TB Ch12 Capturing Surplus PDF

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File: ch12; Chapter 12, Capturing SurplusMultiple Choice Price discrimination a) has been illegal in the United States since 1963. b) is the practice of charging consumers different prices for the same good or service. c) is customarily observed when the sales representative in a store charges each ...

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Besanko & Braeutigam – Microeconomics, 4th editionTest Bank

File: ch12; Chapter 12, Capturing Surplus

Multiple Choice

1.

Price discrimination a) has been illegal in the United States since 1963. b) is the practice of charging consumers different prices for the same good or service. c) is customarily observed when the sales representative in a store charges each customer what he/she thinks is the highest price the customer will bear. d) is most common in perfectly competitive industries.

Ans: B Difficulty: Easy Heading: Capturing Surplus LO1 Explain how a firm with market power can capture more surplus by engaging in price discrimination.

2.

Which of the following statements regarding price discrimination is true? a) In order to capture more surplus, the firm must have some market power. b) Third-degree price discrimination is illegal. c) Second-degree price discrimination refers to pricing differently for different market segments. d) First-degree price discrimination is relatively easy to implement.

Ans: A Difficulty: Easy Heading: Capturing Surplus LO1 Explain how a firm with market power can capture more surplus by engaging in price discrimination.

3.

What is the difference between uniform pricing and price discrimination? a) Uniform pricing and price discrimination are the same. b) With uniform pricing firms charge different prices for the same good or service and with price discrimination firms charge the same price for the same good or service.

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c) d)

With uniform pricing firms charge the same price for the same good or service and with price discrimination the firms charge different prices for the same good or service. The uniform price is always higher than the discriminated price.

Ans: C Difficulty: Easy Heading: Capturing Surplus LO1 Explain how a firm with market power can capture more surplus by engaging in price discrimination.

4.

When a firm engages in __________, every unit of output is sold at the same price; when a firm engages in ___________, different consumers are charged different prices for the same good. a) arbitrage; uniform pricing b) price discrimination; uniform pricing c) uniform pricing; price discrimination d) surplus capturing; price discrimination

Ans: C Difficulty: Easy Heading: Capturing Surplus LO1 Explain how a firm with market power can capture more surplus by engaging in price discrimination.

5.

Which of the following is not necessary for a firm to be able to engage in price discrimination? a) A firm must have some market power. b) A firm must have some information about its consumers’ willingness to pay. c) A firm must be a price-taker. d) A firm must be able to prevent arbitrage.

Ans: C Difficulty: Easy Heading: Capturing Surplus LO1 Explain how a firm with market power can capture more surplus by engaging in price discrimination.

6.

The conditions for capturing more surplus from price discrimination include a) an ability to determine which groups of people have the greatest wealth.

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Besanko & Braeutigam – Microeconomics, 4th editionTest Bank

b) c) d)

an ability to differentiate different market segments meaning that some groups of people are willing to pay more for a product than others. an ability to prevent presales of products. A perfectly competitive industry structure.

Ans: B Difficulty: Easy Heading: Capturing Surplus LO2 Demonstrate why a firm must have information about reservation prices or elasticities of demand and be able to prevent resale to succeed with price discrimination.

7.

Which of the following statements regarding price discrimination is false? a) In order to capture more surplus, the firm must have some market power. b) The firm must have some information about the different amounts people will pay for the product. c) The firm must be able to prevent resale. d) The firm must be able accurately forecast total sales.

Ans: D Difficulty: Easy Heading: Capturing Surplus LO2 Demonstrate why a firm must have information about reservation prices or elasticities of demand and be able to prevent resale to succeed with price discrimination.

8.

An example of first-degree price discrimination would occur a) if a sales agent illegally sold a commodity to a federal agent above the competitive market price. b) when you sell something illegally to an individual through the mail. c) if a car salesman could accurately guess the maximum amount each customer would be willing to pay for a vehicle and charge him/her that price. d) when you order 12 of something online and you pay less per unit than if you had bought only one.

Ans: C Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

9.

An example of second-degree price discrimination is a) when you get an “early bird” discount by eating at a restaurant before 6:00 pm.

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Besanko & Braeutigam – Microeconomics, 4th editionTest Bank

b) c) d)

when you sell something illegally to an individual through the mail. when you segment the market and charge individuals of different ages different prices for the same product or service. when you order 12 of something online and you pay less per unit than if you had bought only one.

