Question 1

Which of the following best describes first-degree price discrimination?

Accepted Answer

Charging each consumer the maximum price they are willing to pay for each unit.

Question 2

Second-degree price discrimination is best exemplified by which of the following real-world scenarios?

Accepted Answer

A utility company offering lower rates for higher levels of electricity consumption.

Question 3

What is a necessary condition for a firm to successfully implement third-degree price discrimination?

Accepted Answer

The firm must be able to prevent resale between consumer groups.

Question 4

Given the demand curves $$Q_1 = 50$$ - $$P_1$$ and $$Q_2 = 100 - 2P_2$, and marginal revenue curves MR_1$ = 50 - 2Q_1$$ and $$MR_2 = 100 - 4Q_2$, if marginal cost is MC = 10$, what is the profit-maximizing quantity for market 1?

Accepted Answer

$$Q_1 = 20$

Question 5

Using the same demand and marginal revenue curves as above, what is the profit-maximizing price for market 2?

Accepted Answer

$$P_2 = 30$

Question 6

If the marginal cost of production is constant at $$MC = 10$$, what is the optimal price for market 1 with demand $$Q_1 = 50$$ - $$P_1$$?

Accepted Answer

$$P_1 = 30$

Question 7

Why is it more profitable for a firm to sell to different consumer groups separately when consumer valuations for the product are negatively correlated?

Accepted Answer

Because separate pricing allows the firm to capture more consumer surplus from each group.

Question 8

Two consumers have the following reservation prices for two goods: Consumer A: $$(100, 90)$$, Consumer B: $$(90, 100). If a $$firm can only sell the goods as a bundle, what is the maximum price it can charge for the bundle?

Accepted Answer

$$180$$

Question 9

If a firm cannot bundle the goods and must sell them separately, what is the maximum total revenue it can earn from both consumers?

Accepted Answer

$$190$$

Question 10

A firm faces two demand curves: $$Q_1 = 100 - 2P_1$ and Q_2$ = 50 - P_2$, with marginal cost MC = 10$. What is the profit-maximizing price for market 1?

Accepted Answer

$$P_1 = 45$

Question 11

For the same firm as above, what is the profit-maximizing price for market 2?

Accepted Answer

$$P_2 = 30$

Question 12

Which of the following is NOT a requirement for successful price discrimination?

Accepted Answer

The firm must have identical demand curves for all consumers.

Question 13

If a firm uses two-part pricing, what is the optimal fixed fee to charge if the consumer's demand curve is $$Q = 100 - P$$ and marginal cost is $$MC = 10$$?

Accepted Answer

$$4,050$$

Question 14

Which of the following best explains why two-part pricing can increase a firm's profit compared to uniform pricing?

Accepted Answer

It allows the firm to capture both consumer surplus and producer surplus.

Question 15

How can a firm use peak-load pricing to maximize profits when there are two consumer groups with different demand curves?

Accepted Answer

By charging a higher price during periods of high demand and a lower price during periods of low demand.

Chapter 11: Pricing with Market Power – Practice Problems and Study Guide

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