ECO 305 Lecture Notes - Lecture 5: Philadelphia Police Department, Atp World Tour 500 Series, Marginal Product
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PLEASE ANSWER EACH QUESTION WITH A, B, C, and D. NOT ANSWERING ALL QUESTIONS OR INCORRECT ANSWERS WILL RESULT IN A THUMBS DOWN.
Question 1: Which of the following is not needed for price discrimination to be possible?
Ā | Ā |
A. The firm must have market power. |
Ā | Ā |
B. The firm must be able to prevent resale and arbitrage. |
Ā | Ā |
C. The firm must eventually learn about its customers' demands. |
Ā | Ā |
D. The firm's customers must have different demand curves. |
Ā
Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:
Ā | A. |
higher consumer surplus, higher producer surplus, and higher total surplus. |
Ā | B. |
lower consumer surplus, higher producer surplus, and higher total surplus. |
Ā | C. |
lower consumer surplus, higher producer surplus, and lower total surplus. |
Ā | D. |
lower consumer surplus, lower producer surplus, and lower total surplus. |
Ā
Question 3: Relative to perfect competition, first-degree price discrimination results in:
Ā | Ā |
A. higher consumer surplus, higher producer surplus, and higher total surplus. |
Ā | Ā |
B. lower consumer surplus, higher producer surplus, and equal total surplus. |
Ā | Ā |
C. lower consumer surplus, higher producer surplus, and equal total surplus. |
Ā | Ā |
D. lower consumer surplus, lower producer surplus, and lower total surplus. |
Question 4: If market demand is P = 100 - Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:
A. |
$800. |
B. |
$1,600. |
C. |
$2,400. |
D. |
$3,200. |
Question 5: For third-degree discrimination to be possible, which of the following features is not required?
Ā | Ā |
A. market power |
Ā | Ā |
B. prevention of resale |
Ā | Ā |
C. identification of each customer's demand before purchase |
Ā | Ā |
D. customers with different demand curves |
Ā
Question 6: A golf course has frequent players whose demand is Qf = 260 - 0.4P and infrequent players whose demand is Qi = 10 - 0.1P. The combined market demand is Q = 34 - 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will the profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?
A. |
$0 |
B. |
$7.50 |
C. |
$10 |
D. |
$110 |
Ā
Question 7: An airline sells seats on its flights to business travelers whose demand is QB = 300 - P and vacation travelers whose demand is QV = 150 - 0.5P. The combined market demand is Q = 450 - 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?
A. |
$0 |
B. |
$250 |
C. |
$400 |
D. |
$1,000 |
Ā
Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:
Ā | A. |
Higher. |
Ā | B. |
Lower. |
Ā | C. |
More price elastic. |
Ā | D. |
Less price is elastic. |
Ā
Question 9: The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:
Ā | Ā |
A. resale is possible. |
Ā | Ā |
B. customers have the same demand curves. |
Ā | Ā |
C. firms have market power. |
Ā | Ā |
D. firms can identify customers' demand before the customers make a purchase. |
Ā
Question 10: For price discrimination via a quantity discount to work:
Ā | Ā |
A. customers who purchase larger quantities must have relatively elastic demand. |
Ā | Ā |
B. customers who purchase larger quantities must have relatively inelastic demand. |
Ā | Ā |
C. customers who pay a relatively high price must have relatively elastic demand. |
Ā | Ā |
D. customers who pay a relatively low price must have relatively inelastic demand. |
Ā
Question 11: A firm wants to offer a quantity discount to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have a demand of QU = 30 - 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for obsessed customers is incentive compatible?
Ā | A.Ā |
60 units at a price of $10 each |
Ā | B. |
40 units at a price of $10 each |
Ā | C. |
60 units at a price of $20 each |
Ā | D. |
40 units at a price of $20 each |
Ā
Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?
Ā | Ā |
A.The firm's customers must have different demand curves. |
Ā | Ā |
B. The marginal costs of producing each version of the product must be the same. |
Ā | Ā |
C. The firm must be able to prevent resale. |
Ā | Ā |
D. The firm must have market power. |
Ā
Ā |
Willingness to pay (per month) |
|
Ā |
Weight machines |
Indoor pool |
Abe |
$60 |
$50 |
Betty |
50 |
125 |
Chris |
25 |
140 |
Ā
QUESTION 13
This table shows the willingness to pay off the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?
Ā | Ā |
A. $60 for the weight room, $140 for the pool, or $175 for both |
Ā | Ā |
B. $50 for the weight room, $125 for the pool, or $165 for both |
Ā | Ā |
C. $25 for the weight room, $50 for the pool, or $70 for both |
Ā | Ā |
D. $60 for the weight room, $130 for the pool, or $175 for both |
Ā
Question 14: Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?
Ā | Ā |
A. Customers must have identical demand curves. |
Ā | Ā |
B. The firm does not learn about customer demand until after purchase. |
Ā | Ā |
C. Demand for two products must be negatively correlated. |
Ā | Ā |
D. The firm must not have market power. |
Ā
Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?
Ā | Ā |
A. The firm must have market power. |
Ā | Ā |
B. The firm must be able to prevent resale. |
Ā | Ā |
C. The firm must learn about its customers' demands before purchases are made. |
Ā | Ā |
D. The firm's customers must have different demand curves. |
Ā
Question 16: A firm faces a market demand curve P = 50 - 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each, but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?
