Page 1
1.
The practice of charging different prices to different customers for the same good or
service, even though the cost of supplying those customers is the same, is:
A)
privatization.
B)
monopolization.
C)
output competition.
D)
price discrimination.
2.
Price discrimination is the practice of:
A)
charging different prices to buyers of the same good.
B)
paying different prices to suppliers of the same good.
C)
equating price to marginal cost.
D)
equating price to marginal revenue.
3.
The practice of selling the same product at different prices to different consumers,
without corresponding differences in costs, is:
A)
price discrimination.
B)
privatizing.
C)
monopolizing.
D)
output prioritizing.
4.
If a firm wants to charge different customers different prices, it must be:
A)
a price taker.
B)
in perfect competition.
C)
a price setter.
D)
operating in the long run only.
5.
_____ is the practice of selling _____ product(s) at different prices to different
consumers, without corresponding differences in costs.
A)
Price discrimination; the same
B)
Privatizing; the same
C)
Monopolizing; similar
D)
Price fixing; different
6.
The market structure in which price discrimination cannot occur is:
A)
perfect competition.
B)
monopolistic competition.
C)
oligopoly.
D)
monopoly.
Page 2
7.
Price discrimination can occur if:
A)
there are many firms in the industry, all producing the same identical good.
B)
producers are price takers.
C)
all consumers have the same willingness to pay for the good.
D)
the market structure is monopolistic competition.
8.
When price discrimination occurs, the producer’s profit is _____ if the producer charges
each customer the same profit-maximizing price where marginal revenue equals _____
cost.
A)
the same as; marginal
B)
greater than; marginal
C)
less than; marginal
D)
the same as; average total
9.
A monopolist or an imperfectly competitive firm practices price discrimination
primarily to:
A)
increase profits.
B)
expand plant size.
C)
lower total costs.
D)
reduce marginal costs.
10.
To engage in price discrimination, a firm must be:
A)
a price taker.
B)
one of many firms in an industry.
C)
unable to identify consumers whose elasticities differ.
D)
a price setter and able to identify consumers whose elasticities differ.
11.
The main reason a monopoly engages in price discrimination is that:
A)
it wants to discriminate against a particular ethnic group.
B)
doing so increases its profits.
C)
it wants to discourage potential competitors.
D)
by charging a lower price to some people, it may succeed in discouraging efforts to
regulate it.
12.
When a monopolist practices price discrimination, compared with a single-price
monopolist, consumer surplus will:
A)
remain the same.
B)
increase.
C)
decrease.
D)
increase initially and then return to its original level.
Page 3
13.
When a monopolist practices price discrimination, compared with a single-price
monopolist, producer surplus will:
A)
remain the same.
B)
increase.
C)
decrease.
D)
increase initially and then return to its original level.
14.
When a monopolist practices price discrimination, compared with a single-price
monopolist, monopoly profits will:
A)
remain the same.
B)
increase.
C)
decrease.
D)
increase initially and then return to their original level.
15.
When a monopolist practices price discrimination, compared with a single-price
monopolist, deadweight loss will:
A)
remain the same.
B)
increase.
C)
decrease.
D)
increase initially and then return to its original level.
16.
Price discrimination leads to a _____ price for consumers with a _____ demand.
A)
higher; less elastic
B)
higher; more elastic
C)
higher; perfectly elastic
D)
lower; less elastic
17.
Price discrimination leads to a _____ price for consumers with a _____ demand.
A)
higher; more elastic
B)
higher; perfectly elastic
C)
lower; more elastic
D)
lower; less elastic
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18.
Price-discriminating firms will impose a price structure that offers customers with a
_____ demand a _____ price and offers customers with a(n) _____ demand a _____
price.
A)
less elastic; lower; more elastic; higher
B)
less elastic; higher; more elastic; lower
C)
lower; higher; higher; lower
D)
seasonal; lower; unchanging; higher
19.
Because tourist demand for airline flights is relatively _____, small _____ in ticket price
will result in relatively _____ in additional tourists.
A)
inelastic; reductions; small increases
B)
elastic; reductions; large increases
C)
inelastic; increases; small decreases
D)
elastic; increases; small increases
20.
A price-discriminating firm will adjust prices so that customers with more _____
demand pay _____ customers with _____ elastic demand.
A)
inelastic; less than; less
B)
elastic; less than; less
C)
elastic; the same as; more
D)
elastic; more than; less
21.
The city bus system charges lower fares to senior citizens than to other passengers.
Assuming that this pricing strategy increases the profits of the bus system, we can
conclude that senior citizens must have a _____ demand for bus service than do other
passengers.
A)
greater
B)
lower
C)
more elastic
D)
less elastic
22.
