Question 1

Which of the following best describes price discrimination?

Accepted Answer

Charging more than one price for the same product in different markets or to different consumers.

Question 2

A monopolist faces two markets: Market A with less elastic demand and Market B with more elastic demand. To maximize profit, how should the monopolist set prices?

Accepted Answer

Set a higher price in Market A and a lower price in Market B.

Question 3

Suppose arbitrage is possible between two markets where a firm practices price discrimination. What is the likely outcome?

Accepted Answer

Price discrimination may not be possible.

Question 4

Which of the following is an example of tying as a form of price discrimination?

Accepted Answer

Selling a printer and requiring customers to buy the printer cartridges from the same company.

Question 5

A streaming service has three customers with the following maximum willingness to pay for HBO, ESPN, and HGTV: Bill ($$30, 50$$, $$15), Barry (20$$, $$30, 5$$), Martha ($$25, 10$$, $15). If the service prices each channel separately, what prices should they charge to maximize profit (assuming zero marginal cost)?

Accepted Answer

HBO = $$25; ESPN = 30$$; HGTV = $15

Question 6

Using the same streaming service scenario, what is the optimal price for a bundle of all three channels?

Accepted Answer

$55

Question 7

Which of the following is true about perfect price discrimination (first-degree price discrimination)?

Accepted Answer

It charges each consumer their maximum willingness to pay.

Question 8

In terms of economic efficiency (minimizing deadweight loss), which market structure is most efficient?

Accepted Answer

Perfectly price discriminating monopoly

Question 9

Suppose a monopolist can perfectly price discriminate. What is the deadweight loss in this market?

Accepted Answer

$0

Question 10

If a monopolist faces the following demand curve: $$P = 20 - 2Q$$, and marginal cost is $$MC = 4$$, what is the profit-maximizing quantity and price under single-price monopoly?

Accepted Answer

$$Q = 4$$, $$P = 12$$

Question 11

If the same monopolist ($$P = 20 - 2Q$$, $$MC = 4) $$can perfectly price discriminate, what is the profit-maximizing quantity?

Accepted Answer

$$Q = 8$$

Question 12

Which of the following is NOT a method firms use to prevent arbitrage in price discrimination?

Accepted Answer

Allowing consumers to freely resell products

Question 13

Which of the following is an example of versioning as a form of price discrimination?

Accepted Answer

Offering regular and Series E versions of IBM laser printers at different prices.

Question 14

Why might price discrimination increase total surplus compared to single-price monopoly?

Accepted Answer

It increases output, reducing deadweight loss.

Question 15

Suppose Microsoft can sell Word and Excel separately or as a bundle. Amanda is willing to pay $$100 for Word and 20 $$for Excel; Yvonne is willing to pay $$40 for Word and 90 $$for Excel. What is the profit-maximizing bundle price?

Accepted Answer

$120

Question 16

Which of the following statements about consumer surplus under perfect price discrimination is correct?

Accepted Answer

Consumer surplus is zero.

Question 17

Which of the following is a real-world example of third-degree price discrimination?

Accepted Answer

Student and senior discounts at movie theaters.

Question 18

Why is perfect price discrimination difficult to implement in practice?

Accepted Answer

It requires detailed information about each consumer's maximum willingness to pay.

Question 19

Which of the following is a welfare effect of price discrimination compared to single-price monopoly?

Accepted Answer

Gains from trade are higher if output is higher.

Question 20

Suppose a regulated natural monopoly faces $$AC \u003e MC at $$the efficient output level. How can price discrimination help maintain profits?

Accepted Answer

By charging different prices to different consumers, the firm can cover fixed costs and maintain profits.

Chapter 14: Price Discrimination – Microeconomics Study Notes

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