Multiple Choice Questions
Question 1
Price discrimination is defined as:
A. selling a product at the same price to each and every consumer
B. selling a product at more than one price
C. selling a product at its marginal cost plus a markup
D. selling more than one version of a product
E. producing goods and services for sale within the firm
Question 2
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
Question 3
If a firm supplies separable markets with price elasticities h1 = -3 and h2 = -2, it should set prices P1 and P2 so that:
A. P1 = P2
B. 3P1 = 2P2
C. 2P1 = 3P2
D. 2/3P1 = 1/2P2
E. 2P1 = 2/3P2
Question 4
Cereal manufacturers' use of coupons can be partially explained by:
A. first-degree price discrimination
B. second-degree price discrimination
C. third-degree price discrimination
D. markup pricing
E. tying
Question 5
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
Question 6
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
Question 7
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
Question 8
In the model of monopolistic competition, firms produce a:
A. standardized product with considerable control over price
B. differentiated product with considerable control over price
C. standardized product with no control over price
D. differentiated product with no control over price
E. differentiated product with some control over price
Question 9
In the model of monopolistic competition, there can be short-run:
A. losses or profits, but there must be profits in long-run equilibrium
B. profits, but there must be losses in long-run equilibrium
C. losses or profits, but there must be losses in long-run equilibrium
D. losses or profits, but there must be neither profits nor losses in long-run equilibrium
E. losses, but there must be profits in long-run equilibrium
Question 10
The ABC Company estimates that a newspaper advertising campaign would cost $25,000 and would generate $35,000 in new revenues. The firm should begin this campaign as long as:
A. price elasticity of demand is at least 2.5 (in absolute value)
B. price elasticity of supply is 1
C. price elasticity of demand is at least 1.4 (in absolute value)
D. marginal cost of production is no more than $25,000
E. price elasticity of supply is 1.4