Question 1

Consider the following scenario to answer the following questions: The Varsity, located in downtown Atlanta, is the world’s largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customers—college students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.
-If the Varsity decides to practice price discrimination,what will be the amount of consumer surplus if it charges most customers $9 for a standard combo meal,but charges a reduced price of $8 for only those customers who show their student identification cards?

Accepted Answer

A)   $0
B)   $500
C)   $1,000
D)   $2,500
E)   $5,000F) B) and E)
G) A) and E)

Question 2

The following figure depicts a generalized downward-sloping market demand (D)  curve for a product. It also shows the firm’s relevant marginal revenue (MR)  curve and marginal cost (MC)  curve. Use this figure to answer the following questions: 
-If the firm moves from a monopolist model that charges a single price to a perfect competition model,there would be ________ in total welfare.

Accepted Answer

A)   a loss of $160
B)   a loss of $80
C)   a gain of $40
D)   a gain of $120
E)   no changeF) A) and E)
G) A) and B)

Question 3

Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination.Which of the following statements is true about the change in welfare?

Accepted Answer

A)   The change creates a deadweight loss.
B)   Society's total welfare is zero after the change.
C)   There is a decrease in deadweight loss accompanied by a decrease in producer surplus.
D)   Some surplus has been lost to society,but consumers are better-off overall.
E)   All of the surplus previously enjoyed by consumers has been shifted to producers.F) C) and E)
G) None of the above

Question 4

Consider the following scenario to answer the following questions: The Varsity, located in downtown Atlanta, is the world’s largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customers—college students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.
-If the Varsity decides to practice price discrimination,what will be its total revenue if it charges most customers $9 for a standard combo meal,but charges a reduced price of $8 for only those customers who show their student identification cards?

Accepted Answer

A)   $95,000
B)   $90,000
C)   $85,000
D)   $80,000
E)   $75,000F) A) and D)
G) D) and E)

Question 5

Qcue is a software-based dynamic pricing management company that has developed software to assist professional and collegiate sports teams in increasing their ticket sales by practicing near-perfect price discrimination.Use the following excerpt from a Forbes article about the company to answer the following questions:
Dynamic pricing will become much more prevalent in both professional and collegiate sports over the next few years....In an industry where the demand across games tends to be dissimilar for a plethora of reasons-some predictable,yet some spurious-it only makes sense that the pricing of sports tickets should allow teams the ability to price their inventory in the most efficient way possible...."Accurately pricing tickets is a very difficult process," says Barry Kahn,the CEO of Qcue."In the initial stages,we had both technical and emotional barriers to overcome.We were changing the way things had been done for so many years,moving from pricing tickets 9 months out and keeping them static,to allowing the price to flex right up until the first pitch.That meant educating those in charge of ticketing operations as well as the fans." ...In 2009,Qcue had one client.In 2010,they were working with three teams.Today their roster includes 30+ teams across MLB,MLS,NHL and NBA.
Source: Patrick Rishe,"Dynamic Pricing: The Future of Ticket Pricing in Sports," Forbes,January 6,2012,http://www.forbes.com/sites/prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-pricing-in- sports/.
-When teams are able to change ticket prices minute to minute based on demand,they are attempting to

Accepted Answer

A)   discount tickets to their most loyal fans.
B)   transfer surplus from consumers to producers.
C)   prevent the resale of tickets through ticket reselling websites like StubHub.
D)   confuse the fans of their rivals in order to gain a home-field advantage.
E)   break down the technical and emotional barriers that exist between fans and team owners.F) B) and E)
G) A) and C) B

Question 6

Price discrimination can help improve efficiency in the market because goods are sold to more people,thus increasing profits.If all consumers have the same tastes,will a firm be able to price discriminate?

Accepted Answer

A)   yes,because the market is homogeneous
B)   yes,as long as reselling is prohibited in the market
C)   no,because the firm will not be able to distinguish among groups of consumers
D)   no,because the similarities among consumers will lead to collusion among buyers
E)   yes,because there will be a monopoly in the market (because all consumers want to purchase the same goods and services) F) B) and E)
G) A) and E)

Question 7

Selective private colleges advertise high tuition rates,but have the flexibility to discount the tuition for each student on an individual basis.This type of near-perfect price discrimination practiced in the real world is most similar to that which occurs in a

Accepted Answer

A)   movie theater.
B)   restaurant chain.
C)   jewelry store.
D)   nightclub.
E)   retail store.F) A) and D)
G) A) and B)

Question 8

The following figure depicts a generalized downward-sloping market demand (D)  curve for a product. It also shows the firm’s relevant marginal revenue (MR)  curve and marginal cost (MC)  curve. Use this figure to answer the following questions: 
-For a monopoly that charges a single price of $6,what would the producer surplus be?

