ECON 1201 Chapter Notes - Chapter 16: Price Discrimination, Economic Surplus, Yield Management

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31 Jan 2018

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Price discrimination: charging higher prices to some customers and lower prices to others. Charging different prices to different customers for the same product when the price differences are not due to differences in cost. Practice of rapidly adjusting prices is called yield management. According to the law of one price, identical products should sell for the same price everywhere marker at a high price. Arbitrage: buying a product in one market at a low price and reselling it in another. Arbitrage profits: profits received from engaging in arbitrage. Transactions costs : the costs in time and other resources that parties incur in the process. Law of one price is violated even where transaction costs are zero and a product can be of agreeing to and carrying out an exchange of goods and services resold. In order to successfully practice price discrimination, a firm must:

Related Questions

Which of the following is TRUE?

Select one:

a. Monopoly results in a higher quantity of output being sold compared with perfect competition.

b. Price discrimination occurs when there are differences in prices that reflect differences in marginal cost.

c. Charging all customers the same price when costs vary can actually be a case of price discrimination.

d. Price discrimination guarantees that the monopolist will make a profit.

Which of the following statements is TRUE?

Select one:

a. At the monopolist's equilibrium, resources are being efficiently allocated.

b. With a monopoly, the value to society of the last unit produced is less than it's production cost.

c. Monopolists raise the price and restrict production, compared to a competitive situation.

d. A monopolist always produces a higher level of output than would be produced if the market were competitive.

graycat195

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.

erinant26

1. if the government attempts to break up a natural monopoly to enforce competition in an industry

A. the average cost of producing the good will increase

B. the smallest firm will have a significant cost advantage over the larger, less efficient firms

C. the average cost of producing the good will decrease

D. the price paid by consumers will be expected to remain the same.

2. which statement is true?

A. the monopolistic competitor always makes a profit in the short run

B. the monopolistic competitor operates at peak efficiency

C. product differentiation takes place in the minds of the buyers

D. none of these statements is true

3. Price discrimination

A. occurs when a good or service is resold

B. is prohibited by law

C. occurs when a seller charges two or more prices for the same good or service

D. occurs when the seller charges different prices for different quality products

4. Monopolistic competition may lead to each of the following except

A. inefficiency

B. overdifferentiation

C. overcapacity

D. monopoly profits

5. In the long run in monopolistic competition

A. most firms are making a profit

B. the absence of entry barriers ensures that there are no profits

C. economies of scale ensure that there are no profits

D. most firms are losing money

6. Price discrimination means

A. charging different prices for identical goods that have identical production costs

B. paying wages according to race or sex rather than productivity

C. exploiting the working masses by charging the highest single price possible.

D. eliminating all costs so that only pure profits are realized

7. The definition of monopolistic competition includes

A. few firms and ease of entry and exit

B. few firms and barrieres to entry and exit

C. many firms and barriers to entry and exit

D. many firms and ease of entry and exit

8. Which statement is true?

A. there are many firms in a monopolistically competitive industry.

B. monopolistic competitors produce an identical product

C. in order for product differentiation to take place, there must be clear physical differences amont the products sold

D. none is true

9. Long-run equilibrium for firms in monopolistically competitive industries is similar to that for firms in perfect competition in that

A. price equals minimum possible average total cost

B. price equals marginal cost

C. marginal revenue equals average total cost

D. price equals average total cost

10. Which statement is false?

A. Oligopolies are illegal in most states

B. most oligopolies engage in outright collusion

C. Ford motor company is an oligopoly

D. none of these statements is false

ECON 1201 Chapter Notes - Chapter 16: Price Discrimination, Economic Surplus, Yield Management

ECON 1201 Full Course Notes

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