Suppose a monopoly’s inverse demand curve is P = 100 – Q, it produces a product with a constant marginal cost of 20, and it has no fixed costs. Compared to the consumer surplus if the market were perfectly competitive, consumer surplus is how much less when the monopolist practices perfect price discrimination? A) 3200 […]
At the current price of a good, Jessica’s consumer surplus equals 12, Lauren’s consumer surplus equals 14, and Isabel’s consumer surplus is 4. By perfect discrimination, a monopolist could increase his profit by A) 4. B) 12. C) 16. D) 30. ANSWER D
What is one reason car dealerships might move away from perfect price discrimination to uniform pricing? A) Perfect price discrimination doesn’t work. B) Transaction costs erode the profit of perfect price discrimination. C) Consumers are ill-informed and tend to complain too much. D) Uniform pricing is always more profitable and more fair as well. […]
Which of the following helps a monopoly perfectly price discriminate? A) unit demand by each consumer B) the product is perishable C) the product is personalizable D) All of the above. ANSWER D
If the price of business broadband is greater than that of residential broadband, all else equal, A) business has greater price elasticity than residential. B) residential has greater price elasticity than business. C) both have positive income elasticity. D) generally speaking, broadband is equally priced. ANSWER B
A group price discriminator sells its product in Florida for three times the price it sets in New York. Assuming the firm faces the same constant marginal cost in each market and the price elasticity of demand in New York is -2.0, the demand in Florida A) has an elasticity of -6.0. B) is more […]
Suppose a monopoly’s inverse demand curve is P = 100 -Q, it produces a product with a constant marginal cost of 20, and it has no fixed costs. How much more or less is the deadweight loss if the monopoly can practice perfect price discrimination compared to it practicing uniform pricing? A) The deadweight loss […]
Assume a firm organizes all individuals by their willingness to pay (least to most). If the firm starts to perfectly price discriminate, what is likely to happen? A) Consumers start to arbitrage amongst themselves. B) The firm’s profits will be maximized. C) The firm’s costs will be minimized. D) The firm starts to arbitrage with […]
Explain why a firm can earn more profit by price discrimination than from setting a uniform price. What will be an ideal response? ANSWER First, price discrimination allows a firm to charge a higher price to customers who are willing to pay more than the uniform price. The firm captures more of the consumer […]
Which of the following is an example of group price discrimination? A) Senior citizen discounts. B) Buy two, get one free. C) Buy one, get another half off. D) None of the above. ANSWER A
