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Exam 10: Market Power and Pricing Strategies

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Question 31

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Hersheypark in Pennsylvania mentions the following offer on its Web page: "A military discount is available at Hersheypark during the regular summer operating schedule off of the Regular, Junior and Senior One Day admission. This discount is available to active duty military, reserves, retired military personnel, and members of the National Guard." This is _____ price discrimination.

A) first-degree
B) second-degree
C) segmenting or third-degree
D) perfect

E) B) and D)
F) A) and C)

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Question 32

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A rock-climbing school faces two demand curves. The demand by local residents is Q = 400 - 0.5P, and the demand by others is Q = 500 - 0.5P. The marginal cost of serving either local residents or others is constant at $100. If the rock-climbing school practices third-degree price discrimination, it will charge local residents and others a price of _____ and _____, respectively.

A) $400; $800
B) $450; $550
C) $600; $650
D) $275: $325

E) B) and C)
F) None of the above

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Question 33

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For the case of a perfectly price-discriminating monopolist (ppdm) , producer surplus can be calculated as:

For price discrimination via coupons to be successful, it must be TRUE that:

Use the following to answer question: Figure 10.14 -(Figure 10.14) Suppose a firm plans to use indirect price discrimination through quantity discounts. The firm cannot identify which customers are Type A or Type B before the purchase, so the firm would like to offer a regular-price plan and a quantity discount plan to suit the customers' personal price sensitivity.

A monopolist would like to practice third-degree price discrimination. Its first group of customers is represented by the demand equation Q_D1 = 10 - P₁. The second group is represented by the demand equation Q_D2 = 10 - 2P_2. Assume marginal costs of $4 in both markets. Compare the profit the monopolist would make as a single-price monopolist to what it would earn with third-degree price discrimination. Based on your calculations, does it make sense for this monopolist to price-discriminate?

The inverse demand curve for a firm with market power is P = 60 - Q, and its marginal cost is given by MC = 2Q. If the firm decides to practice first-degree price discrimination, the deadweight loss will:

Assume a monopolist can prevent resale of its product and it has complete information about each one of its customers. Even though each customer has a different demand curve, the seller can identify each customer's demand curve before a purchase takes place. It faces the inverse market demand of P = 160 - 10Q with marginal cost of MC = 10 + 5Q. Identify the type of price discrimination the monopolist should employ and complete this table:

Use the following to answer question: Figure 10.13 -(Figure 10.13) A pharmaceutical company sells its pills in foreign and domestic markets.

Use the following to answer question: Figure 10.12 -(Figure 10.12) Complete the following table.

Use the following to answer question: Figure 10.10 -(Figure 10.10) Which of the following statements is (are) TRUE?

A firm faces the demand curve Q = 20 - 0.8P and marginal cost MC = 2.5Q.

Suppose a firm faces the inverse demand curve P = 100 - Q. Marginal cost is constant at $10.

A monopolist serves market A with an inverse demand curve of P = 12 - Q. The marginal cost is constant at $2. Suppose the monopolist uses a two-part tariff pricing. What price does the monopolist set? What is the entrance fee? What is the deadweight loss? What is consumer surplus?

Use the following to answer question: Figure 10.6 -(Figure 10.6) Little Pinehurst Miniature Golf has two types of customers: infrequent players and frequent players. Using a strategy of second-degree price discrimination, Little Pinehurst offers customers the choice of paying $15 per round of miniature golf or $12 per round for a package of 16 rounds. The pricing scheme is _____ for infrequent players but is _____ for frequent players.

For the two-tiered block-pricing structure that maximizes the firm's producer surplus, total cost can be calculated as:

Use the following to answer question: Table 10.16 -(Table 10.16) The table shows the consumer's willingness to pay for a hotel stay and airfare. Assume that marginal cost is zero for both goods.

Use the following to answer questions 44-45: Figure 10.9 -(Figure 10.9) This firm is using block pricing, charging $35 each for the first 5 units, $25 each for units 6 and 7, and $15 for each unit beyond 7. What is the firm's producer surplus?

If the firm establishes a block-pricing structure with three prices, the relevant system of first-order conditions is:

A firm with market power has the inverse demand curve P = 90 - 1.5Q and marginal cost curve MC = 10 + Q. If the firm decides to practice perfect price discrimination, its profit-maximizing output level will: