Chapter 9: Managerial Use of Price Discrimination

MULTIPLE CHOICE
1.
The optimal level of output and price for the profit-maximizing monopolist in
the following figure would be:
a.
b.
c.
d.
e.

Q = 30 and P = $35.
Q = 60 and P = $20.
Q = 30 and P = $20.
Q = 100 and P = $35.
none of the above.

ANS: A
DIF: Easy
REF: 305
TOP: Motivation for Price Discrimination
2.
a.
b.
c.
d.
e.
ANS: B
Discrimination
MSC: Factual

MSC: Applied

Price discrimination is defined as:

selling a product at the same price to each
and every consumer.
selling a product at more than one price.
selling a product at its marginal cost plus a
markup.
selling more than one version of a product.
producing goods and services for sale
within the firm.
DIF: Easy

REF: 306

TOP: Price

3.
If the monopolist shown in the following figure could practice first-degree
price discrimination, the consumer surplus would be:
a.
b.
c.
d.
e.
ANS: A
Discrimination
MSC: Applied

$0.
$225.
$450.
$900.
$1,200.
DIF: Easy

REF: 310

TOP: Price

4.
If the monopolist shown in the following figure could practice first-degree
price discrimination, the producer surplus would be:
a.
b.
c.
d.
e.

$0.
$225.
$450.
$900.
$1,200.

ANS: D
Discrimination
MSC: Applied

DIF: Easy

REF: 310

TOP: Price

5.
When a movie theater charges a higher price during the evening than during
the day, it is practicing:
a.
peak load pricing.
b.
first-degree price discrimination.
c.
second-degree price discrimination.
d.
third-degree price discrimination
e.
fourth-degree price discrimination.
ANS: D
Discrimination
MSC: Conceptual

DIF: Easy

REF: 312

TOP: Price

6.
When Exxoff Oil Corporation offers discounts based on credit card records of
gas quantities purchased, they are practicing:
a.
first-degree price discrimination.
b.
second-degree price discrimination.
c.
third-degree price discrimination.
d.
markup pricing.
e.
tying.
ANS: B
Discrimination
MSC: Conceptual

DIF: Moderate

REF: 312

TOP: Price

7.
When Pan United Airlines gives a $400 fare discount to persons with student
IDs, they are practicing:
a.
first-degree price discrimination.
b.
second-degree price discrimination.
c.
third-degree price discrimination.
d.
markup pricing.
e.
tying.
ANS: C
Discrimination
MSC: Conceptual
8.
practicing:
a.
b.
c.
d.
e.

9.

REF: 312

TOP: Price

When a utility charges homeowners less than big industrial users, it is

first-degree price discrimination.
fourth-degree price discrimination.
third-degree price discrimination.
markup pricing.
tying.

ANS: C
Discrimination
MSC: Conceptual

a.
b.
c.
d.
e.

DIF: Moderate

DIF: Moderate

REF: 312

TOP: Price

Cereal manufacturers use of coupons can be partially explained by:

first-degree price discrimination.
second-degree price discrimination.
third-degree price discrimination.
markup pricing.
tying.

a.
b.
c.
d.
e.

first-degree price discrimination.

second-degree price discrimination.
third-degree price discrimination.
markup pricing.
tying.

ANS: C
DIF: Moderate
REF: 312
TOP: Using Coupons and Rebates for Price Discrimination

MSC: Conceptual

10.
If a firm supplies separable markets with price elasticities 1 and 2, it
should set prices P1 and P2 so that:
a.

P11 = P22.
P1 /1 = P2 /2.

b.
c.
d.

P1(1 + 1/1) = P2 (1 + 1/2).

P1/(1 1 /1) = P2 / (1 1/2).

e.

P1 = 1 1/1 and P2 = 1 1/2.

ANS: C
Discrimination
MSC: Factual

DIF: Moderate

REF: 313

TOP: Price

11.
If a firm supplies separable markets with price elasticities 1 = 3 and 2 =
2, it should set prices P1 and P2 so that:
a.

P1 = P2.
3P1 = 2P2.

b.
c.
d.

