because they want to a
ID: 1181243 • Letter: 1
Question
1.Firms with market power engage in price discrimination because they want to
a.offer their products to low-income buyers at the lowest price without suffering a loss
b.offset losses in the lower-priced market by profits in the higher-priced market
c.increase profits
d.prevent potential competitors from entering the market
e.decrease producer surplus
2. For an unregulated monopolist, the profit- maximizing quantity will always be
a. In the elastic region of the demand curve
b.Where marginal revenue equals price
c.Where price equals average total cost
d.Where price equals marginal cost
e.Where the marginal cost curve intersects the demand curve
3.In order for a firm to engage in price discrimination, it must be
a.Able to separate consumers into different groups based on demand elasticities
b.Producing in the inelastic portion of its demand curve to raise its price and increase total revenue
c.A price taker
d.Experiencing economies of scale in the relevant range of production
e.Experiencing constant marginal cost
4.Which of the following is most likely to occur if the firm increases production beyond 10 units?
a.Consumers would be willing to purchase more than 10 units at the price of $20 per unit.
b.The firm would definitely experience a loss.
c.The firm would have to lower its price to sell more than 10 units.
d.The firm's average cost of pr6duction would initially increase.
e.The firm's profits would increase.
5.Assume that a profit-maximizing monopolist currently produces and sells 100 units of good X at a price of $10 per unit. If average total cost and marginal cost are constant at $5 per unit, which of the following government policies will most likely lead to the socially optimum level of output?
a.Establish a price floor of $5 per unit for good X.
b.Establish a price ceiling of $10 per unit for good X.
c.Impose a $5 per unit sales tax on good X.
d.Provide a per unit subsidy for the production of good X
e.Support the production and marketing of a substitute product by other firms
Explanation / Answer
1) D
Reason:
It must be remembered that the main aim of price discrimination is to increase the total revenue and hopefully the profits of the supplier. It helps them to off-load excess capacity and can also be used as a technique to take market share away from rival firms. It is possible to demonstrate on a diagram how a monopolist is able to earn greater profits by discriminating. Assume that a monopolist is able to divide its market into two - A and B - and that the costs of production are identical in each market.
2)B
Reason:
An unregulated monopolist, unlike a competitive firm, will charge more than marginal cost for the good or service. Depending on how elastic or inelastic demand is -- or how sensitive or insensitive demand is to price -- the unregulated monopolist will increase its markup accordingly.To calculate the amount of profit for the unregulated monopolist, factor in the elasticity of demand. Elasticity affects the size of the markup, which in turn affects profits.Profit would decrease in response to a relatively flatter elastic demand curve. While a steeper inelastic demand curve would result in a larger markup.
3)A
Reason:
Price discrimination is the practice of one retailer, wholesaler, or manufacturer charging different prices for the same items to different customer. This is a widespread practice that does not necessarily imply negative discrimination. Early forms of price discrimination certainly existed in Jim Crow law states, where a black consumer might very likely pay more for the same quantity and items than a white consumer would. In general, this type of price discrimination is very rare today.
4)D
5)D
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.