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Scenario 15-10
Vincent operates a scenic tour business in Boston. He has one bus which can fit 50 people per tour and each tour lasts 2
hours. His total cost of operating one tour is fixed at $450. Vincent’s cost is not reduced if he runs a tour with a partially
full bus. While his cost is the same for all tours, Vincent charges each passenger his/her willingness to pay: adults $18 per
trip, children $10 per trip, and senior citizens $12 per trip. At those rates, on a typical day Vincent’s demand is:
Passenger Type
Willingness to Pay
Demand per day
Adults
$18
70
Children
$10
25
Senior Citizens
$12
55
Assume that Vincent’s customers are always available for the tour; therefore, he can fill his bus for each tour as long as
there is sufficient total demand for the day.
55. Refer to Scenario 15-10. What is Vincent’s total revenue on a typical day?
a.
$1,500
b.
$1,800
c.
$2,170
d.
$2,700
56. Refer to Scenario 15-10. What is Vincent’s profit on a typical day?
a.
$660
b.
$820
c.
$1,350
d.
$2,170
57. Refer to Scenario 15-10. Vincent is considering changing his pricing strategy. Which of the following options results
in the highest profit per day?
a.
Charge a single price of $10 to all passengers.
b.
Charge a single price of $12 to all passengers.
c.
Charge a single price of $18 to all passengers.
Figure 15-17
58. Refer to Figure 15-17. Which of the following areas represents the profit earned by this profit-maximizing
monopolist?
a.
BCFE
b.
ABE
c.
EFG
d.
CFIH
59. Refer to Figure 15-17. Which of the following areas represents the deadweight loss from this profit-maximizing
monopolist?
a.
ABE
b.
BCFE
c.
EFG
d.
ACG
60. Refer to Figure 15-17. Which of the following areas represents the consumer surplus from this profit-maximizing
monopolist?
a.
ABE
b.
BCFE
c.
EFG
d.
ACG
61. Refer to Figure 15-17. If this firm were able to perfectly price discriminate, which of the following areas would
represent the profit to this perfectly discriminating monopolist?
a.
ABE
b.
BCFE
c.
EFG
d.
ACG
62. Refer to Figure 15-17. Which of the following statements best describes the changes that would occur if this firm
were to switch from operating as a single price profit-maximizing monopolist to perfect price discrimination?
a.
The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the deadweight
loss would decrease from EFG to zero.
b.
The quantity would remain constant, the profit would increase from BCFE to ABCFE and the deadweight loss
would decrease from EFG to zero.
c.
The quantity would decrease from J to I, the profit would decrease from ACG to BCFE, and the deadweight
loss would increase from EFG to ACG.
d.
The quantity would increase from I to J, the profit would decrease from BCFE to EFG, and the deadweight
loss remain constant.
Figure 15-18
63. Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to
a.
$1,000.
b.
$2,000.
c.
$3,000.
d.
$4,000.
64. Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
a.
$0.
b.
$1,000.
c.
$2,000.
d.
$4,000.
65. Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to
a.
$0.
b.
$1,000.
c.
$2,000.
d.
$4,000.
66. Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
a.
$0.
b.
$1,000.
c.
$2,000.
d.
$4,000.
67. Refer to Figure 15-18. If there are no fixed costs of production, monopoly profit without price discrimination equals
a.
$0.
b.
$1,000.
c.
$2,000.
d.
$4,000.
68. Refer to Figure 15-18. If there are no fixed costs of production, monopoly profit with perfect price discrimination
equals
a.
$0.
b.
$1,000.
c.
$2,000.
d.
$4,000.
Figure 15-19
69. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
70. Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
71. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then the deadweight loss amounts to
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
72. Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
73. Refer to Figure 15-19. If there are no fixed costs of production, monopoly profit without price discrimination equals
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
74. Refer to Figure 15-19. If there are no fixed costs of production, monopoly profit with perfect price discrimination
equals
a.
$1.
b.
$1,562.5.
c.
$3,125.
d.
$6,250.
Figure 15-20
75. Refer to Figure 15-20. The consumer surplus at the monopolist’s profit-maximizing price is
a.
$450.
b.
$900.
c.
$1,350.
d.
$2,025.
76. Refer to Figure 15-20. The deadweight loss caused by a profit-maximizing monopoly amounts to
a.
$225.
b.
$450.
c.
$900.
d.
$1,350.
77. Which of the following can defeat the profit-maximizing strategy of price discrimination?
a.
consumer surplus
b.
deadweight loss
c.
market power
d.
arbitrage
78. Price discrimination is a rational strategy for a profit-maximizing monopolist when
a.
the monopolist finds itself able to produce only limited quantities of output.
b.
consumers are unable to be segmented into identifiable markets.
c.
the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior.
d.
there is no opportunity for arbitrage across market segments.
79. A market force that can prevent firms from price discriminating is
a.
fluctuating resource prices.
b.
arbitrage.
c.
high fixed costs.
d.
marginal-cost pricing.
