Question 1

A paper company produces both paper and packaging materials in a fixed 1:1 ratio. If the marginal revenue for paper is $$MR_A = 400 - 0.02Q_A$$ and for packaging materials is $$MR_B = 350 - 0.03Q_B$$, and marginal cost is $$MC = 50 + 0.02Q$$, what is the profit-maximizing output level $$Q^*$$?

Accepted Answer

$$Q^* = 5000$$

Question 2

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

Accepted Answer

Charging each customer their reservation price for each unit purchased.

Question 3

A firm practicing third-degree price discrimination faces two markets with demand elasticities $$E_1 = -2$ and E_2$ = -4. If $$the firm sets prices $$P_1$$ and $$P_2 in $$each market, what is the ratio $$\frac{P_1$}{P_2$}$$?

Accepted Answer

$$\frac{P_1$}{P_2$} = \frac{1 + 1/(-4)}{1 + 1/(-2)}$$

Question 4

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

Accepted Answer

A utility company charging lower rates for the first 100 kWh and higher rates for additional usage.

Question 5

A firm uses cost-plus pricing. If average variable cost is $$AVC = 5000$$, average fixed cost is $$AFC = 10000$$, and the firm wants to earn a total profit of $$200,000 by $$selling $$100$$ units, what price should the firm set?

Accepted Answer

$$P = 5000 + 10000 + \frac{200,000}{100} = 27,000$$

Question 6

Which of the following is a key criticism of cost-plus pricing?

Accepted Answer

It does not take demand conditions into account.

Question 7

A theme park charges higher prices on weekends and holidays when attendance is highest. This is an example of:

Accepted Answer

Peak-load pricing

Question 8

If a firm can perfectly price discriminate (first-degree), what area represents the additional profit compared to single-price monopoly?

Accepted Answer

The area between the marginal cost curve and the demand curve.

Question 9

Which of the following is necessary for third-degree price discrimination to be feasible?

Accepted Answer

The firm must be able to separate consumers into groups with different demand elasticities.

Question 10

A company produces two products, A and B, in a fixed ratio. If the marginal revenue for A is $$MR_A$$ and for B is $$MR_B$$, and marginal cost is $$MC$$, what is the profit-maximizing condition?

Accepted Answer

$$MR_A + MR_B = MC$$

Question 11

Which of the following is NOT a type of price discrimination?

Accepted Answer

Peak-load pricing

Question 12

A firm faces two markets with different elasticities of demand. To maximize profit under third-degree price discrimination, the firm should:

Accepted Answer

Set a higher price in the market with less elastic demand.

Question 13

Which of the following best describes the main advantage of cost-plus pricing?

Accepted Answer

It is simple and provides price stability.

Question 14

A firm sells a product at $$10 for the first unit, 8 $$for the second, and $6 for the third. This is an example of:

Accepted Answer

Second-degree price discrimination

Question 15

If a firm’s total cost function is $$TC = 2,000,000 + 50Q + 0.01Q^2$, what is the marginal cost function?

Accepted Answer

$$MC = 50 + 0.02Q$$

Question 16

Which of the following is a necessary condition for profit maximization under third-degree price discrimination?

Accepted Answer

$$MR_1$$ = $$MR_2 = MC$

Question 17

A firm wants to earn a 10% return on a $$2,000,000,000$$ investment by selling 100,000 cars. If total variable costs are $$500,000,000$$ and total fixed costs are $$1,000,000,000$$, what is the cost-plus price per car?

Accepted Answer

$$P = 5,000 + 10,000 + 2,000 = 17,000$$

Pricing Strategies in Microeconomics: Multiple Products, Price Discrimination, Peak-Load, and Cost-Plus Pricing

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