The municipal swimming pool charges lower entrance fees to local residents than to
nonresidents. Assuming that this pricing strategy increases the profits of the pool, we
can conclude that nonresidents must have a _____ demand for swimming at the pool
than do residents.
A)
greater
B)
lower
C)
more elastic
D)
less elastic
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23.
To practice effective price discrimination, a monopolist must be able to:
A)
estimate its own production and cost functions.
B)
avoid charging too low a price.
C)
prevent the resale of goods among groups of buyers.
D)
calculate the income level of each buyer in the market.
24.
To maximize profits, an airline will offer _____ prices to customers with _____
demand.
A)
higher; inelastic
B)
higher; elastic
C)
lower; inelastic
D)
the lowest; the least
25.
Because business travelers’ demand for airline flights is relatively _____, large increases
in price will result in relatively _____ decreases in additional business travelers.
A)
price-inelastic; small
B)
price-elastic; large
C)
price-inelastic; large
D)
price-elastic; small
26.
A firm that can price-discriminate should adjust prices so that customers with _____
demand pay _____ prices than/as do those with _____ demand.
A)
price-inelastic; lower; elastic
B)
price-inelastic; the same; elastic
C)
price-elastic; lower; inelastic
D)
price-elastic; higher; inelastic
27.
Amtrak charges lower fares to students than to its other passengers. This pricing strategy
increases Amtrak’s profits. From this information, we can conclude that students must
have a _____ demand for Amtrak train service than do other passengers.
A)
more price-elastic
B)
lower
C)
greater
D)
less price-elastic
Page 6
28.
A community college charges lower tuition fees to town residents than to nonresidents.
This pricing strategy increases the profits of the community college. Using this
information, we can conclude that nonresidents must have a _____ demand for
attending the community college than do residents.
A)
less price-elastic
B)
greater
C)
lower
D)
more price-elastic
29.
Suppose the price elasticity of demand for coffee at the Coffee Barn equals 1.71 for
women and 0.55 for men. A successful price discrimination strategy would lead to
_____ prices for men and _____ prices for women _____.
A)
lower; lower; in any circumstances
B)
lower; higher; in any circumstances
C)
lower; higher; as long as men can’t resell drinks to women
D)
higher; lower; as long as women can’t resell drinks to men
30.
Suppose a monopoly can separate its customers into two groups. If the monopoly
practices price discrimination, it will charge the lower price to the group with:
A)
the higher price elasticity of demand.
B)
the lower price elasticity of demand.
C)
the fewer close substitutes.
D)
The answer cannot be determined with the information given.
31.
A Japanese steel firm sells steel in the United States and in Japan. Since the United
States buys steel from a number of sources, the U.S. demand for Japanese steel is more
price-elastic than is the Japanese demand for Japanese steel. If the Japanese steel firm
wishes to maximize its profits, it should:
A)
charge the same price in both countries (after adjusting for transportation costs).
B)
charge a higher price in the United States and a lower price in Japan; otherwise, it
would be accused of unfair trade practices.
C)
charge a lower price in the United States and a higher price in Japan.
D)
figure out which market is more profitable and sell only in that market.
32.
Airlines that engage in price discrimination charge higher prices to business travelers
because their _____ is more _____ than that of other travelers.
A)
demand; elastic
B)
demand; inelastic
C)
supply; elastic
D)
supply; inelastic
Page 7
33.
Airlines that engage in price discrimination charge lower prices to vacation travelers
because their _____ is more _____ than that of other travelers.
A)
demand; elastic
B)
demand; inelastic
C)
supply; elastic
D)
supply; inelastic
34.
Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
higher prices to _____ because their demand is more _____.
A)
men; elastic than that of women
B)
men; inelastic than that of women
C)
women; elastic than that of men
D)
women; inelastic than that ofmen
35.
Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3
for women. To use price discrimination to increase profits, the producers should charge
lower prices to _____ because their demand is more _____.
A)
men; elastic than that of women
B)
men; inelastic than that of women
C)
women; elastic than that of men
D)
women; inelastic than that of men
36.
Which statement is not an example of price discrimination?
A)
Students receive a discount at the ice cream store when they show their college ID
cards.
B)
Women receive free admission to a nightclub, while men must pay a cover charge.
C)
A country club requires members to pay annual dues, but members receive
discounted prices to golf (relative to nonmembers).
D)
Street vendors increase the price of umbrellas when it is raining.
37.
Many hotel chains offer discounts to senior citizens. This is an example of _____ that is
_____ in the United States.
A)
market power; illegal
B)
single-price monopoly power; legal
C)
price discrimination; illegal
D)
price discrimination; legal
Page 8
38.
If a monopolist can engage in perfect price discrimination:
A)
it produces at the socially efficient level.
