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ECO 2023 Lecture Notes - Lecture 23: Price Discrimination, Oligopoly, Marginal Revenue Productivity Theory Of Wages

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tanwasp406
24 Nov 2017
School
FAU
Department
Economics
Course
ECO 2023
Professor
Chiang

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Document Summary

The demand of saturday night travelers is elastic, and therefore, the lower fares generate more revenue. The demand of students must be more elastic than that of other customers. Increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because excessive advertising is encouraged. The oligopolists earn the highest profit when they cooperate and behave like a monopolist. When barriers to entry are high, a monopolist (or cartel) will often be able to increase their profits by reducing their output so they can raise their price. When oligopolistic firms collude to maximize their joint profits, in comparison with the situation in competitive markets, their actions generally lead to a smaller output and higher prices.

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Related Questions

PLEASE ANSWER EACH QUESTION WITH A, B, C, and D. NOT ANSWERING ALL QUESTIONS OR INCORRECT ANSWERS WILL RESULT IN A THUMBS DOWN.

Question 1: Which of the following is not needed for price discrimination to be possible?

   

A. The firm must have market power.
   

B. The firm must be able to prevent resale and arbitrage.
   

C. The firm must eventually learn about its customers' demands.
   

D. The firm's customers must have different demand curves.

 

Question 2: Relative to standard monopoly pricing, first-degree price discrimination results in:

  A.

higher consumer surplus, higher producer surplus, and higher total surplus.
  B.

lower consumer surplus, higher producer surplus, and higher total surplus.
  C.

lower consumer surplus, higher producer surplus, and lower total surplus.
  D.

lower consumer surplus, lower producer surplus, and lower total surplus.

 

Question 3: Relative to perfect competition, first-degree price discrimination results in:

   

A. higher consumer surplus, higher producer surplus, and higher total surplus.
   

B. lower consumer surplus, higher producer surplus, and equal total surplus.
   

C. lower consumer surplus, higher producer surplus, and equal total surplus.
   

D. lower consumer surplus, lower producer surplus, and lower total surplus.

Question 4: If market demand is P = 100 - Q and the firm has a constant marginal cost of 20, then with first-degree price discrimination, the firm's producer surplus will be:

A.

$800.
B.

$1,600.
C.

$2,400.
D.

$3,200.

Question 5: For third-degree discrimination to be possible, which of the following features is not required?

   

A. market power
   

B. prevention of resale
   

C. identification of each customer's demand before purchase
   

D. customers with different demand curves

 

Question 6: A golf course has frequent players whose demand is Qf = 260 - 0.4P and infrequent players whose demand is Qi = 10 - 0.1P. The combined market demand is Q = 34 - 0.4P. The marginal cost and average total cost of providing a round of golf are $20. How much higher will the profit be if the golf course uses third-degree price discrimination instead of charging all golfers the same price?

A.

$0
B.

$7.50
C.

$10
D.

$110

 

Question 7: An airline sells seats on its flights to business travelers whose demand is QB = 300 - P and vacation travelers whose demand is QV = 150 - 0.5P. The combined market demand is Q = 450 - 1.5P. The marginal cost and average total cost of providing a seat on a flight are $200. How much higher will profit be if the airline uses third-degree price discrimination instead of charging all travelers the same price?

A.

$0
B.

$250
C.

$400
D.

$1,000

 

Question 8: If a firm practices third-degree price discrimination, the price charged should be higher in the market where demand is:

  A.

Higher.
  B.

Lower.
  C.

More price elastic.
  D.

Less price is elastic.

 

Question 9: The key difference between markets where third-degree price discrimination is possible and markets where second-degree price discrimination is possible is whether:

   

A. resale is possible.
   

B. customers have the same demand curves.
   

C. firms have market power.
   

D. firms can identify customers' demand before the customers make a purchase.

 

Question 10: For price discrimination via a quantity discount to work:

   

A. customers who purchase larger quantities must have relatively elastic demand.
   

B. customers who purchase larger quantities must have relatively inelastic demand.
   

C. customers who pay a relatively high price must have relatively elastic demand.
   

D. customers who pay a relatively low price must have relatively inelastic demand.

 

Question 11: A firm wants to offer a quantity discount to price-discriminate between buyers who are relatively uninterested in the product and buyers who are obsessively interested in it. The uninterested customers have a demand of QU = 30 - 0.5P. The package offered to them contains 10 units of the good at a price of $40 each. Which of the following packages designed for obsessed customers is incentive compatible?

  A. 

60 units at a price of $10 each
  B.

40 units at a price of $10 each
  C.

60 units at a price of $20 each
  D.

40 units at a price of $20 each

 

Question 12: Which of the following conditions do not have to be met in order for indirect price discrimination by versioning to work?

   

A.The firm's customers must have different demand curves.
   

B. The marginal costs of producing each version of the product must be the same.
   

C. The firm must be able to prevent resale.
   

D. The firm must have market power.

 

 

Willingness to pay (per month)
 

Weight machines

Indoor pool

Abe

$60

$50

Betty

50

125

Chris

25

140

 

QUESTION 13
This table shows the willingness to pay off the only three potential customers of a firm that runs both a weight room and an indoor swimming pool. The weight room and pool each have a constant marginal cost of $20 per month. Which of the following pricing strategies yields the highest producer surplus?

