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. A local community college charges lower tuition fees to local town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a ________ for attending the community college than residents.

a)    less price-elastic demand

b)    more price-elastic demand

c)    lower demand

d)    greater demand

3. Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

a)    engaging in less advertising than the level of advertising that maximizes joint cartel profits.

b)    increasing the price above the price that maximizes joint cartel profits.

c)    producing less output than the quantity that maximizes joint cartel profits.

d)    producing more output than the quantity that maximizes joint cartel profits.

Explanation / Answer

1. c)    the higher price elasticity of demand. (Explanation: It is because if the monopolist charge high price in case of higher price elasticity of demand, it will lose revenue)

2.a) less price-elastic demand

3. d)    producing more output than the quantity that maximizes joint cartel profits.

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