University College at TTU  Lesson Nine Assignments

Introduction -- Reading Assignment -- Discussion -- Lesson Assignments -- Answer Sheet -- Assignment Submission Directions

Questions

Save the answer sheet to your computer and type your answers into it. Complete all parts of this assignment before submitting your assignment for grading.

Multiple Choice
On your answer sheet next to the number of each question, enter the letter representing the correct answer.

  1. Price discrimination is when a firm charges
    1. the same price to all consumers.
    2. different prices for different goods to different consumers.
    3. different prices for the same goods to different consumers.
    4. None of the above is correct.

  2. Which of the following is not an example of price discrimination?
    1. Grocery stores and food manufacturers offer discount coupons for particular grocery products.
    2. Movie theaters charge different prices for viewing a film at 2:00 in the afternoon versus 9:00 at night.
    3. Manufacturers offer rebates that customers who purchase appliances mail to the producer.
    4. All of the above are examples of price discrimination.

  3. Which conditions must hold if a firm is to engage in price discrimination?
    1. It must be extremely difficult, if not impossible, for one consumer to resell a product to another.
    2. Firms must have a sufficiently low amount of market power.
    3. Consumers must have very similar preferences for the product.
    4. All of the above are correct.

  4. In order to practice price discrimination, a firm must
    1. avoid detection by the government.
    2. be able to divide consumers into groups with different demands for their product.
    3. calculate the utility of different consumer groups for their product.
    4. advertise their product.

  5. When providing local telephone service, the local telephone company is able to engage in price discrimination between business and residential customers because
    1. they are the only provider of local telephone service.
    2. it must be extremely difficult, if not impossible, for one consumer to resell phone service to another.
    3. business and residential customers differ in their price elasticities of demand for phone service.
    4. All of the above are correct.

  6. Consider a single grocery store in a small, isolated town that has male and female customers. The grocery store cannot engage in price discrimination between males and females because
    1. it does not have market power.
    2. it does not have distinct groups of consumers with differing demands.
    3. consumers can resell the store's products.
    4. None of the above. It can engage in price discrimination.

  7. Consider one of many similar Chinese restaurants that are grouped together in one small part of a city. The one Chinese restaurant cannot engage in price discrimination because
    1. it does not have market power.
    2. it does not have distinct groups of consumers with differing demands.
    3. consumers can resell the restaurant's products.
    4. None of the above. It can engage in price discrimination.

  8. A school bookstore tried to engage in price discrimination by selling novels to students and faculty for different prices. Their strategy was to increase prices to faculty and decrease prices to students. What is the most likely reason that this strategy failed?
    1. Novels are sold in a competitive market.
    2. There was nothing to prevent students from purchasing novels and reselling them to faculty.
    3. Everyone had inelastic demand for novels.
    4. There was no easy way to distinguish the students from the faculty.

  9. If we observe a firm engaging in price discrimination, it must be true that
    1. the firm is enjoying higher total profits than it would have earned if it charged a single price for the product.
    2. the firm can identify the preferences of every customer it serves.
    3. the firm earns higher profits per unit than it would have earned if it charged a single price for the product.
    4. All of the above are correct.

  10. Suppose each of the following goods and services is provided by a different monopoly. Which product could most easily be sold using price discrimination?
    1. apples
    2. haircuts
    3. beer
    4. computers

  11. Which of the following would not be considered price discrimination?
    1. charging business travelers more money than leisure travelers for plane tickets
    2. charging houses in expensive neighborhoods more money for mowing the same size lawn than in a less expensive neighborhoods
    3. charging a lower price for dry cleaning men's shirts than women's shirts
    4. charging more money for a large luxury car than a small economy car

    Table 9.1
      Single Price Policy Household Discount Policy
    Business Household Business Household
    Price $10.00 $10.00 $20.00 $8.00
    Average Cost $2.00 $2.00 $2.00 $2.00
    Units Sold 300 500 200 1,000

