Multiple Choice Questions 

1. A software firm can offer a high-feature version of its software or a stripped-down low value version, each with similar production costs. Which of the following cannot be an optimal strategy?

a. Offer only the high-feature version aimed only at a high-value market segment.

b. Offer only the low-value version aimed at all market segments.

c. Offer both versions targeted to different value segments.

d. Offer only the high-feature version aimed at all market segments.

2. Which of the following conditions must be satisfied by a successful price discrimination scheme?

a. The seller must have market power.

b. The seller must be able to identify different customer groups with different demand elasticities.

c. The seller must be able to prevent arbitrage between the two groups.

d. All of the above

3. When a firm practices perfect price discrimination, that is, by charging each customer exactly what they are willing to pay, then,

a. The demand curve is very inelastic.

b. The marginal revenue is the demand curve.

c. The demand curve is very elastic.

d. The marginal cost curve is the average cost curve.

Use the following table to answer Questions 4-6.

Assume the cost of producing the goods is zero and that each consumer will purchase each good as long as the price is less than or equal to value.

Consumer values are the entries in the table

4. Suppose the monopolist only sold the goods separately. What price will the monopolist charge for good 1 to maximize revenues for good 1?

a. $2,300

b. $2,800

c. $1,200

d. $1,700

5. What is the total profit to the monopolist from selling the goods separately?

a. $4,500

b. $6,300

c. $7,000

d. $6,000

6. What is a better pricing strategy for the monopolist? At this price, what are the total profits to the monopolist?

a. Bundle the goods at $2,800;

Profits = $5,600

b. Bundle the goods at $4,000;

Profits = $8,000

c. Charge $2,800 for good 1 and charge

$1,700 for good 2; Profits = $4,500

d. Charging the lowest price for each good individually is the best pricing strategy;

Profits = $7,000

7. Assume that the price elasticity of demand for movie theatres is -0.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theater to maximize total revenue, it should

a. Charge the same price for both shows, holding other things constant.

b. Charge a higher price for the afternoon shows and lower price for the evening shows, holding other things constant.

c. charge a lower price for the afternoon shows and higher price for the evening shows, holding other things constant.

d. Need more information

8. Arbitrage

a. Is the act of buying low in one market and selling high in another market.

b. Can force a seller to go back to uniform pricing.

c. Can defeat direct price discrimination.

d. All of the above

9. Airlines charge a price to business travelers compared to leisure travelers because business travelers have a demand than leisure travelers.

a. Higher; more elastic

b. Higher; less elastic

c. Lower; more elastic

d. Lower; less elastic

10. Metering is

a. A type of indirect price discrimination.

b. A type of direct price discrimination.

c. An evaluation of a product.

d. An example of bundling.

Transcribed Image Text:

Consumer A $2,300 Consumer B Good 1 Good 2 $2,800 $1,700 $1,200