Texas A&M International University

ECO 3320

CHAPTER 13 and CHAPTER 14

1)For direct price discrimination to work effectively

1. 1. The low-valued group should not be able to arbitrage
   2. Charge the same price to the different groups
   3. Both groups should have the same elasticity of demand
   4. None of the above

2. A firm practicing direct price discrimination will charge a higher price to
   1. Consumers with an elastic demand
   2. All consumers
   3. Consumers with an inelastic demand
   4. Consumers with unitary elastic demand

3. The goal of price discrimination is to
   1. Convert consumer surplus to producer surplus
   2. Maximize profits
   3. Both a and b
   4. Make pricing decision difficult

4. This                               declared that price discrimination is illegal especially when it decreases competition.
   1. Robinson-Patman Act
   2. Sherman Antitrust Act of 1890.
   3. Merger Act
   4. Federal Trade Commission Act.

5. Economists criticize Robinson-Patman acts because
   1. Economists are profit maximizers
   2. Economists promote unemployment
   3. Economists are against discounting of goods
   4. Economists feel the act protects competitors rather than the process of competition

6. Many bars close to campuses have started offering cheaper beer to consumers with a student ID. These bars
   1. Assume students have a inelastic demand curve
   2. Assume students have an elastic demand curve
   3. Are practicing price discrimination
   4. Both b and c

7. For a firm to maximize total profits through price discrimination, it should
   1. Charge a high price to consumers with an inelastic demand and low price to consumers with an elastic demand
   2. Charge a low price to consumers with an inelastic demand and high price to consumers with an elastic demand
   3. Charge the same price to both sets of consumers by maximizing at MR=MC on the elastic demand
   4. Charge the same price to both sets of consumers by maximizing at MR=MC on the inelastic demand

8. Assume that the price elasticity of demand for movie theatres is -.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theatre to maximize total revenue, it should
   1. Charge the same price for both shows, holding other things constant.
   2. Charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant

1. 3. Charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant
   4. Need more information

9. When a firm practices perfect price discrimination,
   1. The demand curve is very inelastic
   2. The demand curve is the marginal revenue curve
   3. The demand curve is very elastic
   4. The marginal cost curve is the average cost curve

10. When a firm practices perfect price discrimination,
    1. Consumer surplus is maximized
    2. Producer surplus is minimized
    3. Producer surplus is maximized
    4. None of the above

11. A supermarket sells you a pound of coffee on condition that you buy a gallon of milk.

This is an example of

1. 1. Bundling
   2. Package Tie in Sale
   3. Price Discounts
   4. Both a and b

12. Chinese restaurants that charge one price per customer for their buffet is an example of
    1. Individual pricing
    2. Pure bundling
    3. Mixed Bundling
    4. None of the above

13. Requirements tie-in-sale is
    1. Where customers have to purchase all their products from one store in variable proportions
    2. Where customer can mix and match products from different stores
    3. Where two or more products are sold together in fixed proportions
    4. Where you get discounts for buying in large quantities

14. All these are motivations for tie-in-sales except,
    1. Efficiency
    2. Assure quality
    3. Provide secret price discounts

1. 4. All the above

Use the following table to answer questions 15 - 18 Assume the cost of producing the goods is zero

15. Suppose the monopolist only sold the goods separately. What prices will the monopolist charge for Good 1 to maximize revenues for good 1?

a) $4,500

b) $5,000

c) $1,500

d) $1,000

16. Suppose the monopolist only sold the goods separately. What prices will the monopolist charge for Good 2 to maximize revenues for good 1?

a) $4,500

b) $5,000

c) $1,500

d) $1,000

17. What is the total profit to the monopolist from selling the goods separately? a) $12,000

b) $13,000

c) $11,000

d) $10,000

18. What is a better pricing strategy for the monopolist? At this price, what are the total profits to the monopolist?
    1. Bundle the goods at $4,500; Profits=$9,000
    2. Bundle the goods at $6,000; Profits=$12,000
    3. Bundle the goods at $5,000; Profits=$10,000
    4. Bundle the goods at $9,500; Profits=$19,000

19. Indirect price discrimination differs from direct price discrimination because
    1. In direct price discrimination high value consumers can sometime enjoy the benefits of a low-values customer
    2. In Direct price discrimination firms do not have to worry about cannibalizing
    3. In direct price discrimination there is a risk of creating profitable entries for rival but

for indirect price discrimination, this can be avoided

1. 4. There is no difference between the two

20. Mixed bundling is
    1. Where customers pay for each item separately
    2. Where customers buy all item in a store at one price
    3. Where customers have a choice of buying each item separately or all items at one price
    4. Where customers are charged one fixed fee and a cost per unit for every unit bought

21. A firm charging different customers different prices for the same product is engaged in:
    1. Price discrimination
    2. Price matching
    3. Markup pricing
    4. Predatory pricing.

