1. Suppose a monopoly can separate its customers into two groups. If the monopol

Question

1. Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will

charge the lower price to the group with:
  
a)    the fewer close substitutes.
  
b)    the lower price elasticity of demand.
  
c)    the higher price elasticity of demand.
  
d)    The answer cannot be determined with the information given.

2. Many hotel chains offer discounts for senior citizens. This is an example of ________ that is ________ in the United

States.
  
a)    single-price monopoly power; legal
  
b)    price discrimination; legal
  
c)    market power; illegal
  
d)    price discrimination; illegal

3.(Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure Payoff Matrix I for Blue Spring and Purple Rain

refers to two producers of bottled water. Each has two strategies available to it: a high price and a low price. The

dominant strategy for Purple Rain is to:
  
a)    always charge a high price.
  
b)    always charge a low price.
  
c)    Purple Rain does not have a dominant strategy.
  
d)    always adopt the same strategy as Blue Spring.

Why does purple rain not have a dominant strategy?

Explanation / Answer

1. c. The higher price elasticity of demand.

2. b. Price discrimination, legal.

3. c. purple rain doesnot have a dominant strategy.

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