80. The process of buying a good in one market at a low price and selling the good in another market for a higher price in
order to profit from the price difference is known as
a.
sabotage.
b.
conspiracy.
c.
arbitrage.
d.
collusion.
81. If a monopolist can practice perfect price discrimination, the monopolist will
a.
eliminate consumer surplus.
b.
eliminate deadweight loss.
c.
maximize profits.
d.
All of the above are correct.
82. Perfect price discrimination
a.
eliminates deadweight loss.
b.
reduces profits to the monopolist.
c.
decreases the total quantity sold by the monopolist.
d.
requires arbitrage in order for the monopolist to maximize profits.
83. Perfect price discrimination
a.
increases profits to the firm.
b.
increases total surplus.
c.
decreases consumer surplus.
d.
All of the above are correct.
84. A perfectly price-discriminating monopolist is able to
a.
maximize profit and produce a socially-optimal level of output.
b.
maximize profit, but not produce a socially-optimal level of output.
c.
produce a socially-optimal level of output, but not maximize profit.
d.
exercise illegal preferences regarding the race and/or gender of its employees.
85. If a monopolist is able to perfectly price discriminate,
a.
consumer surplus is always increased.
b.
total surplus is always decreased.
c.
consumer surplus and deadweight losses are transformed into monopoly profits.
d.
the price effect dominates the output effect on monopoly revenue.
86. In theory, perfect price discrimination
a.
decreases the monopolist's profits.
b.
decreases consumer surplus.
c.
increases deadweight loss.
d.
reduces the number of consumers who purchase the monopoly’s product.
87. Perfect price discrimination describes a situation in which the monopolist
a.
knows the exact willingness to pay of each of its customers.
b.
charges exactly two different prices to exactly two different groups of customers.
c.
maximizes consumer surplus.
d.
experiences a zero economic profit.
88. In reality, perfect price discrimination is
a.
used by about 75 percent of all monopolies.
b.
used by about 50 percent of all monopolies.
c.
seldom used by monopolies because it leads to lower profits.
d.
rarely possible.
89. How does a competitive market compare to a monopoly that engages in perfect price discrimination?
a.
In both cases, total social welfare is the same.
b.
Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly.
c.
In both cases, some potentially mutually beneficial trades do not occur.
d.
Consumer surplus is the same in both cases.
90. A monopolist that practices perfect price discrimination
a.
creates no deadweight loss.
b.
charges one group of buyers a higher price than another group, such as offering a student discount.
c.
charges a higher price but produces the same monopoly level of output as when a single price is charged.
d.
charges some customers a price below marginal cost because costs are covered by the high-priced buyers.
91. A monopolist faces the following demand curve:
Price
Quantity
$8
300
$7
400
$6
500
$5
600
$4
700
$3
800
$2
900
$1
1,000
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to
perfectly price discriminate, how many units would it sell?
a.
400
b.
500
c.
900
d.
4,200
92. With perfect price discrimination the monopoly
a.
eliminates all price discrimination by charging each customer the same price.
b.
charges each customer an amount equal to the monopolist's marginal cost of production.
c.
eliminates deadweight loss.
d.
eliminates profits and increases consumer surplus.
93. Which of the following is not one of the ways that antitrust laws promote competition?
a.
Antitrust laws allow the government to prevent mergers.
b.
Antitrust laws allow the government to break up companies into smaller ones.
c.
Antitrust laws prevent companies from coordinating their activities in ways that make markets less
competitive.
d.
Antitrust laws allow the government to shut down any firm the government believes has monopoly power.
Table 15-21
Tommy’s Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy’s is able to
engage in perfect price discrimination.
COSTS
REVENUES
Quantity
Produced
Total Cost
Marginal
Cost
Quantity
Demanded
Price
Total
Revenue
Marginal
Revenue
0
$100
--
0
$170
--
1
$140
1
$160
2
$184
2
$150
3
$230
3
$140
4
$280
4
$130
5
$335
5
$120
6
$395
6
$110
7
$475
7
$100
8
$575
8
$95
94. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the marginal revenue from
selling the 5th tie?
a.
$80
b.
$100
c.
$110
d.
$120
95. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the marginal revenue from
selling the 8th tie?
a.
$45
b.
$60
c.
$80
d.
$95
96. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3
ties are sold?
a.
$140
b.
$420
c.
$450
d.
$620
97. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the total revenue when 7
ties are sold?
a.
$650
b.
$700
c.
$910
d.
$1080
98. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the average revenue when
7 ties are sold?
a.
$90
b.
$100
c.
$110
d.
$130
99. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the quantity that
maximizes economic profit?
a.
5 ties
b.
6 ties
c.
7 ties
d.
8 ties
100. Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is total profit at the profit-
maximizing quantity?
a.
$325
b.
$435
c.
$565
d.
$1000
101. Refer to Table 15-21. What are Tommy’s Ties Company's fixed costs?
a.
$100
b.
$150
c.
$354
d.
$654