2P1 = 3P2.
2/3P1 = 1/2P2.

e.

2P1 = 2/3P2.

ANS: D
Discrimination
MSC: Applied

DIF: Moderate

REF: 313

TOP: Price

12.
Women are often charged more than men for haircuts performed by the same
haircutter. This is not considered price discrimination because:
a.
women receive more consumer surplus
from haircuts than men receive.
b.
haircutters claim to spend more time on
womens hair, raising the cost of the haircut
to the firm.
c.
firms make up the extra cost to consumers
by giving women free samples of products.
d.
men receive more consumer surplus from
haircuts than women receive.
e.
women have a lower price elasticity of
demand for haircuts.
ANS: B
Discrimination
MSC: Conceptual
13.

DIF: Moderate

REF: 314

TOP: Price

A firm with production located in a poor Georgia town sells toys locally for

$10 each and ships the same toys to sell in a wealthy North Carolina town for $15 each. They
are not price discriminating if:
a.
laws in Georgia allow it.
b.
laws in North Carolina allow it.
c.
total advertising costs are $5 per unit.
d.
total transportation costs are $5 per unit.
e.
consumers in North Carolina would pay
more than $15 for the toys.
ANS: D
Discrimination
MSC: Conceptual

DIF: Moderate

REF: 314

TOP: Price

14.
Gliberaces Fashion Accessories of Las Vegas produces gemstone-encrusted
formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 +
5(QLA + QSF). Demand for Gliberaces stones in the two cities is given by QLA = 70 2PLA
and QSF = 55 PSF . If Gliberace price discriminates between the two cities, how many
stones will it sell in Los Angeles?
a.
30.
b.
36.
c.
38.
d.
43.
e.
48.
ANS: A
DIF: Easy
REF: 319
TOP: Using Coupons and Rebates for Price Discrimination

MSC: Applied

15.
Gliberaces Fashion Accessories of Las Vegas produces gemstone-encrusted
formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 +
5(QLA + QSF). Demand for Gliberaces stones in the two cities is given by QLA = 70 2PLA
and QSF = 55 PSF. If Gliberace price discriminates between the two cities, what will its
maximum profits be?
a.
$750.
b.
$825.
c.
$1,075.
d.
$975.
e.
$1,175.
ANS: D
DIF: Easy
REF: 319
TOP: Using Coupons and Rebates for Price Discrimination

MSC: Applied

16.
Crusty Cakes sells donuts in Eastown and Westown. Its total costs are given
by TC = 10(QE + QW). The demand in each neighborhood is given by QE = 100 2PE and
QW = 100 PW . If Crusty price discriminates between the two neighborhoods, how much
are its maximized profits?
a.
$850.
b.
$1,200.
c.
$2,475.
d.
$2,825.
e.
$3,250.
ANS: D
DIF: Easy
REF: 319
TOP: Using Coupons and Rebates for Price Discrimination

MSC: Applied

17.
Gliberaces Fashion Accessories of Las Vegas produces gemstone-encrusted
formal wear for sale in Los Angeles and San Francisco subject to total cost TC = 100 +
6(QLA + QSF). Demand for Gliberaces stones in the two cities is given by QLA = 70 2PLA
and QSF = 50 PSF. If Gliberace cannot price discriminate between the two cities, and so
charges the same price in each, how many stones will it sell in Los Angeles?
a.
12.
b.
15.
c.
18.
d.
21.
e.
24.
ANS: E
DIF: Moderate
REF: 319
TOP: Using Coupons and Rebates for Price Discrimination

MSC: Applied

18.
When an electrical utility charges higher prices during the day than at night,
it is practicing:
a.
peak load pricing.
b.
first-degree price discrimination.
c.
second-degree price discrimination.
d.
third-degree price discrimination.
e.
fourth-degree price discrimination.
ANS: A
MSC: Factual

DIF: Easy

REF: 322

TOP: Peak Load Pricing

19.
The per-week demand for use of the Golden Gate Bridge in San Francisco is
P = 13 0.15Q during peak traffic periods and P = 7 0.1Q during off-peak hours, where Q
is the number of cars crossing the bridge in thousands and P is the toll in dollars. If the
marginal congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal off-peak
load toll for crossing the bridge?
a.
6.5.
b.
8.0.
c.
8.7.
d.
9.9.
e.
10.6.
ANS: A
MSC: Applied