Accepted Answer

A)   $160
B)   $120
C)   $80
D)   $40
E)   $0F) A) and B)
G) C) and D)

Question 9

Second degree discrimination,represented by the $5 foot-long sandwich available from Subway,occurs when the price per unit

Accepted Answer

A)   is consistent over time.
B)   varies from month to month.
C)   varies with the quantity sold.
D)   varies from producer to producer.
E)   is determined by the consumer's willingness to pay.F) C) and D)
G) B) and E)

Question 10

Why would a restaurant choose to make most of its profit on alcoholic drinks,yet only break even on food?

Accepted Answer

Restaurant management may choose to do this because many customers are fairly price-sensitive when ordering food,but they are not as sensitive to price when it comes to social drinking.In addition,after multiple drinks,demand for some people will be relatively inelastic.A company can then make most of its profit from the group of people with inelastic demand for alcoholic drinks and be content to break even on the group of people who are nondrinkers.

Question 11

The main reason firms cannot price discriminate under perfect competition is because

Accepted Answer

A)   firms are price takers and cannot set prices for their goods.
B)   firms cannot identify different kinds of consumers perfectly.
C)   some goods are being resold in the market.
D)   there is a lot of heterogeneity among consumers' tastes.
E)   all firms share the same production technology.F) C) and D)
G) A) and B)

Question 12

Hotwire.com,an online travel company specializing in cheap and discounted hotel rates and airfares,often asks customers if their travel dates are flexible when pricing potential bookings.This practice helps Hotwire.com practice price discrimination by allowing it to

Accepted Answer

A)   easily distinguish between different groups of buyers.
B)   book reservations for customers who are most likely to travel before those who are less likely to travel.
C)   post higher prices initially and then lower the price based on room availability.
D)   determine which customers are simply comparison shopping and which ones are ready to make a purchase.
E)   offer high prices to customers with flexible travel dates and low prices to those who are on a fixed income.F) B) and E)
G) A) and B)

Question 13

Cart Vader is a new business venture aimed toward selling golf carts to be used as neighborhood recreational vehicles.The new Cart Vader business owner is uncertain about what price to charge for the golf carts.After consulting with multiple sources,the owner has decided to set a high sticker price,but to allow potential buyers to negotiate down to their individual reservation price.The business owner is attempting to practice

Accepted Answer

A)   reservation price discrimination.
B)   perfect price maximization.
C)   potential price segmentation.
D)   perfect price discrimination.
E)   consumer price preservation.F) A) and B)
G) B) and D)

Question 14

Consider the following scenario to answer the following questions: The Varsity, located in downtown Atlanta, is the world’s largest drive-in restaurant. Located near the Georgia Tech campus, the drive-in attracts two distinct types of customers—college students and visitors to Atlanta. The owners are considering offering a student discount of $1 off their combo meal, which is regularly priced at $9. There are 5,000 students interested in purchasing a combo meal, with a maximum willingness to pay of $8. There are 5,000 visiting customers interested in purchasing the combo meal, with a maximum willingness to pay of $9. Assume that each customer, at most, will purchase a single meal and the marginal cost is $5.
-What is the difference in the amount of total consumer surplus if the Varsity offers the combo meal at the single price of $8 per combo meal instead of the previous single price of $9 per combo meal?

Accepted Answer

A)   no change
B)   $16,500 decrease
C)   $15,000 decrease
D)   $10,000 increase
E)   $5,000 increaseF) A) and B)
G) A) and C)

Question 15

The following table summarizes six potential customers’ ages and willingness to pay for a solo skydiving experience from SkyMasters. The aircraft has room for eight people, including the pilot and skydiving instructor. The marginal cost of adding each additional passenger is $100. SkyMasters holds significant market power for its region. Use this information to answer the following questions: 
-Assume that SkyMasters follows the profit-maximizing rule and that the company charges a single price for skydiving.Which potential customer(s) will not purchase a skydiving experience?

