Chapter 9: Managerial Use of Price Discrimination MULTIPLE CHOICE
1. The The opti optima mall leve levell of out outpu putt and and pric pricee for for the the prof profit it-m -max axim imiz izin ing g mono monopo poli list st in in the following figure would be:
a. b. c. d. e.
Q = 30 and P = = $35. Q = 60 and P = = $20. = $20. Q = 30 and P = Q = 100 and P = = $35.
none of the above.
ANS: A DIF: Easy REF: 305 TOP: Motivation for Price Discrimination 2. a. b. c. d. e. ANS: B Discrimination MSC: MSC: Fact Factua uall
MSC: Applied
Price discrimination is defined as: selling a product at the same price to each and every consumer. selling a product product at more than one price. price. selling a product at its marginal cost plus a markup. selling more than one version of a product. producing goods and services for sale within the firm. DIF:
Easy
REF: 306
TOP: Price
3. If the the mon monop opol olis istt show shown n in the the fol follo lowi wing ng fig figur uree coul could d prac practi tice ce fir first st-d -deg egre reee price discrimination, discrimination, the consumer surplus would be:
a. b. c. d. e. ANS: A Discrimination MSC: MSC: Appl Applie ied d
$0. $225. $450. $900. $1,200. DIF:
Easy
REF: 310
TOP: Price
4. If the the mon monop opol olis istt show shown n in the the fol follo lowi wing ng fig figur uree coul could d prac practi tice ce fir first st-d -deg egre reee price discrimination, discrimination, the producer surplus would would be:
a. b. c. d. e.
$0. $225. $450. $900. $1,200.
ANS: D Discrimination MSC: Applied
DIF:
Easy
REF: 310
TOP: Price
5. 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. ANS: D Discrimination MSC: Conceptual
DIF:
Easy
REF: 312
TOP: Price
6. 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. ANS: B Discrimination MSC: Conceptual
DIF:
Moderate
REF: 312
TOP: Price
7. 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. ANS: C Discrimination MSC: Conceptual 8. practicing: a. b. c. d. e.
a.
Moderate
REF: 312
TOP: Price
When a utility charges homeowners less than big industrial users, it is first-degree price discrimination. fourth-degree price discrimination. third-degree price discrimination. markup pricing. tying.
ANS: C Discrimination MSC: Conceptual 9.
DIF:
DIF:
Moderate
REF: 312
TOP: Price
Cereal manufacturers’ use of coupons can be partially explained by: first-degree price discrimination.
b. c. d. e.
second-degree price discrimination. third-degree price discrimination. markup pricing. tying.
ANS: C DIF: Moderate REF: 312 TOP: Using Coupons and Rebates for Price Discrimination 10.
MSC: Conceptual
If a firm supplies separable markets with price elasticities
1 and
!
2, it
!
should set prices P 1 and P 2 so that: a.
P 1!1 = P 2!2.
b.
P 1 /!1 = P 2 /!2.
c.
P 1(1 + 1/!1) = P 2 (1 + 1/!2).
d.
P 1/(1 – 1 /!1) = P 2 / (1 – 1/!2).
e.
P 1 = 1 – 1/!1 and P 2 = 1 – 1/!2.
ANS: C Discrimination MSC: Factual
DIF:
Moderate
REF: 313
TOP: Price
11.
If a firm supplies separable markets with price elasticities !1 = –3 and !2 = – 2, it should set prices P 1 and P 2 so that: a.
P 1 = P 2.
b.
3 P 1 = 2 P 2.
c.
2 P 1 = 3 P 2.
d.
2/3 P 1 = 1/2 P 2.
e.
2 P 1 = 2/3 P 2.
ANS: D Discrimination MSC: Applied
DIF:
Moderate
REF: 313
TOP: Price
12. 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. ANS: B Discrimination MSC: Conceptual 13.
DIF:
Moderate
REF: 314
TOP: Price
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. ANS: D Discrimination MSC: Conceptual
DIF:
Moderate
REF: 314
TOP: Price
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 + 5(Q LA + QSF ). Demand for Gliberace’s stones in the two cities is given by Q LA = 70 – 2 P LA and QSF = 55 – P SF . If Gliberace price discriminates between the two cities, how many stones will it sell in Los Angeles? a. b. c. d. e.
30. 36. 38. 43. 48.
ANS: A DIF: Easy REF: 319 TOP: Using Coupons and Rebates for Price Discrimination
MSC: Applied
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(Q LA + QSF ). Demand for Gliberace’s stones in the two cities is given by Q LA = 70 – 2 P LA and QSF = 55 – P SF . If Gliberace price discriminates between the two cities, what will its maximum profits be? a. b. c. d. e.
$750. $825. $1,075. $975. $1,175.
ANS: D DIF: Easy REF: 319 TOP: Using Coupons and Rebates for Price Discrimination
MSC: Applied
16. Crusty Cakes sells donuts in Eastown and Westown. Its total costs are given by TC = 10(Q E + QW ). The demand in each neighborhood is given by Q E = 100 – 2 P E and QW = 100 – P W . If Crusty price discriminates between the two neighborhoods, how much
are its maximized profits? a. b. c. d. e.
$850. $1,200. $2,475. $2,825. $3,250.
ANS: D DIF: Easy REF: 319 TOP: Using Coupons and Rebates for Price Discrimination
MSC: Applied
17. 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(Q LA + QSF ). Demand for Gliberace’s stones in the two cities is given by Q LA = 70 – 2 P LA and QSF = 50 – P SF . 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. ANS: E DIF: Moderate REF: 319 TOP: Using Coupons and Rebates for Price Discrimination
MSC: Applied
18. 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. ANS: A MSC: Factual
DIF:
Easy
REF: 322
TOP: Peak Load Pricing
19. 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 + 0.2 Q, 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. ANS: A MSC: Applied
DIF:
Easy
REF: 322
TOP: Peak Load Pricing
20. 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 + 0.2 Q, 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. ANS: B MSC: Applied 21.
DIF:
Easy
REF: 322
TOP: Peak Load Pricing
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. b. c. d. e. ANS: D MSC: Applied
DIF:
6.5. 8.0. 8.7. 9.9. 10.6. Easy
REF: 322
TOP: Peak Load Pricing
22. 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. 10.5. ANS: E MSC: Applied
DIF:
Easy
REF: 322
TOP: Peak Load Pricing
23. 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. ANS: D MSC: Factual
DIF:
Easy
REF: 324
TOP: Two-Part Tariffs
24. The demand for health club services is Q = 350 – 2 P 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? P = 52 and Q = 240. a. P = 199 and Q = 52. b. c. P = 26 and Q = 162. P = 162 and Q = 26. d. e. None of the above. ANS: D MSC: Applied
DIF:
Easy
REF: 327
TOP: Two-Part Tariffs
25. If the monopolist shown in the following figure could implement a two-part tariff, the entry fee would be: a.
$0.
b. c. d. e. ANS: D MSC: Applied
$225. $450. $900. $1,200. DIF:
Easy
REF: 327
TOP: Two-Part Tariffs
26. The demand for health club services is Q = 100 – 2 P, 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? P = 18 and Q = 64. a. b. P = 199 and Q = 52. P = 26 and Q = 162. c. P = 162 and Q = 26. d. e. None of the above. ANS: A MSC: Applied
DIF:
Moderate
REF: 327
TOP: Two-Part Tariffs
27. The demand for health club services is Q = 100 – 2 P, 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. 1,024. d. 1,206. e. None of the above. ANS: C MSC: Applied
DIF:
Moderate
REF: 327
TOP: Two-Part Tariffs
