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```					   1. A firm selling in two markets is practicing price discrimination
Answer
a. anytime it charges different consumers different prices.
b. when it is charging different consumers different prices and the price difference is not
based upon cost differences.
c. when it refuses to sell the good to some group of consumers.
d. all of the above

2. To maximize profit a price discriminating firm should
Answer
a. produce the output at which total marginal revenue equals marginal cost.
b. allocate the optimal output so the elasticity is the same in each market.
c. allocate the output so that marginal revenue is the same in each market.
d. both a and c

3.   If a firm is selling a product in two markets, A and B, and the marginal revenue in A
is \$25 and the marginal revenue in B is \$20, the firm should
Answer
a. charge a higher price in A where MR is higher
b. charge a lower price in B where MR is lower
c. sell more in B
and less in A
d. sell more in A
and less in B

4. The ability of a monopoly to charge a price that exceeds marginal cost depends on
Answer
the price elasticity of supply.
the price elasticity of demand.
the slope of the demand curve.
shape of the marginal cost curve.
5.    The next 2 questions refer to the following:

A news magazine offers students a discount on the regular subscription rate. The total number of
subscriptions is optimal, and, at the current prices, the marginal revenue from the last subscription sold
to a student is \$6, while the marginal revenue from the last subscription sold to a regular customer is
\$10.

In order to maximize profit, the magazine should
Answer
stop offering students a discount on the regular subscription rate.
offer students a higher discount (lower the price to students).
offer students a lower discount (raise the price to students).
offer all customers the same discount received by the students.

6.    If the magazine sells one more subscription to a regular customer and one less subscription to a
student:
Answer
profit will increase \$4
profit will increase \$16
profit will decrease \$6
profit will decrease \$10
none of the above

7.    In order to maximize profit, a firm producing two goods that are related in consumption should choose
the levels of output at which
Answer
total marginal revenue equals total marginal cost.
total marginal revenue equals the marginal cost of each good.
the marginal revenue of each good equals total marginal cost.
marginal revenue equals marginal cost for each good simultaneously.
8.   Gus has 20 acres of land in cultivation and is currently planting both soybeans and peanuts. The last
acre planted in soybeans yielded 20 bushels, and the last bushel of soybeans added \$0.50 to Gus's
total revenue. The last acre planted in peanuts yielded 10 bushels and the last bushel of peanuts
added \$1 to Gus's total revenue. Gus:
Answer
is maximizing profit.
should devote more acres to soybeans and fewer to peanuts.
should devote more acres to peanuts and fewer to soybeans.
should devote 10 acres to each crop.

9.   Answer the following 5 questions based on the following situation:

Black Diamond Tennis & Golf Club offers golf and tennis memberships to the residents of Black
Diamond, Ohio, in which there are two types of families: golf-oriented families and tennis-oriented
families. There are 100 golf-oriented families and 100 tennis-oriented families in Black Diamond.
Forecasted demand prices for golf and tennis memberships by family type are given below. There is
no way to identify family types for pricing purposes, and all costs are fixed so that maximizing total
revenue is equivalent to maximizing profit.

Demand Prices (willingness to pay) for Golf and Tennis Memberships
Tennis
membership            Golf membership
Type of family          only                  only

Tennis-oriented         \$150                  \$50

Golf-oriented           \$75                   \$200

If Black Diamond Tennis & Golf Club plans to offer golf and tennis memberships separately, what prices should
be charged for each kind of membership if Berkely wishes to maximize profit?
Answer
Charge \$75 for tennis memberships and \$50 for golf memberships.
Charge \$75 for tennis memberships and \$200 for golf memberships.
Charge \$150 for tennis memberships and \$200 for golf memberships.
Charge \$150 for tennis memberships and \$50 for golf memberships.
either b
or c
10. How much total revenue can be generated each month under the pricing plan in the previous
question?
Answer
\$20,000
\$25,000
\$35,000
\$70,000
\$95,000

11. The conditions are right for bundle pricing to increase profit at Black Diamond Tennis & Golf Club
because
Answer
demand prices for golf are greater than demand prices for tennis.
Demand prices differ across family types for tennis and golf memberships.
Demand prices are negatively correlated.
Demand prices are positively correlated.
Both b
and c

12. What is the optimal price to charge for a bundled tennis and golf and tennis membership?
Answer
\$150
\$200
\$225
\$250
\$275

13. How much revenue will bundle price in the previous question produce for Black Diamond Tennis &
Golf Club?
Answer
\$25,000
\$27,500
\$35,000
\$40,000
14. Mega Media Cable Scenario: Mega Media Cable TV is able to purchase an exclusive right to sell a
premium sports channel in its market area. Let's assume that Mega Media pays \$100,000 a year for
the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to
all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is
zero. The manager of Mega Media needs to know what price to charge for the sports channel service
to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports
channel. The economist discovers that there are two types of subscribers who value premium sporting
channels. First are the 3,000 die-hard sports fans who will pay as much as \$150 a year for the new
channel. Second, the premium sports channel will appeal to about 20,000 occasional sports viewers
who will pay as much as \$25 a year for a subscription to it.

