Question 1

Which of the following is a necessary condition for a firm to successfully practice price discrimination?

Accepted Answer

The firm must be able to prevent arbitrage between customers.

Question 2

A monopolist faces the demand curve $$Q = 240 - p$$ and has a cost function $$C = 200 + 2Q^2$ (so MC = 4Q$). What is the profit-maximizing price and quantity if the monopolist cannot price discriminate?

Accepted Answer

Price: $200, Quantity: 40

Question 3

Suppose a monopolist can practice perfect price discrimination. What happens to consumer surplus?

Accepted Answer

Consumer surplus is zero; all surplus goes to the monopolist.

Question 4

Which pricing strategy is illustrated by 'all you can eat' buffets?

Accepted Answer

Product bundling

Question 5

A monopoly sells in two countries with demand curves $$p_1 = 100$$ - $$Q_1$$ and $$p_2 = 120 - 2Q_2$. Marginal cost is MC = 30$. What are the profit-maximizing prices in each country?

Accepted Answer

Country 1: $$65, Country 2: 75$$

Question 6

Why do firms use coupons in advertisements rather than simply lowering the price for everyone?

Accepted Answer

Coupons allow firms to segment the market and extract more consumer surplus from less price-sensitive consumers.

Question 7

If a monopolist faces a demand curve $$Q = 16 - 2P$$ and charges $$P = 5$$, how many units will be sold?

Accepted Answer

$$Q = 6$$

Question 8

Which of the following statements about advertising in monopolistically competitive markets is correct?

Accepted Answer

Advertising increases competition by informing consumers about price differentials.

Question 9

A monopolist sells its good in the US (elasticity $$-2) $$and Japan (elasticity $$-5$$), with marginal cost $$MC = 10. $$What are the profit-maximizing prices in each country?

Accepted Answer

US: $$20, Japan: 12.50$$

Question 10

Which of the following is NOT a real-world example of price discrimination?

Accepted Answer

Gasoline sold at the same price to all customers

Question 11

What is the main objective of pricing strategies for firms with market power?

Accepted Answer

To convert consumer surplus into additional profit for the firm

Question 12

If a monopolist uses block pricing and sets a first-block price above the demand curve, what is the likely outcome?

Accepted Answer

Consumers will not purchase the first block, reducing total sales.

Question 13

Which of the following best describes a two-part tariff?

Accepted Answer

A pricing strategy where customers pay a flat fee plus a per-unit price.

Question 14

True or False: If all consumers have identical tastes and preferences, perfect price discrimination is impossible.

Accepted Answer

False

Question 15

What is the effect of arbitrage on a monopolist’s ability to price discriminate?

Accepted Answer

Arbitrage makes price discrimination impossible.

Question 16

Which pricing strategy is used when season ticket holders must purchase pre-season games at the same price as regular games?

Accepted Answer

Product bundling

Question 17

Suppose a monopolist faces $$Q = 50 - p in $$market 1 and $$Q = 90 - 1.5p in $$market 2, with $$MC = 10. $$What is the price in market 1 if the monopolist practices price discrimination?

Accepted Answer

$$p_1 = 35$

Question 18

Which of the following is a plausible reason for a firm to rent all available billboard space upon learning a rival will enter the market?

Accepted Answer

To raise the rival’s cost of entry by forcing them to use more expensive advertising methods.

Question 19

What is the welfare effect of perfect price discrimination compared to imperfect price discrimination?

Accepted Answer

Perfect price discrimination eliminates deadweight loss and increases total welfare.

Question 20

A grocery store uses frequent-buyer cards to offer customized coupons based on past purchases. What type of price discrimination is this?

Accepted Answer

Multimarket (group) price discrimination

Pricing Strategies and Advertising in Monopoly and Market Power

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