Chapter 8 Managerial Use of Price Discrimination
MULTIPLE CHOICE
1. When a monopolist requires a customer to pay an initial fee for the right to buy a product as
well as a usage fee for each unit of the product bought, this is known as a(n):
a.
bundling contract
b.
price differentiation
c.
oligopolistic device
d.
two-part tariff
e.
maximizing device
2. Price discrimination is defined as:
a.
selling a product at the same price to each and every consumer
b.
selling a product at more than one price
c.
selling a product at its marginal cost plus a markup
d.
selling more than one version of a product
e.
producing goods and services for sale within the firm
Please use the diagram below to answer the following questions .
3. The optimal level of output and price for the profit-maximizing monopolist would be:
a.
Q = 30 and P = $35
b.
Q = 60 and P = $20
c.
Q = 30 and P = $20
d.
Q = 100 and P = $35
e.
none of the above
4. If the monopolist shown in the diagram could practice first-degree price discrimination,
consumer surplus would be:
a.
$0
b.
$225
c.
$450
d.
$900
e.
$1,200
5. If the monopolist shown in the diagram could practice first-degree price discrimination,
producer surplus would be:
a.
$0
b.
$225
c.
$450
d.
$900
e.
$1,200
6. If the monopolist shown in the diagram could implement a two-part tariff, the entry fee
would be:
a.
$0
b.
$225
c.
$450
d.
$900
e.
$1,200
7. A firm with production located in a poor Georgia town sells toys locally for $10 each and
ships the same toys to sell in a wealthy North Carolina town for $15 each. They are not
price discriminating if:
a.
laws in Georgia allow it
b.
laws in North Carolina allow it
c.
total advertising costs are $5 per unit
d.
total transportation costs are $5 per unit
e.
consumers in North Carolina would pay more than $15 for the toys
8. If a firm supplies separable markets with price elasticities
1 and
2, it should set prices P1
and P2 so that:
a.
P1
1 = P2
2
b.
P1 /
1 = P2 /
2
c.
P1(1 + 1/
1) = P2 (1 + 1/
2)
d.
P1/(1 − 1 /
1) = P2 / (1 − 1/
2)
e.
P1 = 1 − 1/
1 and P2 = 1 − 1/
2
9. If a firm supplies separable markets with price elasticities
1 = −3 and
2 = −2, it should set
prices P1 and P2 so that:
a.
P1 = P2
b.
3P1 = 2P2
c.
2P1 = 3P2
d.
2/3P1 = 1/2P2
e.
2P1 = 2/3P2
10. When Pan United Airlines gives a $400 fare discount to persons with student IDs, they are
practicing:
a.
first-degree price discrimination
b.
second-degree price discrimination
c.
third-degree price discrimination
d.
markup pricing
e.
tying
11. When Exxoff Oil Corporation offers discounts based on credit card records of gas quantities
purchased, they are practicing:
a.
first-degree price discrimination
b.
second-degree price discrimination
c.
third-degree price discrimination
d.
markup pricing
e.
tying
12. Cereal manufacturers’ use of coupons can be partially explained by:
a.
first-degree price discrimination
b.
second-degree price discrimination
c.
third-degree price discrimination
d.
markup pricing
e.
tying
13. Gliberace’s Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear
for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 5(QLA + QSF).
Demand for Gliberace’s stones in the two cities is given by QLA = 70 − 2PLA and QSF = 55 −
PSF. If Gliberace price discriminates between the two cities, what will its maximum profits
be?
a.
$750
b.
$825
c.
$1,075
d.
$975
e.
$1,175
14. Gliberace’s Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear
for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 6(QLA + QSF).
Demand for Gliberace’s stones in the two cities is given by QLA = 70 − 2PLA and QSF = 50 −
PSF. If Gliberace cannot price discriminate between the two cities, and so charges the same
price in each, how many stones will it sell in Los Angeles?
a.
12
b.
15
c.
18
d.
21
e.
24
15. Gliberace’s Fashion Accessories of Las Vegas produces gemstone-encrusted formal wear
for sale in Los Angeles and San Francisco subject to total cost TC = 100 + 5(QLA + QSF).
Demand for Gliberace’s stones in the two cities is given by QLA = 70 − 2PLA and QSF = 55 −
PSF. If Gliberace price discriminates between the two cities, how many stones will it sell in
Los Angeles?
a.
30
b.
36
c.
38
d.
43
e.
48
16. Xenophobic Car Palace (XCP) purchases late-model domestic automobiles at wholesale
auctions and sells them in Charleston and Savannah. XCP’s total cost is given by TC =
100(QC + QS) + (QC + QS)2. The demand in each city for such gems is given by QC = 1,000
− 2PC and QS = 500 − PS. If XCP price discriminates between the two cities, how many cars
will it sell in Charleston and Savannah?
a.
QC = 100, QS = 50
b.
