MODULE 63: Price Discrimination

Multiple-Choice Questions

Question

According to the price-taking firm’s optimal output rule, a perfectly competitive firm should produce the quantity at which marginal cost is equal to
A.
total cost.
B.
average variable cost.
C.
average fixed cost.
D.
marginal revenue but not price.
E.
marginal revenue and price.

According to the pric
Question

A perfectly competitive firm is a price-taker because
A.
the government sets its price.
B.
it produces a differentiated product.
C.
a larger firm sets the price for the industry.
D.
intense competition prevents it from influencing the market price.
E.
a powerful consumer group establishes the market price.

A perfectly competitive firm is a pric
Question

Because a perfectly competitive firm is a price-taker, its short-run demand curve is
A.
perfectly elastic.
B.
perfectly inelastic.
C.
equal to its average total cost curve.
D.
downward-sloping.
E.
upward-sloping.

Because a perfectly competitive firm is a pric
Question

A perfectly competitive firm is guaranteed to be profitable when it produces a level of output where
A.
marginal revenue is equal to price.
B.
price is equal to average fixed cost.
C.
price is greater than average fixed cost.
D.
price is greater than average total cost.
E.
price is greater than average variable cost.

A perfectly competitive firm is guaranteed to be profitable when it produces a level of output where
Question

Average total cost is minimized by producing the level of output where the marginal cost
A.
is minimized.
B.
curve intersects the average total cost curve.
C.
curve intersects the average fixed cost curve.
D.
curve intersects the average variable cost curve.
E.
curve intersects the marginal revenue curve.

Average total cost is minimized by producing the level of output where the marginal cost
Question

Consider the data below for Questions 6, 7, and 8 for a perfectly competitive firm.

Suppose an increase in the demand for tomatoes brings the market price up to $22. How many tomatoes should be produced in order to maximize profit?
A.
7
B.
6
C.
5
D.
4
E.
3

Suppose an increase in the demand for tomatoes brings the market price up to $22. How many tomatoes should be produced in order to maximize profit?
Question

Now suppose a decrease in the demand for tomatoes brings the market price down to $15. How many tomatoes should be produced in order to maximize profit?
A.
7
B.
6
C.
5
D.
4
E.
3

Now suppose a decrease in the demand for tomatoes brings the market price down to $15. How many tomatoes should be produced in order to maximize profit?
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Question

What price represents the shut-down price in the short run?
A.
$8
B.
$10
C.
$16
D.
$18
E.
$20

What price represents the shu
Question

Oscar sells bicycles in a perfectly competitive market. In the short run, at the quantity that equates marginal revenue and marginal cost, the market price is above Oscar’s average variable cost and below his average total cost. Oscar should
A.
shut down his business.
B.
raise his price.
C.
produce at a loss because he is covering his fixed costs.
D.
produce at a loss because he is covering his variable costs.
E.
produce at a profit because he is covering his variable costs.

Oscar sells bicycles in a perfectly competitive market. In the short run, at the quantity that equates marginal revenue and marginal cost, the market price is above Oscar’s average variable cost and below his average total cost. Oscar should
Question

The short-run supply curve for a perfectly competitive firm is its
A.
marginal cost curve above the average variable cost curve.
B.
marginal cost curve above the average fixed cost curve.
C.
average variable cost curve above the marginal cost curve.
D.
average variable cost curve above the average total cost curve.
E.
average variable cost curve above the average fixed cost curve.

The shor
Question

For a perfectly competitive industry, the short-run industry supply curve is determined by
A.
horizontally summing all the firm’s profit-maximizing output levels.
B.
horizontally summing all the firm’s supply curves.
C.
vertically summing all the firm’s profit-maximizing output levels.
D.
vertically summing all the firm’s marginal cost curves.
E.
vertically summing all the firm’s supply curves.

For a perfectly competitive industry, the shor
Question

Tia sells hats in a perfectly competitive market. If, in the long run, the market price exceeds the minimum of Tia’s average variable cost but is below the minimum of her average total cost, Tia should
A.
shut down her business if the situation continues for another year.
B.
shut down her business at that time.
C.
produce at a loss since she is covering her variable cost.
D.
produce at a loss since she is covering her fixed cost.
E.
produce at a loss since she is covering her marginal cost.

