Historically, price discrimination was considered illegal in all instances. More recently, antitrust authorities have discovered that A) price discrimination can increase the coverage of a market thereby increasing welfare. B) price discrimination limits the coverage of a market thereby increasing welfare. C) price discrimination limits the coverage of a market thereby decreasing welfare. D) price […]
A perfect-price-discriminating monopoly’s marginal revenue curve A) lies below the demand curve. B) is the demand curve. C) varies for each consumer. D) is the same as the monopolist’s marginal revenue curve. ANSWER B
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
Suppose a firm uses the following price strategy for every customer. The first two units purchased cost $4 each, and any extra unit costs $3.50. What kind of price discrimination is this? A) First-degree price discrimination B) Group price discrimination. C) Non-uniform pricing. D) Uniform pricing. ANSWER C
If consumers are identical, then A) price discrimination is impossible. B) price discrimination can occur if each consumer has a downward-sloping demand curve for the product. C) perfect price discrimination is the only form of price discrimination that can increase a monopoly’s profit. D) tie-in sales cannot increase a monopoly’s profit. ANSWER B
The case where a firm sells each unit at the maximum amount each customer is willing to pay for it is called A) first-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) nonlinear price discrimination. ANSWER A
Mouthwash is sold in 24 oz bottles for $2.40 and in 12 oz. bottles for $1.20. This represents A) price differentiation. B) price discrimination. C) marginal cost pricing. D) None of the above. ANSWER D
A cheese-by-mail club that charges an annual membership fee and an additional fee per cheese shipment utilizes A) perfect price discrimination B) third-degree price discrimination. C) two-part pricing. D) uniform pricing. ANSWER C
If two markets have the same price elasticity of demand at every price, a monopoly will not practice multimarket price discrimination. What will be an ideal response? ANSWER True. If both markets have the same price elasticity of demand, there is nothing to be gained by price discrimination.
