1. Marie’s Car Dealership is the only dealership in Victorville, California. The
ID: 1143412 • Letter: 1
Question
1. Marie’s Car Dealership is the only dealership in Victorville, California. The owner, Marie, experiences large economies of scale. Because she is the only seller of cars in the town,
2. Marie has no market power and must price at marginal cost.
Consider the following scenario to answer the following questions: EJH Cinemas, a movie theater next to your university, attracts two types of customers—those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area. There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.
What will be the amount of EJH Cinemas’ total revenue if the price is $7 per ticket?
$250,000
3. Consider the following scenario to answer the following questions: EJH Cinemas, a movie theater next to your university, attracts two types of customers—those who are associated with the university (students, faculty, and staff) and locals who live in the surrounding area. There are 10,000 university customers interested in purchasing movie tickets from EJH Cinemas, with a maximum willingness to pay of $7 per ticket. There are 20,000 local customers interested in purchasing tickets, with a maximum willingness to pay of $9 per ticket. The movie theater incurs a constant marginal cost of $4 per ticket. For simplicity, assume each customer purchases, at most, one ticket.
If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone, but only $7 for a ticket if you show your university identification (students, faculty, and staff), what will be the amount of consumer surplus?
$0
4. ________ transfers the consumer surplus under perfect competition to the producer.
Deadweight loss
5. In a price-discrimination setting, people with the most inelastic demand
do not buy the good.
6. The following table summarizes six potential customers’ ages and willingness to pay for a solo skydiving experience from SkyMasters. The aircraft has room for eight people, including the pilot and skydiving instructor. The marginal cost of adding each additional passenger is $100. SkyMasters holds significant market power for its region. Use this information to answer the following questions:
Assume that SkyMasters follows the profit-maximizing rule and that the company charges a single price for skydiving. What would the company’s total revenue be?
Explanation / Answer
1. Marie’s Car Dealership is the only dealership in Victorville, California. The owner, Marie, experiences large economies of scale. Because she is the only seller of cars in the town, Marie can charge any price she wants and will still sell the number of cars that maximize her profits. So the correct option is B.
2. The amount of EJH Cinemas’ total revenue if the price is $7 per ticket will be $210,000. So the correct option is C.
3. If EJH Cinemas decides to practice price discrimination, charging $9 for a standard ticket available to everyone, but only $7 for a ticket if you show your university identification (students, faculty, and staff), the amount of consumer surplus will be $ 20,000. So the correct option is B.
4. Perfect price discrimination transfers the consumer surplus under perfect competition to the producer. So the correct answer is B.
5. In a price-discrimination setting, people with the most inelastic demand pay the highest price for the same good. So the correct option is D.
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