   

A. $60 for the weight room, $140 for the pool, or $175 for both
   

B. $50 for the weight room, $125 for the pool, or $165 for both
   

C. $25 for the weight room, $50 for the pool, or $70 for both
   

D. $60 for the weight room, $130 for the pool, or $175 for both

 

Question 14: Which of the following features is needed to make bundling a possible price discrimination strategy but is not required for any other price discrimination strategies?

   

A. Customers must have identical demand curves.
   

B. The firm does not learn about customer demand until after purchase.
   

C. Demand for two products must be negatively correlated.
   

D. The firm must not have market power.

 

Question 15: Which of the following features is not needed for price discrimination using a two-part tariff to work?

   

A. The firm must have market power.
   

B. The firm must be able to prevent resale.
   

C. The firm must learn about its customers' demands before purchases are made.
   

D. The firm's customers must have different demand curves.

 

Question 16: A firm faces a market demand curve P = 50 - 5Q. It has a constant marginal cost of $10. Relative to standard monopoly pricing, how would a block pricing strategy where the first four units can be purchased for a price of $30 each, but two more units can be purchased for an additional $20 each change consumer surplus and producer surplus?

   

A. Consumer surplus would decrease by $10, and producer surplus would increase by $20.
   

B. Consumer surplus would increase by $10, and producer surplus would increase by $20.
   

C. Consumer surplus would increase by $20, and producer surplus would increase by $10.
   

D. Consumer surplus would increase by $20, and producer surplus would increase by $20.

 

Question 17: Relative to standard monopoly pricing, block pricing:

   

A. decreases consumer surplus, increases producer surplus, and increases total surplus.
   

B. increases consumer surplus, increases producer surplus, and increases total surplus.
   

C. decreases consumer surplus, increases producer surplus, and decreases total surplus.
   

D. decreases consumer surplus, decreases producer surplus, and decreases total surplus.

 

Question 18: Which of the following results in the highest amount of producer surplus?

  A.

bundling
  B.

third-degree price discrimination
  C.

block pricing
  D.

two-part tariffs

 

Question 19: Which of the following results in the highest amount of consumer surplus?

  A.

first-degree price discrimination
  B.

third-degree price discrimination
  C.

block pricing
  D.

two-part tariffs

 

Question 20: Which of the following results in the highest amount of total surplus?

  A.

third-degree price discrimination
  B.

block pricing
  C.

first-degree price discrimination
  D.

bundling

 

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.
 

Question 1

 

A firm should hire workers up to the point where
 

Question 1 options:

 
MP = P.
 
MFC = P.
 
MFC = MRP.
 
MP = MRP.
 

Question 2

 

If the additional revenue from hiring an additional worker equals the additional costs from hiring the extra worker, then we know that
 
Question 2 options:
 
MFC/MPPL = wage.
 
MFC/MRPL = 1.
 
MFC = MPPL.
 
MRPL/P = MFC.
 

Question 3

A firm that maximizes profits also
 
Question 3 options:
 
pays input prices lower than other firms do.
 
cuts corners in production processes so that its products are made too cheaply.
 
is inefficient.
 
uses the least-cost combination of resources.

Question 4

The demand curve for labor slopes down because
 
Question 4 options:
 
firms value less efficient workers less than they value more efficient workers.
 
firms must lower prices to sell the additional units of its product that the extra workers produce.
 
of profit maximizing behavior.
 
of the law of diminishing marginal product.

Question 5

If MFC > MRPL, the firm should
 
Question 5 options:
 
get rid of some capital.
 
reduce the number of workers.
 
lower wages.
 
hire more workers.

Question 6

Which of the following will not lead to an increase in the demand for labor for a firm producing automobiles?
 
Question 6 options:
 
A decrease in labor productivity.
 
A decrease in the price of automobiles.
 
A decrease in the price of robots that are used to solder parts of the car together.
 
An increase in the demand for automobiles.

Question 7

 
The marginal revenue product gives
 
Question 7 options:
 
the additions to total cost when an additional unit of a variable input is hired.
 
the additional revenue obtained when an additional unit of a variable input is hired.
 
the change in total product for an additional unit of a variable input.
 
the amount that other inputs must increase by when labor increase by one unit.

Question 8

The monopolist's input demand curve is the
 
Question 8 options:
 
marginal physical product curve.
 
marginal revenue product curve.
 
marginal revenue curve.
 
marginal factor cost.

Question 9

An increase in product price implies that
 
Question 9 options:
 
the firm's demand for labor increases.
 
the firm's demand for labor decreases.
 
the wage rate the firm pays will increase.
 
the firm's marginal factor cost will increase.

Question 10

Which of the following will not lead to a change in the demand for labor?
 
Question 10 options:
 
A change in the supply of labor.
 
A change in demand for the final good.
 
A change in the price of a substitute input.
 
A change in labor productivity.