Ans: D Difficulty: Medium Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

10.

When a movie theater charges a lower ticket price for senior citizens and/or students, the movie theater is engaging in a) price gouging. b) third-degree price discrimination. c) first-degree price discrimination. d) second-degree price discrimination.

Ans: B Difficulty: Medium Heading: Third-Degree Price Discrimination: Different Prices for Different Market Segments LO3 Analyze three types (degrees) of price discrimination.

11.

Some of the theme parks in Orlando, Florida offer lower entry rates or annual passes for Florida residents. Although this is not illegal, it is an example of a) price gouging. b) first-degree price discrimination. c) second-degree price discrimination. d) third-degree price discrimination.

Ans: D Difficulty: Easy Heading: Third-Degree Price Discrimination: Different Prices for Different Market Segments LO3 Analyze three types (degrees) of price discrimination.

12.

Which of the following statements regarding a monopoly’s first-degree price discrimination is correct? a) With first-degree price discrimination, consumer surplus is small, yet still greater than zero. b) With first-degree price discrimination, producer surplus is lower than with uniform pricing.

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c) d)

With first-degree price discrimination, deadweight loss is large. With first-degree price discrimination, total surplus is greater than when the monopoly charges a uniform price.

Ans: D Difficulty: Easy Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

13.

With second-degree price discrimination a) the firm tries to price each unit at the consumer’s reservation price. b) the firm offers consumers a quantity discount. c) the firm charges different consumer groups or market segments a different price. d) a buyer can only purchase one product by agreeing to purchase some other product as well.

Ans: B Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

14.

With ___________________, the firm tries to price each unit at the consumer’s reservation price while with _____________________, the firm charges different uniform prices to different consumer groups or market segments. a) first-degree price discrimination; third-degree price discrimination. b) first-degree price discrimination; second-degree price discrimination. c) third-degree price discrimination; first-degree price discrimination. d) second-degree price discrimination; first-degree price discrimination.

Ans: A Difficulty: Easy Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

15.

d A monopolist faces inverse demand P 400  4Q and has constant marginal cost MC 80 . If this monopolist engages in first-degree price discrimination, total output will equal a) 20 units b) 40 units c) 60 units

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d)

80 units

Ans: D Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

d

16.

A monopolist faces demand P 400  4 Q and has constant marginal cost MC 80 . If this monopolist engages in first-degree price discrimination, consumer surplus will be a) 0 b) 1,600 c) 3,200 d) 12,800

Ans: A Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

17.

d A monopolist faces inverse demand P 400  4Q and has constant marginal cost MC 80 . If this monopolist engages in first-degree price discrimination, producer surplus will be a) 0 b) 1,600 c) 3,200 d) 12,800

Ans: D Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

18.

d A monopolist faces inverse demand P 400  4Q and has constant marginal cost MC 80 . If this monopolist changes from a policy of uniform pricing to a policy of first-degree price discrimination, deadweight loss will decrease by: a) 0 b) 1,600 c) 3,200 d) 12,800

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Ans: C Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

d

19.

Suppose that a firm faces a demand curve for its product of P 10  Q . The corresponding marginal revenue curve is MR 10  2Q . The firm has a constant marginal cost of $4 per unit. If the firm engages in uniform pricing, what price will the firm charge? a) $7. b) $5. c) $4. d) $3.

Ans: A Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

20.

d Suppose that a firm faces a demand curve for its product of P 10  Q . The corresponding marginal revenue curve is MR 10  2Q . The firm has a constant

marginal cost of $4 per unit. If the firm engages in first-degree price discrimination, how much producer surplus will it capture? a) $21. b) $18. c) $9. d) $4.50 Ans: B Difficulty: Medium Heading: First-Degree Price Discrimination: Making the Most from Each Consumer LO3 Analyze three types (degrees) of price discrimination.

21.

Which of the following is a real-world example of first-degree price discrimination? a) A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza.

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b) c) d)

An electric company sells “blocks” of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. Different prices are charged to different customers at a flea market. A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket.

Ans: C Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

22.

A block tariff is a form of a) first-degree price discrimination b) second-degree price discrimination c) third-degree price discrimination d) tying

Ans: B Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

23.

