For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day. First Orange Second Orange Third Orange Allison $2.00 $1.50 $0.75 Bob $1.50 $1.00 $0.80 Charisse $0.75 $0.25 $0 4. Refer to Table 1. If the market price of an orange is $0.40, then a. 6 oranges are demanded per day, and consumer surplus amounts to $4.45. b. 6 oranges are demanded per day, and consumer surplus amounts to $5.10. c. 7 oranges are demanded per day, and consumer surplus amounts to $5.35. d. 7 oranges are demanded per day, and consumer surplus amounts to $5.50.
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Look at the two tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables.
| Consumers | Producers | |||||
| Person | Maximum Price Willing to Pay |
Actual Price (Equilibrium Price) |
Person | Minimum Acceptable Price | Actual Price (Equilibrium Price) |
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| Bob | $16 | $10 | Carlos | $5 | $10 | |
| Barb | 14 | 10 | Courtney | 6 | 10 | |
| Bill | 13 | 10 | Chuck | 7 | 10 | |
| Bart | 12 | 10 | Cindy | 8 | 10 | |
| Brent | 11 | 10 | Craig | 9 | 10 | |
| Betty | 10 | 10 | Chad | 10 | 10 | |
a. Given the equilibrium price of $10, what is the equilibrium quantity given the data above?
Equilibrium quantity = ...... bag(s)
b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays?
If all the buyers' free ride, what will be the quantity supplied by private sellers?
c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $3-per-bag tax on sellers.
What is the new equilibrium price? $
What is the new equilibrium quantity?
....bag(s)
If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before?
.....bag(s)
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?
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A. The firm must have market power. |
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B. The firm must be able to prevent resale and arbitrage. |
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C. The firm must eventually learn about its customers' demands. |
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D. The firm's customers must have different demand curves. |
Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:
| A. |
higher consumer surplus, higher producer surplus, and higher total surplus. |
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| B. |
lower consumer surplus, higher producer surplus, and higher total surplus. |
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| C. |
lower consumer surplus, higher producer surplus, and lower total surplus. |
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| D. |
lower consumer surplus, lower producer surplus, and lower total surplus. |
Question 3: Relative to perfect competition, first-degree price discrimination results in:
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A. higher consumer surplus, higher producer surplus, and higher total surplus. |
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B. lower consumer surplus, higher producer surplus, and equal total surplus. |
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C. lower consumer surplus, higher producer surplus, and equal total surplus. |
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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?
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A. market power |
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B. prevention of resale |
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C. identification of each customer's demand before purchase |
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D. customers with different demand curves |
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 |
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 |
Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:
| A. |
Higher. |
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| B. |
Lower. |
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| C. |
More price elastic. |
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| D. |
Less price is elastic. |
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:
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A. resale is possible. |
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B. customers have the same demand curves. |
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C. firms have market power. |
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D. firms can identify customers' demand before the customers make a purchase. |
Question 10: For price discrimination via a quantity discount to work:
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A. customers who purchase larger quantities must have relatively elastic demand. |
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B. customers who purchase larger quantities must have relatively inelastic demand. |
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C. customers who pay a relatively high price must have relatively elastic demand. |
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D. customers who pay a relatively low price must have relatively inelastic demand. |
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?
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60 units at a price of $10 each |
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| B. |
40 units at a price of $10 each |
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| C. |
60 units at a price of $20 each |
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| D. |
40 units at a price of $20 each |
Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?
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A.The firm's customers must have different demand curves. |
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B. The marginal costs of producing each version of the product must be the same. |
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C. The firm must be able to prevent resale. |
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D. The firm must have market power. |
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Willingness to pay (per month) |
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Weight machines |
Indoor pool |
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Abe |
$60 |
$50 |
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Betty |
50 |
125 |
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Chris |
25 |
140 |
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?
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A. $60 for the weight room, $140 for the pool, or $175 for both |
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B. $50 for the weight room, $125 for the pool, or $165 for both |
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C. $25 for the weight room, $50 for the pool, or $70 for both |
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D. $60 for the weight room, $130 for the pool, or $175 for both |
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?
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A. Customers must have identical demand curves. |
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B. The firm does not learn about customer demand until after purchase. |
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C. Demand for two products must be negatively correlated. |
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D. The firm must not have market power. |
Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?
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A. The firm must have market power. |
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B. The firm must be able to prevent resale. |
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C. The firm must learn about its customers' demands before purchases are made. |
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D. The firm's customers must have different demand curves. |
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?
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A. Consumer surplus would decrease by $10, and producer surplus would increase by $20. |
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B. Consumer surplus would increase by $10, and producer surplus would increase by $20. |
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C. Consumer surplus would increase by $20, and producer surplus would increase by $10. |
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D. Consumer surplus would increase by $20, and producer surplus would increase by $20. |
Question 17: Relative to standard monopoly pricing, block pricing:
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A. decreases consumer surplus, increases producer surplus, and increases total surplus. |
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B. increases consumer surplus, increases producer surplus, and increases total surplus. |
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C. decreases consumer surplus, increases producer surplus, and decreases total surplus. |
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D. decreases consumer surplus, decreases producer surplus, and decreases total surplus. |
Question 18: Which of the following results in the highest amount of producer surplus?
| A. |
bundling |
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| B. |
third-degree price discrimination |
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| C. |
block pricing |
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| D. |
two-part tariffs |
Question 19: Which of the following results in the highest amount of consumer surplus?
| A. |
first-degree price discrimination |
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| B. |
third-degree price discrimination |
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| C. |
block pricing |
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| D. |
two-part tariffs |
Question 20: Which of the following results in the highest amount of total surplus?
| A. |
third-degree price discrimination |
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| B. |
block pricing |
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| C. |
first-degree price discrimination |
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| D. |
bundling |
