The correct answer for each question is indicated by a .
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1 CORRECT
A firm selling in two markets is practicing price discrimination…
A) anytime it charges different consumers different prices.
B) when it refuses to sell the good to some group of consumers.
C) when it is charging different consumers different prices and the price difference is not based upon cost differences.
D) all of the above
E) none of the above
2 INCORRECT
To maximize profit a price discriminating firm should…
A) allocate the output so that marginal revenue is the same in each market.
B) allocate the optimal output so the elasticity is the same in each market.
C) produce the output at which total marginal revenue equals marginal cost.
D) both a and c
E) both b and c
3 INCORRECT
In order to maximize profit, a firm that sells its output in two markets will allocate total output between the two markets so that:
A) marginal revenue for the firm is equal to the sum of the marginal costs
B) marginal revenue for the firm is equal to the sum of the marginal revenues.
C) marginal revenue is equal in the two markets.
D) both a and b
E) none of the above
The next 2 questions refer to the following:
A newspaper offers students a discount on the regular subscription rate. The total number of subscriptions is optimal and, at the current prices, the marginal revenue from the last subscription sold to a student is $8, while the marginal revenue from the last subscription sold to a regular customer is $12.
4 INCORRECT
In order to maximize profit, the magazine should…
A) offer all customers the same discount received by the students.
B) offer students a lower discount (raise the price to students).
C) offer students a higher discount (lower the price to students).
D) stop offering students a discount on the regular subscription rate.
5 CORRECT
If the magazine sells one more subscription to a regular customer and one less subscription to a student:
A) profit will increase $4
B) profit will increase $12
C) profit will decrease $8
D) profit will decrease $12
E) none of the above
6 INCORRECT
To successfully practice price discrimination
A) it must be difficult for consumers in one market to sell to consumers in the other market.
B) the firm must possess market power.
C) the firm must be a pure monopoly.
D) both a and b
E) both a and c
The next 5 questions refer to the following figure:
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The graph shows the demands and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MRT, and marginal cost.
7 INCORRECT
What total output should the firm produce?
A)
200 units
B)
300 units
C)
400 units
D)
450 units
E)
850 units
8 INCORRECT
How should the firm allocate sales between the two markets?
A)
150 in each market
B)
250 in market 1, 200 in 2
C)
150 in market 1, 300 in 2
D)
200 in each market
E)
300 in market 1, 100 in 2
9 INCORRECT
What price should the firm charge in each market?
A)
P1 = $60, P2 = $60
B)
P1 = $55, P2 = $70
C)
P1 = $40, P2 = $50
D)
P1 = $30, P2 = $40
E)
Impossible to say because market demand is not given
10 INCORRECT
At the optimal price and quantity, what is demand elasticity in each market?
A)
E1 = −1.5, E2 = −3
B)
E1 = −2.2, E2 = −1.4
C)
E1 = −2.5, E2 = −3.5
D)
E1 = −3.67, E2 = −2.33
E)
Impossible to day because market demand is not given
11 INCORRECT
What rule do your answers to the previous two questions demonstrate for price determination for a firm that practices price discrimination?