Which of the following is not a real-world example of second-degree price discrimination? a) A pizza parlor sells large and small pizzas. Although the large pizzas are twice as big as the small pizzas, they cost less than double the price of a small pizza. b) An electric company sells “blocks” of power at different prices. Specifically, any customer who buys more that Q1 units of electricity can purchase additional units at a lower block price. c) Sam’s Club® warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time. d) A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket.

Ans: D Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

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24.

With block pricing the monopolist a) charges each consumer her reservation price. b) charges each consumer the same price. c) sells the first number of units at one price and additional units at a second price. d) requires the consumer to purchase minimum quantities.

Ans: C Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

25.

Let the inverse demand curve for a monopolist’s product be P = 100 – 2Q and the marginal cost of production be constant at MC = 10. Suppose that the firm considers moving from a uniform pricing strategy to a two-block tariff where the first block provides 15 units at a price of P1 = $70 and the second block provides an additional 15 units at a price of P2 = $40. How much does the monopolist’s profit rise with this scheme? a) $225 b) $337.50 c) $450.50 d) $512

Ans: B Difficulty: Medium Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

26.

Let the inverse demand curve for a monopolist’s product be P = 100 – 2Q and the marginal cost of production be constant at MC = 10. Which of the following is the optimal two-block tariff for the firm? a) P1 = $70; Q1 = 15; P2 = $40; Q2 = 30 b) P1 = $60; Q1 = 20; P2 = $30; Q2 = 15 c) P1 = $80; Q1 = 10; P2 = $40; Q2 = 15 d) P1 = $55; Q1 = 22.5; P2 = $55; Q2 = 22.5

Ans: A Difficulty: Hard Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

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27.

An expenditure schedule in which the average outlay changes with the number of units purchased is a) Block tariff b) Nonlinear outlay schedule c) Average expenditure d) Usage charges

Ans: B Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

28.

Suppose you sign-up for a membership at a video rental store. When you sign-up you are charged a subscription fee, and in addition you will be charged for each video you rent. This is an example of a) first-degree price discrimination. b) second-degree price discrimination. c) third-degree price discrimination. d) bundling.

Ans: B Difficulty: Easy Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

29.

All consumers are alike and each has an inverse demand curve for a monopolist’s product of P = 100 – 2Q. The marginal cost of production is constant at MC = $10. Let the monopolist charge a price of $10 per unit purchased and a subscription fee of $2025 that must be paid by each purchaser. What is the amount of consumer’s surplus generated by this scheme? a) 0 b) $2025 c) $2025 multiplied by the number of consumers in the market. d) $90 multiplied by the number of units purchased.

Ans: A Difficulty: Medium Heading: Second-Degree Price Discrimination: Quantity Discounts LO3 Analyze three types (degrees) of price discrimination.

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30.

With third-degree price discrimination a) the firm tries to price each unit at the consumer’s reservation price. b) the firm offers consumers a quantity discount. c) the firm charges different consumer groups or market segments a different price. d) a buyer can only purchase one product by agreeing to purchase some other product as well.

Ans: C Difficulty: Easy Heading: Third-Degree Price Discrimination: Different Prices for Different Market Segments LO3 Analyze three types (degrees) of price discrimination.

31.

During the winter months, the price of natural gas is high. During the summer months, the price of natural gas is low. This could be an example of a) first-degree price discrimination. b) second-degree price discrimination. c) third-degree price discrimination. d) bundling.

Ans: C Difficulty: Easy Heading: Third-Degree Price Discrimination: Different Prices for Different Market Segments LO3 Analyze three types (degrees) of price discrimination.

32.

Which of the following is not a real-world example of third-degree price discrimination? a) A railroad charges more to haul 100 tons of coal than it does to haul 100 tons of grain. b) An airline charges a lower price for a coach ticket purchased four weeks in advance than for the same type of ticket purchased three days in advance. c) A movie theater charges senior citizens a cheaper price for movie tickets than it charges non-senior citizens for the same movie ticket. d) Sam’s Club® warehouses sell bulk quantities of macaroni and cheese for a cheaper per unit price than a grocery store, but the boxes are packaged together so that the customer must buy six boxes at a time.

Ans: D Difficulty: Easy Heading: Third-Degree Price Discrimination: Different Prices for Different Market Segments LO3 Analyze three types (degrees) of price discrimination.

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33.

With ________ degree ...