  12. Table 9.1 (above) contains price, demand, and cost data for Pindrop Telephones, the provider of local telephone service in the town of Grundy. What is its profit from households under the single price policy?
    1. $4,000.00
    2. $5,000.00
    3. $6,000.00
    4. $7,500.00

  13. Table 9.1 contains price, demand, and cost data for Pindrop Telephones, the provider of local telephone service in the town of Grundy. What is its total profit under the single price policy?
    1. $2,400.00
    2. $5,000.00
    3. $6,400.00
    4. $8,000.00

  14. Table 9.1 contains price, demand, and cost data for Pindrop Telephones, the provider of local telephone service in the town of Grundy. What is its total profit under household discount policy?
    1. $7,600.00
    2. $8,000.00
    3. $9,600.00
    4. $12,000.00

  15. Table 9.1 contains price, demand, and cost data for Pindrop Telephones, the provider of local telephone service in the town of Grundy. Should the company adopt the single price policy or the household discount policy?
    1. They should adopt the single price policy because the three criteria necessary in order to engage in price discrimination are not met by the firm.
    2. They should adopt the single price policy because price discrimination would not be legal for this firm.
    3. They should adopt the single price policy because it is more profitable than price discrimination for this firm.
    4. They should adopt the household discount policy because it is more profitable.

  16. Price discrimination is related to elasticity because
    1. the firm can increase revenues by charging customers with elastic demands higher prices and by charging customers with inelastic demands lower prices.
    2. the firm can increase revenues by charging customers with elastic demands lower prices and by charging customers with inelastic demands higher prices.
    3. the firm can increase revenues by charging all customers higher prices.
    4. None of the above. Elasticity and price discrimination are unrelated.

  17. Suppose a price discriminating monopolistic firm is able to divide its market into two groups. If the firm sells its product for $50.00 to the group whose customers have the most elastic demand, what price are they likely to charge the group whose customers have the least elastic demand?
    1. $50.00
    2. more than $50.00
    3. less than $50.00
    4. The answer depends on the marginal revenue for that group.

  18. Firms that are attempting to engage in price discrimination will offer customers with a __________ demand a higher price and customers with a(n) __________ demand a lower price.
    1. lower; higher
    2. normal; inferior
    3. less elastic; more elastic
    4. more elastic; less elastic

  19. Many hotel chains offer senior citizen discounts to members of AARP. This suggests that the hotels believe senior citizens have a __________ demand for hotel rooms than non-seniors.
    1. steeper
    2. greater
    3. more elastic
    4. less elastic

  20. What is the most likely reason that snack foods sold in vending machines are so much more expensive than the snack foods sold in grocery stores?
    1. Snack foods sold in vending machines come in smaller packages, so the costs per package are higher.
    2. Grocery stores buy in bulk while vending machine companies tend to buy in smaller quantities.
    3. People who purchase snack foods from vending machines tend to have less elastic demand for snack foods.
    4. Owners of vending machine companies are greedier than owners of grocery stores.

  21. You currently sell the same product to both students and faculty members, and you are able to prevent transfer from one group to the other. Your current prices, quantities sold, and the absolute values of the slopes of the demand curves are as follows:

      Price Number Sold Slope of the Demand Curve
    Students $5.00 200 0.01
    Faculty $10.00 30 0.40

    If your marginal cost is $1.00 and you are interested in maximizing your revenues, how would you adjust your prices?

    1. Increase prices for both groups.
    2. Decrease prices for both groups.
    3. Increase student price and decrease faculty price.
    4. Decrease student price and increase faculty price.