QC = 50, QS = 100
c.
QC = 75, QS = 75
d.
QC = 100, QS = 100
e.
QC = 50, QS = 50
17. Xenophobic Car Palace purchases late-model domestic automobiles at wholesale auctions
and sells them in Charleston and Savannah. XCP’s total cost is given by TC = 100(QC + QS)
+ (QC + QS)2. The demand in each city for such gems is given by QC = 1,000 − 2PC and QS =
500 − PS. If XCP price discriminates between the two cities, by how much are its
maximized profits greater than if it did not price discriminate?
a.
$0
b.
$7,500
c.
$15,000
d.
$22,500
e.
$30,000
18. Crusty Cakes sells donuts in Eastown and Westown. Its total costs are given by TC = 10(QE
+ QW). The demand in each neighborhood is given by QE = 100 − 2PE and QW = 100 − PW. If
Crusty price discriminates between the two neighborhoods, how much are its maximized
profits?
a.
$850
b.
$1,200
c.
$2,475
d.
$2,825
e.
$3,250
19. When a utility charges homeowners less than big industrial users, it is practicing:
a.
first-degree price discrimination
b.
fourth-degree price discrimination
c.
third-degree price discrimination
d.
markup pricing
e.
tying
20. Women are often charged more than men for haircuts performed by the same haircutter.
This is not considered price discrimination because:
a.
women receive more consumer surplus from haircuts than men receive
b.
haircutters claim to spend more time on women’s hair, raising the cost of the
haircut to the firm
c.
firms make up the extra cost to consumers by giving women free samples of
products
d.
men receive more consumer surplus from haircuts than women receive
e.
women have a lower price elasticity of demand for haircuts
21. The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 12 − 0.15Q
during peak traffic periods and P = 9 − 0.1Q during off-peak hours, where Q is the number
of cars crossing the bridge in thousands and P is the toll in dollars. If the marginal
congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal peak load toll for
crossing the bridge?
a.
6.5
b.
8.0
c.
8.7
d.
9.9
e.
10.6
22. The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 12 − 0.15Q
during peak traffic periods and P = 9 − 0.1Q during off-peak hours, where Q is the number
of cars crossing the bridge in thousands and P is the toll in dollars. If the marginal
congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal off-peak load toll
for crossing the bridge?
a.
6.5
b.
8.0
c.
8.7
d.
9.9
e.
10.6
23. The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 13 − 0.15Q
during peak traffic periods and P = 10 − 0.1Q during off-peak hours, where Q is the number
of cars crossing the bridge in thousands and P is the toll in dollars. If the marginal
congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal peak load toll for
crossing the bridge?
a.
6.5
b.
8.0
c.
8.7
d.
9.9
e.
10.6
24. The per-week demand for use of the Golden Gate Bridge in San Francisco is P = 13 − 0.15Q
during peak traffic periods and P = 7 − 0.1Q during off-peak hours, where Q is the number
of cars crossing the bridge in thousands and P is the toll in dollars. If the marginal
congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal off-peak load toll
for crossing the bridge?
a.
6.5
b.
8.0
c.
8.7
d.
9.9
e.
10.6
25. When an electrical utility charges higher prices during the day than at night, it is practicing:
a.
peak load pricing
b.
first-degree price discrimination
c.
second-degree price discrimination
d.
third-degree price discrimination
e.
fourth-degree price discrimination
26. When a movie theater charges a higher price during the evening than during the day, it is
practicing:
a.
peak load pricing
b.
first-degree price discrimination
c.
second-degree price discrimination
d.
third-degree price discrimination
e.
fourth-degree price discrimination
27. The demand for health club services is Q = 350 − 2P and the marginal cost of providing
these services is MC = 110 + 2Q. If a two-part tariff pricing system is used, what is the
optimal price and quantity combination?
a.
P = 52 and Q = 240
b.
P = 199 and Q = 52
c.
P = 26 and Q = 162
d.
P = 162 and Q = 26
e.
none of the above
28. The demand for health club services is Q = 100 − 2P and the marginal cost of providing
these services is MC = −110 + 2Q. If a two-part tariff pricing system is used, what is the
optimal fixed fee?
a.
1,555
b.
2,624
c.
10,264
d.
12,069
e.
none of the above
29. The demand for health club services is Q = 100 − 2P and the marginal cost of providing
these services is MC = −110 + 2Q. If a two-part tariff pricing system is used, what is the
optimal price and quantity combination?
a.
P = 18 and Q = 64
b.
P = 199 and Q = 52
c.
P = 26 and Q = 162
d.
P = 162 and Q = 26
e.
none of the above
30. The demand for health club services is Q = 100 − 2P and the marginal cost of providing
these services is MC = −110 + 2Q. If a two-part tariff pricing system is used, what is the
optimal fixed fee?
a.
1,555
b.
2,624
c.
10,264
d.
12,069
e.
none of the above