Accepted Answer

A)   Harold and Leslie
B)   Kristen and Jay
C)   Matt and Ivana
D)   Harold
E)   MattF) A) and B)
G) A) and C)

Question 16

Despite the gain from higher profits,firms are not always able to price discriminate because

Accepted Answer

A)   they are unable to partition their customers into distinct groups.
B)   it is always illegal to price discriminate in the United States.
C)   they already hold a large degree of market power.
D)   they already provide their goods at the lowest-possible prices.
E)   they can easily determine each customer's reservation price.F) A) and C)
G) D) and E)

Question 17

A potential complication for successful price discrimination is

Accepted Answer

A)   multiple demand elasticities among consumers.
B)   the presence of a price maker in a market full of price takers.
C)   a product or service for which consumers value differently.
D)   other industry firms also practicing price discrimination.
E)   the potential for consumers to resell a product or service.F) A) and C)
G) A) and B)

Question 18

Consider the following scenario to answer the following questions: EJH Cinemas, a movie theater next to your university, attracts two types of customers—those who are associated with the university (students, faculty, and staff)  and locals who live in the surrounding area. There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.
-What will be the amount of EJH Cinemas' total revenue if the price is $7 per ticket?

Accepted Answer

A)   $250,000
B)   $210,000
C)   $180,000
D)   $140,000
E)   $105,000F) All of the above
G) A) and D) B

Question 19

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of

Accepted Answer

A)   producers.
B)   firms.
C)   consumers.
D)   promoters.
E)   commodities.F) A) and E)
G) A) and D)

Question 20

A firm can be identified as practicing price discrimination when

Accepted Answer

A)   consumers engage in comparison shopping to find the lowest advertised price.
B)   firms behave as price takers,whereas consumers react with price-making behavior.
C)   buyers in a perfectly competitive market are able to influence the prices that firms set.
D)   producers pass on differences in costs to those price-conscious consumers willing to buy in bulk.
E)   producers set different prices for distinct groups of consumers,despite selling identical products to each group.F) C) and E)
G) A) and B)

Exam 11: Price Discrimination

Correct Answer
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Correct Answer
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Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination.Which of the following statements is true about the change in welfare?

Correct Answer
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Correct Answer
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B

Price discrimination can help improve efficiency in the market because goods are sold to more people,thus increasing profits.If all consumers have the same tastes,will a firm be able to price discriminate?

Correct Answer
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Selective private colleges advertise high tuition rates,but have the flexibility to discount the tuition for each student on an individual basis.This type of near-perfect price discrimination practiced in the real world is most similar to that which occurs in a

Correct Answer
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Correct Answer
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Second degree discrimination,represented by the $5 foot-long sandwich available from Subway,occurs when the price per unit

Correct Answer
verified

Why would a restaurant choose to make most of its profit on alcoholic drinks,yet only break even on food?

The main reason firms cannot price discriminate under perfect competition is because

Correct Answer
verified

Hotwire.com,an online travel company specializing in cheap and discounted hotel rates and airfares,often asks customers if their travel dates are flexible when pricing potential bookings.This practice helps Hotwire.com practice price discrimination by allowing it to

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Despite the gain from higher profits,firms are not always able to price discriminate because

Correct Answer
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A potential complication for successful price discrimination is

Correct Answer
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Correct Answer
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B

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of

Correct Answer
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A firm can be identified as practicing price discrimination when

Correct Answer
verified

Exam 11: Price Discrimination

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination.Which of the following statements is true about the change in welfare?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Price discrimination can help improve efficiency in the market because goods are sold to more people,thus increasing profits.If all consumers have the same tastes,will a firm be able to price discriminate?

Correct AnswerverifiedShow Answer

Selective private colleges advertise high tuition rates,but have the flexibility to discount the tuition for each student on an individual basis.This type of near-perfect price discrimination practiced in the real world is most similar to that which occurs in a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Second degree discrimination,represented by the $5 foot-long sandwich available from Subway,occurs when the price per unit

Correct AnswerverifiedShow Answer

Why would a restaurant choose to make most of its profit on alcoholic drinks,yet only break even on food?

The main reason firms cannot price discriminate under perfect competition is because

Correct AnswerverifiedShow Answer

Hotwire.com,an online travel company specializing in cheap and discounted hotel rates and airfares,often asks customers if their travel dates are flexible when pricing potential bookings.This practice helps Hotwire.com practice price discrimination by allowing it to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Despite the gain from higher profits,firms are not always able to price discriminate because

Correct AnswerverifiedShow Answer

A potential complication for successful price discrimination is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Price discrimination exists when a firm is able to sell the same good at more than one price to different groups of

Correct AnswerverifiedShow Answer

A firm can be identified as practicing price discrimination when

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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B

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B

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Correct Answer
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