B)
consumer surplus is maximized.
C)
producer surplus is minimized.
D)
the government will impose fines on the monopolist.
Use the following to answer question 39:
39.
(Ref 29-1 Table: Prices and Demand) Use Table 29-1: Prices and Demand. Professor
Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is
$18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he
produce?
A)
3
B)
4
C)
5
D)
6
40.
Sadia wants to practice price discrimination in her bakery. Which strategy should Sadia
NOT use?
A)
discounts for people who buy a large volume of bread
B)
higher prices for people who buy bread on the day it is baked and lower prices for
people who place advance orders
C)
an annual fee for customers who want to shop at a discount in her store
D)
the same price for all consumers for freshly baked goods
Page 9
41.
The strategy that is not an example of price discrimination is:
A)
discounts for senior citizens at the movies.
B)
discounts for families with young children at motels.
C)
generally lower prices at Walmart than at Target.
D)
cheaper air fares if the traveler stays over a Saturday.
42.
Which strategy is not an example of price discrimination?
A)
a Fourth of July sale
B)
a coupon in the newspaper offering a 10% discount on a product
C)
a higher price for front row seats at a concert than for seats at the back
D)
a lower price charged to the grandfather who bought his airline ticket to Chicago
three weeks in advance and will stay over a Saturday night than to the
businesswoman who bought her ticket the day of the flight and will not stay over
Saturday night
Use the following to answer questions 43-50:
Figure: PPV
43.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company is a single-price
monopoly, to maximize profit it will sell _____ subscriptions and charge _____ per
subscription.
A)
8; $20
B)
6; $40
C)
3; $70
D)
2; $80
Page 10
44.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company is a single-price
monopoly and maximizes profit, consumer surplus will be:
A)
$0.
B)
$45.
C)
$70.
D)
$90.
45.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company is a single-price
monopoly and maximizes profit, producer surplus will be:
A)
$0.
B)
$45.
C)
$70.
D)
$90.
46.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company is a single-price
monopoly and maximizes profit, deadweight loss will be:
A)
$0.
B)
$45.
C)
$60.
D)
$90.
47.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company practices
perfect price discrimination, then it will sell _____ subscriptions.
A)
10
B)
8
C)
6
D)
0
Page 11
48.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company practices
perfect price discrimination, consumer surplus will be:
A)
$180.
B)
$100.
C)
$40.
D)
$0.
49.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company practices
perfect price discrimination, producer surplus will be:
A)
$180.
B)
$100.
C)
$40.
D)
$0.
50.
(Ref 29-2 Figure: PPV) Use Figure 29-2: PPV. The figure shows the demand and
marginal revenue for a pay-per-view football game on cable TV. Assume that the
marginal cost and average cost are a constant $40. If the cable company practices
perfect price discrimination, deadweight loss will be:
A)
$180.
B)
$100.
C)
$40.
D)
$0.
Use the following to answer question 51:
Figure: The Profit-Maximizing Output and Price
Page 12
51.
(Ref 29-3 Figure: The Profit-Maximizing Output and Price) Use Figure Ref 29-3: The
Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC
= $200. The monopolist who can perfectly price discriminate will produce an output of
_____ diamonds.
A)
0
B)
6
C)
16
D)
20
52.
A monopolist that charges each customer a different price based on the customer’s
individual willingness to pay is called a single-price monopolist.
A)
True
B)
False
53.
Monopolists are engaging in price discrimination when they charge all customers the
same price.
A)
True
B)
False
54.
Price discrimination can never occur in perfect competition.
A)
True
B)
False
55.
Price discrimination may occur in monopoly.
A)
True
B)
False
56.
Price discrimination can never occur in oligopoly.
A)
True
B)
False
57.
Although price discrimination never occurs in perfect competition, it may occur in
monopolistic competition.
A)
True
B)
False
Page 13
58.
To practice price discrimination, the producer must have some control over the price of
the product.
A)
True
B)
False
59.
A monopolist who practices price discrimination can increase sales but can never
increase profits above the level that would result from a single price being set (using the
intersection of marginal revenue and marginal cost).
A)
True
B)
False
60.
For a monopolist to practice price discrimination successfully, its customers must all
have the same willingness to pay for the good.
A)
True
B)
False
61.
To increase profits with price discrimination, different groups of an oligopolist’s
customers must respond differently to prices of the good.
A)
True
B)
False
62.
When a monopolist practices price discrimination, consumer surplus will be higher than
the consumer surplus in a single-price monopoly.
A)
True
B)
False
63.
When a monopolist practices price discrimination, producer surplus will be higher than
it is in a single-price monopoly.
A)
True
B)
False
64.
When a monopolist practices price discrimination, the monopolist’s profits will be lower
than it is in a single-price monopoly.