    Table 9.2
    Number of Ads
    (per day)
    Number of Cars Sold Net Revenue from Sales
    2 100 $100,000.00
    3 105 $105,000.00
    4 110 $109,000.00
    5 115 $112,000.00
    6 120 $114,000.00
    7 125 $115,000.00

  22. Table 9.2 (above) presents information about car sales and the number of advertisements ran per day on local television stations. If the cost of advertising is $3,000.00 per ad, how many advertisements should the television station run?
    1. 2
    2. 3
    3. 5
    4. 6

  23. Which of the following is most true about advertising?
    1. Firms in monopolistically competitive markets advertise to increase profits.
    2. Advertisements for goods sold in perfectly competitive markets are likely to increase firm profits.
    3. Firms generally choose an advertising level where marginal benefits exceed marginal costs.
    4. The only purpose of advertising is to help consumers become more informed.

  24. Since advertising provides information to consumers about __________, it may encourage __________.
    1. product quality; collusion
    2. prices; price competition
    3. product features; less product differentiation
    4. competitors; predatory pricing

  25. Which of the following is not used by the government as an antitrust policy?
    1. regulation of business practices
    2. blocking mergers
    3. breaking up monopolies
    4. price-fixing

  26. The purpose of antitrust laws is to
    1. promote competition.
    2. increase profits to firms.
    3. protect domestic firms from foreign trade.
    4. Both A and B.

  27. In which of the following cases did the government break up a monopoly?
    1. Staples and Office Depot
    2. Interstate Bakeries and Continental Bakery
    3. Xidex
    4. Standard Oil

  28. The government can block a merger only if
    1. the firms remaining would all earn economic profit.
    2. it can be established that the merger would substantially reduce competition.
    3. the firms remaining would be able to charge a price above marginal cost.
    4. the firms that are merging are producing different products.

  29. In the case of Interstate Bakeries and Continental Bakery, the Justice Department concluded that
    1. the merger of two firms selling close substitutes may lead to higher prices.
    2. Interstate Bakeries attempted to drive out Continental by using predatory pricing.
    3. a merger between the two companies would save money in production costs, thus, benefiting consumers.
    4. Continental attempted to drive out Interstate Bakeries by using predatory pricing.

  30. Which of the following is an example of a tying contract?
    1. In order to buy Microsoft Windows, you must also purchase Internet Explorer.
    2. Bus rides are cheaper for senior citizens than for other people.
    3. Two companies merge to form one company.
    4. Firms set prices just low enough to prevent other firms from entering the market.

  31. Which of the following is an example of predatory pricing?
    1. In order to buy Microsoft Windows, you must also purchase Internet Explorer.
    2. Bus rides are cheaper for senior citizens than for other people.
    3. Firms set prices low enough to drive other firms out of the market.
    4. Firms set prices just low enough to prevent other firms from entering the market.

  32. Microsoft requires persons who purchase its operating system to also purchase its web browser. This is an example of
    1. a tying contract.
    2. competitive pricing.
    3. price discrimination.
    4. predatory pricing.

  33. A firm charges a price below its average total cost so that it drives out its competition. This is an example of
    1. a tying contract.
    2. duopoly pricing.
    3. price discrimination.
    4. predatory pricing.

  34. The Airline Deregulation Act of 1978
    1. was overturned by the Carter administration.
    2. retained most entry restrictions but eliminated price controls in the airline industry.
    3. eliminated most entry restrictions but retained price controls in the airline industry.
    4. eliminated most entry restrictions and price controls in the airline industry.

  35. The Telecommunications Act of 1996
    1. maintained price controls for cable TV service.
    2. opened the local telephone service industry to competition.
    3. established price controls in the long-distance service industry.
    4. None of the above.

Essay
Answer each of the following essay on your answer sheet. Use complete sentences.

  1. Explain why the following conditions must be met for a firm to engage in a successful price discrimination:
    • different demand elasticities
    • market power
    • preventable resale

  2. Please answer both parts:
    1. Should a firm continue to increase the number of advertisements it runs as long as the advertisements are continuing to increase demand for their product?

    2. What is the advertiser's dilemma?

  3. Highlight the main features of the following acts:
    • the Sherman Act
    • the Clayton Act
    • the Robinson-Patman Act
    • the Celler-Kefauver Act
    • the Hart-Scott-Redino Act

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