ECON 101 Chapter Notes - Chapter 4: Deadweight Loss, Price Discrimination, Market Power

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brownherring985

16 Dec 2020

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Price discrimination: the business practice of selling the same good at different prices to different customers. For a firm to price-discriminate, it must have some market power. Note that price discrimination is not possible when a good is sold in a competitive market. Price discrimination is a rational strategy for a profit-maximizing monopolist. By charging different prices to different customers, a monopolist can increase its profit. A price-discriminating monopolist charges each customer a price closer to that customer"s willingness to pay than is possible with a single price their willingness to pay. Price discrimination requires the ability to separate customers according to. Customers can be separated geographically, or by age and income. Corollary: certain market forces can prevent firms from price- discriminating. Arbitrage: the process of buying a good in one market at a low price and selling it in another market at a higher price in order to profit from the price difference.

Related Questions

1.Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

True

False

2.Second-degree price discrimination charges different per-unit prices based on the total quantity purchased by a particular customer.

True

False

3.First-degree (perfect) price discrimination causes inefficiency.

True

False

4.A monopolist who is inactive third-degree price discrimination charges a higher price in the market that is more elastic.

True

False

ochrelouse848

Which of the following is TRUE?

Select one:

a. Monopoly results in a higher quantity of output being sold compared with perfect competition.

b. Price discrimination occurs when there are differences in prices that reflect differences in marginal cost.

c. Charging all customers the same price when costs vary can actually be a case of price discrimination.

d. Price discrimination guarantees that the monopolist will make a profit.

Which of the following statements is TRUE?

Select one:

a. At the monopolist's equilibrium, resources are being efficiently allocated.

b. With a monopoly, the value to society of the last unit produced is less than it's production cost.

c. Monopolists raise the price and restrict production, compared to a competitive situation.

d. A monopolist always produces a higher level of output than would be produced if the market were competitive.

graycat195

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.

erinant26

ECON 101 Chapter Notes - Chapter 4: Deadweight Loss, Price Discrimination, Market Power

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