DIF: Easy

REF: 322

TOP: Peak Load Pricing

20.
The per-week demand for use of the Golden Gate Bridge in San Francisco is
P = 12 0.15Q during peak traffic periods and P = 9 0.1Q during off-peak hours, where Q
is the number of cars crossing the bridge in thousands and P is the toll in dollars. If the
marginal congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal off-peak
load toll for crossing the bridge?
a.
6.5.
b.
8.0.
c.
8.7.
d.
9.9.
e.
10.6.
ANS: B
MSC: Applied
21.

DIF: Easy

REF: 322

TOP: Peak Load Pricing

The per-week demand for use of the Golden Gate Bridge in San Francisco is

P = 12 0.15Q during peak traffic periods and P = 9 0.1Q during off-peak hours, where Q
is the number of cars crossing the bridge in thousands and P is the toll in dollars. If the
marginal congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal peak load
toll for crossing the bridge?
a.
6.5.
b.
8.0.
c.
8.7.
d.
9.9.
e.
10.6.
ANS: D
MSC: Applied

DIF: Easy

REF: 322

TOP: Peak Load Pricing

22.
The per-week demand for use of the Golden Gate Bridge in San Francisco is
P = 13 0.15Q during peak traffic periods and P = 10 0.1Q during off-peak hours, where Q
is the number of cars crossing the bridge in thousands and P is the toll in dollars. If the
marginal congestion cost of using the bridge is MC = 5 + 0.2Q, what is the optimal peak load
toll for crossing the bridge?
a.
6.5.
b.
8.0.
c.
8.7.
d.
9.9.
e.
10.5.
ANS: E
MSC: Applied

DIF: Easy

REF: 322

TOP: Peak Load Pricing

23.
When a monopolist requires a customer to pay an initial fee for the right to
buy a product as well as a usage fee for each unit of the product bought, this is known as a(n):
a.
bundling contract.
b.
price differentiation.
c.
oligopolistic device.
d.
two-part tariff.
e.
maximizing device.
ANS: D
MSC: Factual

DIF: Easy

REF: 324

TOP: Two-Part Tariffs

24.
The demand for health club services is Q = 350 2P and the marginal cost of
providing these services is MC = 110 + 2Q. If a two-part tariff pricing system is used, what is
the optimal price and quantity combination?
a.
P = 52 and Q = 240.
b.
P = 199 and Q = 52.
c.
P = 26 and Q = 162.
d.
P = 162 and Q = 26.
e.
None of the above.
ANS: D
MSC: Applied

DIF: Easy

REF: 327

TOP: Two-Part Tariffs

25.
If the monopolist shown in the following figure could implement a two-part
tariff, the entry fee would be:
a.
b.
c.
d.
e.

$0.
$225.
$450.
$900.
$1,200.

a.
b.
c.
d.
e.
ANS: D
MSC: Applied

$0.
$225.
$450.
$900.
$1,200.
DIF: Easy

REF: 327

TOP: Two-Part Tariffs

26.
The demand for health club services is Q = 100 2P, and the marginal cost of
providing these services is MC = 110 + 2Q. If a two-part tariff pricing system is used, what
is the optimal price and quantity combination?
a.
P = 18 and Q = 64.
b.
P = 199 and Q = 52.
c.
P = 26 and Q = 162.
d.
P = 162 and Q = 26.
e.
None of the above.
ANS: A
MSC: Applied

DIF: Moderate

REF: 327

TOP: Two-Part Tariffs

27.
The demand for health club services is Q = 100 2P, and the marginal cost of
providing these services is MC = 110 + 2Q. If a two-part tariff pricing system is used, what
is the optimal fixed fee?
a.
1,555.
b.
2,624.
c.
1,024.
d.
1,206.
e.
None of the above.
ANS: C
MSC: Applied

DIF: Moderate

REF: 327

TOP: Two-Part Tariffs