1. When a firm has market power, can prevent resale of its product, and has complete information about each individual customer, its profit-maximizing strategy is to:

Segment customers by income (high and low) and charge two different prices. Charge the highest price it can to each individual customer. Engage in activities to raise customers' sensitivity to prices. Charge a price where marginal revenue equals marginal cost. Set the price of its product at long-run average cost.

2. When a firm can perfectly price discriminate:

It will choose a price where the elasticity of demand is minus 1. It can get the entire gains from trade for itself; consumers get none. It gets half of the gains from trade and consumers get the other half. Consumers get all of the gains from trade and the firm gets none. It will set the price and quantity where marginal revenue equals marginal cost.

3. Grocery coupons help food (and other) companies price discriminate because:

They lower the marginal cost of selling grocery items to consumers. The opportunity cost of the time it takes to use coupons is too high for high-income earners so they pay full price, while lower-income families clip and use the coupons; but both buy. They get people to buy goods that they would not normally buy, which tend to be those with higher profit margins. Customers who use them are less price sensitive than those who don't use them. Groceries subsidize low income customers' purchases by taking less for the products where coupons are used.

4. Cell phones, flat panel displays, long-distance phone service, air travel and more when new products first come outthey all tend to be very expensive, but then their prices fall over time. This is because:

Firms are testing the market to see how much interest there is in the new product. Production costs fall over time as factories get more efficient at producing things. Firms can't produce enough to meet demand at first, so prices rise.

Firms are price discriminating over time in order to get a larger producer surplus than they could otherwise.

The best version of the product comes out first, for which firms can charge more.