Refer to Mega Media Cable Scenario: If Mega Media Cable TV is unable to price discriminate, what
price will it choose to maximize its profit, and what is the amount of the profit?
Answer
a. price = \$25; profit = \$475,000
b. price = \$25; profit = \$350,000
c. price = \$150; profit = \$500,000
d. price = \$150; profit = \$400,000

15. Mega Media Cable Scenario: Mega Media Cable TV is able to purchase an exclusive right to sell a
premium sports channel in its market area. Let's assume that Mega Media pays \$100,000 a year for
the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to
all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is
zero. The manager of Mega Media needs to know what price to charge for the sports channel service
to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports
channel. The economist discovers that there are two types of subscribers who value premium sporting
channels. First are the 3,000 die-hard sports fans who will pay as much as \$150 a year for the new
channel. Second, the premium sports channel will appeal to about 20,000 occasional sports viewers
who will pay as much as \$25 a year for a subscription to it.

Refer to Mega Media Cable Scenario: If Mega Media Cable TV is able to price discriminate, what
would be the maximum amount of profit it could generate?
Answer
a. \$950,000
b. \$850,000
c. \$400,000
d. \$350,000

16. Mega Media Cable Scenario: Mega Media Cable TV is able to purchase an exclusive right to sell a
premium sports channel in its market area. Let's assume that Mega Media pays \$100,000 a year for
the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to
all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is
zero. The manager of Mega Media needs to know what price to charge for the sports channel service
to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports
channel. The economist discovers that there are two types of subscribers who value premium sporting
channels. First are the 3,000 die-hard sports fans who will pay as much as \$150 a year for the new
channel. Second, the premium sports channel will appeal to about 20,000 occasional sports viewers
who will pay as much as \$25 a year for a subscription to it.
Refer to Mega Media Cable Scenario: What is the deadweight loss associated with the non-
discriminating pricing policy compared to the price discriminating policy?
Answer
a. \$500,000
b. \$450,000
c. \$375,000
d. \$0

17.   A multimarket price discriminator sells its product in Florida for three
times the price it sets in New York. Assuming the firm faces the same
constant marginal cost in each market and the price elasticity of
demand in New York is -2.0, the demand in Florida
Answer
a. has an elasticity of -6.0.
b. is more price elastic than the demand in New York.
c. has an elasticity of -1.2.
d. has an elasticity of -0.67.

18.   The WildTimes Bar offers female patrons a lower price for a drink
than male patrons. The bar will maximize profit by selling a total of
200 drinks per night. At the current prices, male customers buy 150
drinks, while female customers buy 50 drinks. The marginal revenue
from the last drink sold to a male customer is \$1.50, while the
marginal revenue from the last drink sold to a female customer is
\$0.50.
The bar
Answer
a. should lower the price for male customers and raise the price for female customers.
b. should lower the price for female customers and raise the price for male customers.
c. should charge the same price regardless of gender.
d. is maximizing profit; should keep selling 150 drinks to male customers and 50 drinks to
female customers.
19. A drugstore offers a discount on prescriptions to senior citizens. This suggests that the absolute value
of elasticity of demand for senior citizens is
Answer
a. greater than one.
b. less than one.
c. greater than the elasticity of demand for other customers.
d. less than the elasticity of demand for other customers.

20. At many municipal golf courses, local residents pay a lower fee to play than other golfers do. One
necessary condition for the golf course to be able to successfully price discriminate according to
residency is that
Answer
a. they can check the identification cards of golfers.

b. local resident golfers and other golfers have the same price elasticity of demand to play at
the municipal course.

c. there are many golf courses nearby from which golfers can choose.

d. they require all golfers to rent a cart.

21. Charging a higher price for a motel room to customers with dogs or cats than to customers with no
pets is most likely an example of
Answer
a. first-degree price discrimination.

b. second-degree price discrimination.

c. third-degree price discrimination.

d. actual cost differences.

22. Coupons represent a form of price discrimination because they offer a low-cost way for firms to
Answer
a. identify customers with apparently more elastic demand and offer them a lower price.

b. retain loyal customers who are not price sensitive.

c. offer discounts to customers who buy larger quantities.
d. perfectly price discriminate.

23. Suppose all individuals are identical, and their monthly demand for Internet access from a certain
leading provider can be represented as P = 5 - 0.5Q, where P is the price in \$ per hour and Q is hours
per month. The firm faces a constant marginal cost of \$1. If the firm will charge a monthly access fee
plus a per-hour rate, the monthly access fee will equal
Answer
a. \$1

b. \$5

c. \$8

d. \$16

24. When firms price discriminate, they turn ___________ into ______________.
Answer
a. producer surplus, revenue

b. consumer surplus, profit

c. total cost, profit

d. producer surplus, consumer surplus

25. Which of the following conditions must be true so that a firm can price discriminate?
Answer
a. There are no other firms in the market.
b. The good is a non-durable good.
c. The good cannot be easily resold.
d. All of the above.

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 views: 80 posted: 2/14/2012 language: English pages: 8