1. Price discrimination occurs when a.the supply of the product is elastic b.a p
ID: 1181242 • Letter: 1
Question
1. Price discrimination occurs when
a.the supply of the product is elastic
b.a product's average cost is greater than its average revenue
c.a product's average cost is less than its average revenue
d.differences in a product's price reflect differences in marginal costs
e.differences in a product's price do not reflect differences in costs of production
2. If a monopolist is producing in the inelastic portion of its demand curve, which of the following will occur if the monopolist decreases its price?
a. Marginal revenue will decrease, but profits will increase.
b. Marginal revenue will increase, but profits will decrease.
c.Total revenue will decrease, but profits will increase.
d.Both total revenue and profits will decrease.
e. Both total revenue and profits will increase.
3. Which of the following statements is true for a perfectly competitive firm but not
true for a monopoly?
a.The firm's price is equal to its average revenue.
b.The firm cannot affect the market price for its good.
c.It is difficult for other firms to enter the industry.
d. The demand for the firm's product is unit elastic.
e.The firm must lower its price in order to sell more of its product.
4. Monopolies are inefficient for which of the following reasons?
a. They produce too little of the good.
b.They produce too much of the good.
c. They do not produce an output level at which marginal cost equals marginal revenue.
d. The marginal cost of producing the good is too low.
e. The firm is too large.
5. Which of the following is necessarily true of the profit-maximizing equilibrium of a monopolist who sets a single price?
a. Price equals average total cost.
b. Price is greater than marginal cost.
c. Average total cost is at its minimum level.
d. Marginal revenue is greater than marginal cost.
e. Marginal cost is minimized.
Explanation / Answer
1.Price discrimination is a pricing strategy where identical goods or services are transacted at different prices from the same provider in different markets or territories.Price discrimination can also be seen where the requirement that goods be identical is relaxed. Some economists have argued that this is a form of price discrimination exercised by providing a means for consumers to reveal their willingness to pay ,i.e., even if there is a diffenrence in prices of same good their marginal costs may differ. For example, so-called "premium products" (including relatively simple products, such as cappuccino compared to regular coffee with cream) have a price differential that is not explained by the cost of production.
Hence,
d.differences in a product's price reflect differences in marginal costs
2.If producing at inelastic portion of demand curve, a monopoly could lower the quantity produced and raise the price to achieve more total revenue.But, in this case instead raising the price it decides to lower it which will result in decrease in both total revenue and profit.
d.Both total revenue and profits will decrease.
3.Both in monopoly and perfect competition, a firm sets its price accordingly to get maximum profit.Hence,a is true in both cases.
In monopoly , firm has complete power over the market, hence it can set market price accordingly but in perfect competition it can't.
b.The firm cannot affect the market price for its good.
In monopoly it is difficult for new firms to enter in market but in perfect competition any firm can gain profit in market.Hence option c is not valid for perfect competition.
In perfect competition demand can be any of inelastic,elastic or unit elatic.Hence,option d is not justified.
No matter what market it is, the firm must lower its price in order to sell more of its product.Hence, it is also true in monopoly.So, option e is not valid.
4.In monopoly, prices will tend to be higher, and output lower.
a. They produce too little of the good.
5.In monopoly, prices will tend to be higher than both marginal costs and average total cost.
b. Price is greater than marginal cost.
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