Tia sells hats in a perfectly competitive market. If, in the long run, the market price exceeds the minimum of Tia’s average variable cost but is below the minimum of her average total cost, Tia should
Question

In the long run for a perfectly competitive constant-cost industry, if existing firms are producing where price is greater than average total cost, firms will enter the industry, price will
A.
fall, and existing firms will increase production.
B.
fall, and existing firms will decrease production.
C.
rise, and existing firms will increase production.
D.
rise, and existing firms will decrease production.
E.
remain constant, and existing firms will increase production.

In the long run for a perfectly competitive constan
Question

For a perfectly competitive increasing-cost industry, an increase in demand will cause the price to
A.
rise and the cost of inputs to fall.
B.
rise and the cost of inputs to rise.
C.
fall and the cost of inputs to fall.
D.
fall and the cost of inputs to rise.
E.
remain constant and the cost of inputs to rise.

For a perfectly competitive increasin
Question

The long-run industry supply curve for a perfectly competitive firm is
A.
flatter and more elastic than the short-run supply curve.
B.
flatter and more inelastic than the short-run supply curve.
C.
steeper and more elastic than the short-run supply curve.
D.
steeper and more inelastic than the short-run supply curve.
E.
more horizontal and more inelastic than the short-run supply curve.

The lon
Question

The demand curve for a monopolist producing a normal good is downward-sloping because of
A.
the substitution effect being larger than the income effect.
B.
the income effect being larger than the substitution effect.
C.
diminishing marginal returns.
D.
price discrimination.
E.
diminishing marginal utility.

The demand curve for a monopolist producing a normal good is downwar
Question

The marginal revenue curve for a monopolist lies below the demand curve because of
A.
the income effect.
B.
the quantity effect.
C.
price discrimination.
D.
the price effect.
E.
the substitution effect.

The marginal revenue curve for a monopolist lies below the demand curve because of
Question

If a monopolist is charging a price such that marginal revenue is greater than marginal cost, then the monopolist
A.
will be earning profit.
B.
will be earning losses.
C.
will be breaking even.
D.
can improve its profit by reducing its price.
E.
can improve its profit by raising its price.

If a monopolist is charging a price such that marginal revenue is greater than marginal cost, then the monopolist
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Question

For a monopolist, when marginal revenue is positive
A.
the quantity effect outweighs the price effect.
B.
the price effect outweighs the quantity effect.
C.
total revenue is rising at an increasing rate.
D.
total revenue is declining at an increasing rate.
E.
total revenue is declining at a declining rate.

For a monopolist, when marginal revenue is positive
Question

Relative to a competitive industry with the same costs, a monopolist charges
A.
a higher price and produces more output.
B.
a lower price and produces more output.
C.
a higher price and produces less output.
D.
a lower price and produces less output.
E.
a higher price and produces the same level of output.

Relative to a competitive industry with the same costs, a monopolist charges
Question

If a monopolist finds that demand is elastic at the level of output where marginal revenue is equal to marginal cost, the monopolist will
A.
maintain that level of output.
B.
increase output.
C.
decrease output.
D.
raise the price.
E.
lower the price.

If a monopolist finds that demand is elastic at the level of output where marginal revenue is equal to marginal cost, the monopolist will
Question

A perfectly competitive industry will likely have
A.
more consumer surplus, more producer surplus, and more deadweight loss than a monopoly.
B.
more consumer surplus, less producer surplus, and less deadweight loss than a monopoly.
C.
less consumer surplus, more producer surplus, and more deadweight loss than a monopoly.
D.
more consumer surplus, less producer surplus, and more deadweight loss than a monopoly.
E.
less consumer surplus, more producer surplus, and less deadweight loss than a monopoly.

A perfectly competitive industry will likely have
Question

If a regulatory commission wants to ensure that a monopolist produces the largest quantity of output that is consistent with earning a normal profit, it will require the monopolist to charge a price equal to its
A.
marginal cost.
B.
average fixed cost.
C.
average variable cost.
D.
average total cost.
E.
total cost.

If a regulatory commission wants to ensure that a monopolist produces the largest quantity of output that is consistent with earning a normal profit, it will require the monopolist to charge a price equal to its
Question

In order to practice price discrimination, a firm must have
A.
market power.
B.
customers of different ages.
C.
customers with the same price elasticity of demand.
D.
customers with different income levels.
E.
customers in different locations.

In order to practice price discrimination, a firm must have
Question

Perfect price discrimination will result in
A.
more output and more consumer surplus.
B.
more output and less consumer surplus.
C.
less output and more producer surplus.
D.
less output and less consumer surplus.
E.
less output and more consumer surplus.

Perfect price discrimination will result in