PLEASE ANSWER EACH QUESTION WITH A,B,C,D. NOT ANSWERING ALL QUESTIONS OR INCORRE

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PLEASE ANSWER EACH QUESTION WITH A,B,C,D. NOT ANSWERING ALL QUESTIONS OR INCORRECT ANSWERS WILL RESULT IN A THUMBS DOWN.

Question 1: Which of the following is not needed for price discrimination to be possible?

The firm must have market power.

The firm must be able to prevent resale and arbitrage.

The firm must eventually learn about its customers' demands.

The firm's customers must have different demand curves.

Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:

higher consumer surplus, higher producer surplus, and higher total surplus.

lower consumer surplus, higher producer surplus, and higher total surplus.

lower consumer surplus, higher producer surplus, and lower total surplus.

lower consumer surplus, lower producer surplus, and lower total surplus.

Question 3: Relative to perfect competition, first-degree price discrimination results in:

higher consumer surplus, higher producer surplus, and higher total surplus.

lower consumer surplus, higher producer surplus, and equal total surplus.

lower consumer surplus, higher producer surplus, and equal total surplus.

lower consumer surplus, lower producer surplus, and lower total surplus.

Question 4: If market demand is P = 100 – Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:

$800.

$1,600.

$2,400.

$3,200.

Question 5: In order for third-degree discrimination to be possible, which of the following features is not required?

market power

prevention of resale

identification of each customer's demand before purchase

customers with different demand curves

Question 6: A golf course has frequent players whose demand is Qf = 260 – 0.4P and infrequent players whose demand is Qi = 10 – 0.1P. Combined market demand is Q = 34 – 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?

$0

$7.50

$10

$110

Question 7: An airline sells seats on its flights to business travelers whose demand is QB = 300 – P and to vacation travelers whose demand is QV = 150 – 0.5P. Combined market demand is Q = 450 – 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?

$0

$250

$400

$1,000

Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:

higher.

lower.

more price elastic.

less price elastic.

Question 9: The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:

resale is possible.

customers have the same demand curves.

firms have market power.

firms can identify customers' demand before the customers make a purchase.

Question 10: In order for price discrimination via a quantity discount to work:

customers who purchase larger quantities must have relatively elastic demand.

customers who purchase larger quantities must have relatively inelastic demand.

customers who pay a relatively high price must have relatively elastic demand.

customers who pay a relatively low price must have relatively inelastic demand.

Question 11: A firm wants to offer a quantity discount in order to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have demand of QU = 30 – 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for the obsessed customers are incentive compatible?

60 units at a price of $10 each

40 units at a price of $10 each

60 units at a price of $20 each

40 units at a price of $20 each

Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?

The firm's customers must have different demand curves.

The marginal costs of producing each version of the product must be the same.

The firm must be able to prevent resale.

The firm must have market power.

Question 13

Willingness to pay (per month)

Weight machines

Indoor pool

Abe

$60

$50

Betty

50

125

Chris

25

140

This table shows the willingness to pay of the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?

$60 for the weight room, $140 for the pool, or $175 for both

$50 for the weight room, $125 for the pool, or $165 for both

$25 for the weight room, $50 for the pool, or $70 for both

$60 for the weight room, $130 for the pool, or $175 for both

Question 14: Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?

Customers must have identical demand curves.

The firm does not learn about customer demand until after purchase.

Demand for two products must be negatively correlated.

The firm must not have market power.

Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?

The firm must have market power.

The firm must be able to prevent resale.

The firm must learn about its customers' demands before purchases are made.

The firm's customers must have different demand curves.

Question 16: A firm faces a market demand curve P = 50 – 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?

Consumer surplus would decrease by $10, and producer surplus would increase by $20.

Consumer surplus would increase by $10, and producer surplus would increase by $20.

Consumer surplus would increase by $20, and producer surplus would increase by $10.

Consumer surplus would increase by $20, and producer surplus would increase by $20.

Question 17: Relative to standard monopoly pricing, block pricing:

decreases consumer surplus, increases producer surplus, and increases total surplus.

increases consumer surplus, increases producer surplus, and increases total surplus.

decreases consumer surplus, increases producer surplus, and decreases total surplus.

decreases consumer surplus, decreases producer surplus, and decreases total surplus.

Question 18: Which of the following results in the highest amount of producer surplus?

bundling

third-degree price discrimination

block pricing

two-part tariffs

Question 19: Which of the following results in the highest amount of consumer surplus?

first-degree price discrimination

third-degree price discrimination

block pricing

two-part tariffs

Question 20: Which of the following results in the highest amount of total surplus?

third-degree price discrimination

block pricing

first-degree price discrimination

bundling

The firm must have market power.

The firm must be able to prevent resale and arbitrage.

The firm must eventually learn about its customers' demands.

The firm's customers must have different demand curves.

Explanation / Answer

lower consumer surplus, higher producer surplus, and higher total surplus.

P = maximum willingness to pay by consumer so no consumer surplus left. Also there is no dead weight loss.

3. lower consumer surplus, higher producer surplus, and equal total surplus.

4. $1,600.

P = 100 – Q and the firm has a constant marginal cost of 20

TR = P xQ => 100Q – Q2

MR = dTR / d Q =>100 –2 Q

Equilibrium, MR = MC

100 –2 Q = 20

Q = 40

P = 100 - 40 = 60

Producer Surplus = TR - TC

TR = 60 x 40 = 2400

TC = 20 Q = 20 x 40 = 800

PS = 2400 - 800

1600

lower consumer surplus, higher producer surplus, and higher total surplus.

P = maximum willingness to pay by consumer so no consumer surplus left. Also there is no dead weight loss.

3. lower consumer surplus, higher producer surplus, and equal total surplus.

4. $1,600.

P = 100 – Q and the firm has a constant marginal cost of 20

TR = P xQ => 100Q – Q2

MR = dTR / d Q =>100 –2 Q

Equilibrium, MR = MC

100 –2 Q = 20

Q = 40

P = 100 - 40 = 60

Producer Surplus = TR - TC

TR = 60 x 40 = 2400

TC = 20 Q = 20 x 40 = 800

PS = 2400 - 800

1600

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