ECON7100-M50 Spring 2015

Self-Study05

1. Assuming a downward-sloping demand curve for the firm, P = MR under ______, while P > MR under ______.
   1. perfect price discrimination; single pricing
   2. single pricing; perfect price discrimination
   3. single pricing; single pricing
   4. perfect price discrimination; perfect price discrimination
2. P = MR under perfect price discrimination because
   1. marginal revenue is by definition equal to price regardless of pricing strategy.
   2. selling one more unit always brings in revenue equal to the price regardless of pricing strategy.
   3. each unit is sold at the same uniform price.
   4. each unit is sold at a different highest possible price that could be afforded by the marginal buyer.
3. 
   It makes sense for the price taker to stay in business in the short run even though P < ATC because
   1. there is no fixed cost in the short run.
   2. the firm only needs to pay for variable costs.
   3. price may be high enough to cover all the variable costs and part of the fixed cost.
   4. Both A and B.
4. A perfect price discriminator
   1. sells to each customer at his/her reservation price.
   2. has many competitors.
   3. sells at a single profit-maximizing price.
   4. sells commodities.
5. 
   Consumer surplus is the difference between
   1. TWP and TR.
   2. TR and TFC.
   3. TR and TC.
   4. TWP and TC.
6. 
   Comparing MR and MC alone do not tell us whether the price-taking firm is making or losing money in the short run because
   1. MC does not take into account variable cost.
   2. MR = MC maximizes efficiency not profit.
   3. Only the P and ATC can tell us whether the firm is making or losing money where MR = MC.
   4. All of the above.
7. 
   Marginal profit is ______ when profit is maximized under price taking.
   1. zero
   2. positive
   3. negative
   4. None of the above.
8. When demand is inelastic,
   1. a given percentage change in price would lead to an equal percentage change in quantity demanded.
   2. total revenue would go down as price falls.
   3. a 10% decrease in price would lead to 10% increase in quantity demanded.
   4. All of the above.
9. Issuing rebate coupons rather than an across-the-board price discount is a cheaper way to promote a product because
   1. most consumers would redeem their coupons.
   2. coupons cost nothing to print and distribute.
   3. more buyers are likely to redeem coupons than taking advantage of a straight price discount.
   4. those who do not redeem their coupons do not get the price discount.
10. 
    The total revenue curve of the perfect price-discriminating firm (TRdp) reaches a maximum when price reaches zero because
    1. only buyers who want the goods the most will buy at zero price.
    2. every sale adds to the total revenue if each unit is sold at the highest possible price the buyer is willing to pay.
    3. selling every unit at zero price guarantees that all units will be sold.
    4. demand is very elastic when price is zero.
11. 
    The constant positive slope of TR for price takers shows
    1. that each additional unit sold brings in higher prices.
    2. that there is a limit on how many units a price taker can sell.
    3. that price takers have some effect on the market price.
    4. the constant price determined by the market.
12. To prevent resale of concert tickets, the concert producer could
    1. Give away all the tickets for free.
    2. Perfectly price-discriminate.
    3. Charge the same price to everybody.
    4. Print ticket holder's name on the ticket and make them non-transferable.
13. 
    Economic surplus is the difference between
    1. TR and TFC.
    2. TWP and TC.
    3. TR and TC.
    4. TWP and TR.
14. Cartels collapse easily because
    1. defectors are worse off than conformers.
    2. anti-trust authority condones cartels for price stability.
    3. defectors can gain a short-term advantage over conformers.
    4. anti-trust authority punishes defectors more harshly.
    5. conformers are better off than defectors.
15. Single pricing is practiced by
    1. price takers only.
    2. price discriminators.
    3. price takers and price searchers.
    4. Both A and B.
16. The value of a product to consumers is measured by
    1. the single price that they are charged by the single-price seller.
    2. their individual reservation prices.
    3. the single price that they are charged by price takers.
    4. the marginal revenue received by the single-price seller.
17. 
    At equilibrium, price-taking firms in an industry with free market entry and exit will earn
    1. zero economic profit.
    2. positive economic profit.
    3. negative economic profit.
    4. None of the above.
18. Scalpers
    1. exists for the sole purpose of helping event promoters to sell out slow events.
    2. help event promoters to sell out tickets that are priced too high.
    3. skimp off consumer surplus reselling tickets by buying low and selling high.
    4. can return unsold tickets to event promoters.
19. 
    The shut-down point for a price taker in the short run is the point where the supply curve meets
    1. ATC at its minimum because P must cover ATC in the short run.
    2. AVC at its minimum because P only has to cover AVC in the short run.
    3. AFC at its minimum.
    4. MC at its minimum because rising MC will erode profit.
20. A price elasticity of demand at 0.5 means that a
    1. 100% decrease in price leads to a 50% decrease in quantity demanded.
    2. 5% increase in price leads to a 10% decrease in quantity demanded.
    3. 10% decrease in price leads to a 0.5% increase in quantity demanded.
    4. 10% decrease in price leads to a 5% increase in quantity demanded.