A)
True
B)
False
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65.
When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist increases its profits by capturing consumer surplus.
A)
True
B)
False
66.
When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist increases its profits by decreasing producer surplus.
A)
True
B)
False
67.
When a monopolist practices price discrimination as opposed to setting a single price,
deadweight loss decreases.
A)
True
B)
False
68.
When a monopolist practices price discrimination as opposed to setting a single price,
efficiency decreases.
A)
True
B)
False
69.
When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist sells less but increases profits.
A)
True
B)
False
70.
When a monopolist practices price discrimination as opposed to setting a single price,
the monopolist sells more and increases profits.
A)
True
B)
False
71.
An oligopoly that engages in price discrimination will charge higher prices to customers
with the most elastic demand.
A)
True
B)
False
Page 15
72.
An oligopoly that engages in price discrimination will charge higher prices to customers
with the most inelastic demand.
A)
True
B)
False
73.
Children’s price elasticity of demand for hot chocolate is 0.5. Adults’ price elasticity of
demand for hot chocolate is 1.5. If the concession stand selling the hot chocolate wants
to practice price discrimination, it should charge higher prices to adults.
A)
True
B)
False
74.
Children’s price elasticity of demand for hot chocolate is 0.5. Adults’ price elasticity of
demand for hot chocolate is 1.5. If the concession stand selling the hot chocolate wants
to practice price discrimination, it should charge higher prices to children.
A)
True
B)
False
75.
A monopolist who engages in perfect price discrimination charges each consumer a
price equal to that consumer’s willingness to pay.
A)
True
B)
False
76.
In perfect price discrimination, consumer surplus is larger than it is in a single-price
monopoly.
A)
True
B)
False
77.
Consumer surplus is higher under a single-price monopoly than it is under a perfectly
price-discriminating monopoly.
A)
True
B)
False
78.
If the local phone company, a monopolist, perfectly price-discriminated, there would be
a lower total surplus than if the company did not price discriminate.
A)
True
B)
False
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79.
If a monopoly can engage in perfect price discrimination, then its marginal revenue is
equal to price, in contrast to the usual situation for a monopoly, in which price is higher
than is marginal revenue.
A)
True
B)
False
Use the following to answer question 80:
80.
(Ref 29-4 Table: Demand for Economics Tutoring) Use Table 29-4: Demand for
Economics Tutoring. Suppose Eric is the only economics tutor in town. Eric can offer
additional hours of tutoring at a constant marginal cost of $2 per hour, and he has no
fixed costs. Suppose Eric can perfectly price-discriminate by charging his customers
exactly their willingness to pay. How many hours will he offer, and how much profit
will he earn by price-discriminating?
81.
When firms price-discriminate, people with _____ price elasticity of demand will pay
_____ prices relative to those purchasing the same product who have a _____ price
elasticity of demand.
A)
higher; higher; lower
B)
lower; lower; higher
C)
lower; higher; higher
D)
higher; the same; lower
Page 17
82.
(Figure: The Monopolist III) Use Figure: The Monopolist III. If this monopolist
perfectly price-discriminates, then it will produce _____ units. This will lead to
producer surplus equal to _____, consumer surplus equal to _____, and a deadweight
loss equal to _____.
Figure: The Monopolist III
A)
70; $2,450; $0; $0
B)
50; $1,225; $0; $0
C)
35; $1,225; $612.50; $612.50
D)
100; $1,500; $612.50; $612.50
83.
(Scenario: A Small-Town Monopolist) Use Scenario: A Small-Town Monopolist. If this
monopolist must choose between selling 100 or 175 subscriptions, it will choose to sell
_____ units at a price of _____ and earn economic profits equal to _____.
Scenario: A Small-Town Monopolist
A monopolist sells cable subscriptions in a small town and finds that it can sell 100
subscriptions when the price is $15 a week and 175 subscriptions when the price is $10
a week. The MC for the provision of the cable is $5 a week. There are no fixed costs.
A)
175; $10; $500
B)
100; $15; $1,000
C)
175; $15; $1,000
D)
100; $10; $750
Page 18
84.
(Scenario: A Small-Town Monopolist) Use Scenario: A Small-Town Monopolist.
Compared with charging a single price, the deadweight loss:
Scenario: A Small-Town Monopolist
A monopolist sells cable subscriptions in a small town and finds that it can sell 100
subscriptions when the price is $15 a week and 175 subscriptions when the price is $10
a week. The MC for the provision of the cable is $5 a week. There are no fixed costs.
A)
increases when this monopolist price-discriminates.
B)
decreases when this monopolist price-discriminates.
C)
stays the same when this monopolist price-discriminates.
D)
is equal to zero.
Page 19
Answer Key
Page 20