Ā | Ā |
A. Consumer surplus would decrease by $10, and producer surplus would increase by $20. |
Ā | Ā |
B. Consumer surplus would increase by $10, and producer surplus would increase by $20. |
Ā | Ā |
C. Consumer surplus would increase by $20, and producer surplus would increase by $10. |
Ā | Ā |
D. Consumer surplus would increase by $20, and producer surplus would increase by $20. |
Ā
Question 17: Relative to standard monopoly pricing, block pricing:
Ā | Ā |
A. decreases consumer surplus, increases producer surplus, and increases total surplus. |
Ā | Ā |
B. increases consumer surplus, increases producer surplus, and increases total surplus. |
Ā | Ā |
C. decreases consumer surplus, increases producer surplus, and decreases total surplus. |
Ā | Ā |
D. decreases consumer surplus, decreases producer surplus, and decreases total surplus. |
Ā
Question 18: Which of the following results in the highest amount of producer surplus?
Ā | A. |
bundling |
Ā | B. |
third-degree price discrimination |
Ā | C. |
block pricing |
Ā | D. |
two-part tariffs |
Ā
Question 19: Which of the following results in the highest amount of consumer surplus?
Ā | A. |
first-degree price discrimination |
Ā | B. |
third-degree price discrimination |
Ā | C. |
block pricing |
Ā | D. |
two-part tariffs |
Ā
Question 20: Which of the following results in the highest amount of total surplus?
Ā | A. |
third-degree price discrimination |
Ā | B. |
block pricing |
Ā | C. |
first-degree price discrimination |
Ā | D. |
bundling |
Ā
Question 1
Which compensation method helps to explain the large difference between the salaries of top-level managers and mid-level managers in a firm?
A. | Tournaments | |
B. | New blood | |
C. | Piece rate | |
D. | Backloaded compensation |
3 points
Question 2
Please consider the information provided under Question 19 in Chapter 3 (page 54). Based on the stated information, the optimal number of bees kept if the externality is ignored by Yung is 5,000. Is the socially optimal number of bees higher or lower than 5,000?
A. | We do not have enough information to answer this question | |
B. | Same | |
C. | Lower | |
D. | Higher |
3 points
Question 3
Which of the following factors contribute to the existence of firms?
A. | All of these factors contribute to firm existence | |
B. | Risks associated with specialization | |
C. | Incomplete contracts | |
D. | Willingness of some people to take on risk in exchange for residual income |
3 points
Question 4
Public goods are often subject to free-rider problems because these goods are:
A. | Non-rival and non-excludable | |
B. | Rival and non-excludable | |
C. | Non-rival and excludable | |
D. | Rival and excludable |
3 points
Question 5
Which of the following is the most efficient mechanism for allocating scarce goods?
A. | Government allocation system | |
B. | First-come-first-served system | |
C. | Market system | |
D. | Random allocation system |
3 points
Question 6
Many years ago, most of the major Hollywood movie studios also owned chains of local movie theaters across the US. Today, most of the local movie theaters are owned by other companies. What has happened to the degree of integration in the movie industry over time?
A. | Less horizontally integrated | |
B. | Less vertically integrated | |
C. | More horizontally integrated | |
D. | More vertically integrated |
3 points
Question 7
Your firm produces replacement parts for the nuclear submarines operated by the US Navy. Which one of Porter's Five Forces will be most prominent in determining your strategies and profitability?
A. | Bargaining Power of Suppliers | |
B. | Bargaining Power of Customers | |
C. | Threat of New Entrants | |
D. | Threat of Substitutes |
3 points
Question 8
Which of the following statements is NOT true?
A. | The market mechanism for allocating resources is most efficient due to the incentives it creates. | |
B. | Markets are always the most efficient way to allocate goods, even if the market is not perfectly competitive. | |
C. | The random allocation mechanism provides no incentives at all. | |
D. | The government allocation mechanism provides no incentive for the economy to grow. |
3 points
Question 9
Suppose a firm's cost structure exhibits economies of scope. Which of the following actions is compatible with this cost structure?
A. | Diversify into other product lines | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
B. | Focus on core competencies and reduce production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
C. | Focus on core competencies and maintain constant production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
D. | Focus on core competencies and expand production Question 10 Please refer to Table 8.3 on page 132 in the book. Suppose we change the payoffs in the "low price, low price" cell to 0, 25 from 0, 0. Does this change the Nash equilibrium for the game, and is the game still a Prisoner's Dilemma?
3 points Question 11 Which of the following statements about restricting entry to markets is NOT true?
3 points Question 12 Your firm earns $2 million per quarter in total revenue, and your accounting profits are $100,000 per quarter. You do not charge the firm for the use of an old building that you own because it is 50 years old and fully depreciated. However, another firm has offered you $200,000 per quarter to use the facility, and this is the market rental rate for similar facilities. In this case, we know that your:
3 points Question 13 Please refer to Question 13 in Chapter 1 (page 17). What is the marginal cost of reducing global warming by 0.017 degrees?
3 points Question 14 In Chapter 6, Boyes focuses on negative externalities such as the various types of pollution. However, as we discussed during our online session, we can also observe positive externalities in which external benefits are generated for people. Which of the following is NOT an example of a positive externality?
3 points Question 15 Common property resources are:
3 points Question 16 The free-rider problem arises in markets for common property resources.
3 points Question 17 Firms that set their product price below the actual cost of production may be engaging in:
3 points Question 18 Under a cap-and-trade mechanism to control air pollution, what happens to the price of pollution rights if the supply of righs is reduced (i.e., the supply of rights is reduced)?
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