22. For a firm to maximize total profits through price discrimination, it should
    1. Firms should charge a low price to high-value consumers and a high price to low- value consumers
    2. Firms should charge a high price to high-value consumers and a high price to low- value consumers
    3. Firms should charge a low price to high-value consumers and a low price to low-value consumers
    4. Firms should charge a high price to high-value consumers and a low price to low- value consumers

Use the following table to answer questions 23 - 26 Assume the cost of producing the goods is zero

23. Suppose the monopolist only sold the goods separately. What price will the monopolist charge for Good 1 to maximize revenues for good 1?

a) $2,300

b) $2,800

c) $1,200

d) $1,700

24. Suppose the monopolist only sold the goods separately. What price will the monopolist charge for Good 2 to maximize revenues for good 2?

a) $2,300

b) $2,800

c) $1,200

d) $1,700

25. What is the total profit to the monopolist from selling the goods separately? a) $4,500

b) $6,300

c) $7,000

d) $6,200

26. What is a better pricing strategy for the monopolist? At this price, what are the total profits to the monopolist?
    1. Bundle the goods at $2,800; Profits=$5,600
    2. Bundle the goods at $4,000; Profits=$8,000
    3. Charge $2,800 for good 1 and charge $1,700 for good 2; Profits=$4,500
    4. Charging the lowest price for each good individually is the best pricing strategy; profits = $7,000

27. Restaurant provide discounts to seniors because
    1. They have a less-price elastic demand
    2. They have a more-price elastic demand
    3. They are the main source of income
    4. None of the above

28. Firms choose to price discriminate
    1. To earn higher profits
    2. To sell goods to consumers who otherwise would not have purchased
    3. Both a and b
    4. None of the above

29. With no price discrimination,
    1. A firm sells every unit at different prices
    2. A firm sells every unit at same prices
    3. Low-value group pay a lower price than the high-value group
    4. Low-value group pay a higher price than the high-value group

30. Airlines charge a                                      to business travelers compared to leisure travelers because business travelers have a                                     demand than leisure travelers.
    1. Higher; more elastic
    2. Higher; less elastic

1. 3. Lower; more elastic
   4. Lower; less elastic

31. (pg 168) Charging prices closer to what consumers are willing to pay for a good
    1. Reduces consumers surplus
    2. Increases producer surplus
    3. Both a and b
    4. None of the above

32. Arbitrage
    1. Is the act of to buying low in one market and selling high in another market
    2. Can force a seller to go back to uniform pricing
    3. Can defeat direct price discrimination
    4. All of the above

33. It is illegal for business to price discriminate when selling goods to other businesses unless
    1. Price discounts are cost-justified
    2. Discounts are offered to meet competitors’ price
    3. Both a and b
    4. It is not illegal for businesses to price discriminate

34. Metering is
    1. A type of indirect price discrimination
    2. A type of direct price discrimination
    3. An evaluation of a product
    4. An example of bundling

35. Firms can practice indirect price discrimination by
    1. Offering volume discounts
    2. Using two-part pricing
    3. Offering a bundle containing a number of units
    4. All of the above

36. In theory, price discrimination
    1. Reduces the number of consumers who purchase the firm’s product
    2. Decreases producer surplus
    3. Decreases consumer surplus
    4. Has no effect on deadweight loss

37. When deciding what price to charge customers, a firm may choose to charge different prices based on customers’
    1. Age
    2. Willingness to pay
    3. Location
    4. All of the above

38. The practice of buying a firm’s good in one market at a low price and selling it in another market for a higher price in order to profit from the price difference is known as

1. Predatory pricing
2. Price collusion
3. Arbitrage
4. Mark-up pricing