Should a monopoly charge low introductory price in a two-period model? A) Yes, if the extra profit in the second period is greater than the foregone in the first period. B) Yes, if the demand in the second period is greater than the demand in the first period. C) No. The first period profit is […]
Date: September 9th, 2020
In the Sunday newspaper, there are usually coupons that you can clip and take to the store to save money on products. Anyone can buy a newspaper, and the value of the coupons easily exceeds the price of the newspaper for most consumers. Is this an example of price discrimination? Explain. ANSWER Yes, it […]
Date: September 9th, 2020
Would it ever make sense for a firm to charge a price at or below the cost of the product? What will be an ideal response? ANSWER This might be an example of penetration pricing in which the firm is trying to gain market share. (Two other reasons not discussed in the text: limit […]
Date: September 9th, 2020
The demand equation for the Widget Company has been estimated to be: Q = 20,000 + 10 I – 50P + 20 PC where Q = monthly number of widgets sold, I = average monthly income, P = price of widgets, and PC = average price of competing goods. a. If next month’s income is […]
Date: September 9th, 2020
The demand curve an individual competitive firm faces is known as its A) excess demand curve. B) market demand curve. C) residual demand curve. D) leftover demand curve. ANSWER C
Date: September 9th, 2020
Some charge that third-degree price discrimination is unfair or that it reduces social welfare. Why does charging one group a lower price hurt anyone? What will be an ideal response? ANSWER There’s an equity issue about charging different prices to different people, but the real social welfare issue is not about charging a lower […]
Date: September 9th, 2020
A free rider A) benefits from a positive externality without paying for it. B) has a horizontal demand curve. C) places no value on the good provided. D) All of the above. ANSWER A
Date: September 9th, 2020
Which of the following belongs to the government regulation to control pollution? A) emissions standard B) emissions fee C) effluent charge D) All of the above ANSWER D
Date: September 9th, 2020
Why do cartels tend to break up? What will be an ideal response? ANSWER There are many reasons, but one of the best is that there is an incentive to cheat. While the cartel maximizes joint profits, individual profit could be increased if the firm could sell more at the cartel price. If everyone […]
Date: September 9th, 2020
The firm is considering changing its price to $900. Predict the quantity demanded at that price, all other things equal and provide a 95% confidence interval on your estimate. (In doing this, explain the value of t-critical you will use in developing your 95% confidence interval.) ANSWER At a price of $900, the point […]
Date: September 9th, 2020
