01:220:102 Study Guide - Midterm Guide: Peanut Butter, Economic Surplus, Margarine
01:220:102 Full Course Notes
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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. |
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B. The firm must be able to prevent resale and arbitrage. |
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C. The firm must eventually learn about its customers' demands. |
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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. |
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B. |
lower consumer surplus, higher producer surplus, and higher total surplus. |
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C. |
lower consumer surplus, higher producer surplus, and lower total surplus. |
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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. |
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B. lower consumer surplus, higher producer surplus, and equal total surplus. |
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C. lower consumer surplus, higher producer surplus, and equal total surplus. |
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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 |
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B. prevention of resale |
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C. identification of each customer's demand before purchase |
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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. |
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B. |
Lower. |
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C. |
More price elastic. |
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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. |
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B. customers have the same demand curves. |
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C. firms have market power. |
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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. |
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B. customers who purchase larger quantities must have relatively inelastic demand. |
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C. customers who pay a relatively high price must have relatively elastic demand. |
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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 |
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B. |
40 units at a price of $10 each |
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C. |
60 units at a price of $20 each |
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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. |
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B. The marginal costs of producing each version of the product must be the same. |
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C. The firm must be able to prevent resale. |
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D. The firm must have market power. |
Willingness to pay (per month) |
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Weight machines |
Indoor pool |
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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 |
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B. $50 for the weight room, $125 for the pool, or $165 for both |
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C. $25 for the weight room, $50 for the pool, or $70 for both |
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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. |
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B. The firm does not learn about customer demand until after purchase. |
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C. Demand for two products must be negatively correlated. |
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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. |
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B. The firm must be able to prevent resale. |
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C. The firm must learn about its customers' demands before purchases are made. |
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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. |
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B. Consumer surplus would increase by $10, and producer surplus would increase by $20. |
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C. Consumer surplus would increase by $20, and producer surplus would increase by $10. |
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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. |
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B. increases consumer surplus, increases producer surplus, and increases total surplus. |
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C. decreases consumer surplus, increases producer surplus, and decreases total surplus. |
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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 |
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B. |
third-degree price discrimination |
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C. |
block pricing |
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D. |
two-part tariffs |
Question 19: Which of the following results in the highest amount of consumer surplus?
A. |
first-degree price discrimination |
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B. |
third-degree price discrimination |
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C. |
block pricing |
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D. |
two-part tariffs |
Question 20: Which of the following results in the highest amount of total surplus?
A. |
third-degree price discrimination |
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B. |
block pricing |
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C. |
first-degree price discrimination |
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D. |
bundling |
Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?
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Question 2
What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?
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Question 3 (1 point)
What does the economic theory of marginal utility infer?
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Question 4
Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?
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Question 5 (1 point)
Why does the demand for a good become relatively more elastic?
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Question 6 (1 point)
Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?
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Question 7 (1 point)
What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?
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Question 8
Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?
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Question 9 (1 point)
Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?
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Question 10 (1 point)
Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?
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Question 11 (1 point)
What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?
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Question 12 (1 point)
What will happen when there is an increase in the price of eBook downloads?
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Question 13 (1 point)
When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?
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Question 14 (1 point)
Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Maryâs optimal weekly consumption bundle?
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Question 15 (1 point)
When is producer surplus a positive value?
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