1. Despite the fact that the Quick-Buzz Coffee Company provides a coupon in the local newspaper that can be redeemed for $1 off the price of its best-selling coffee beans, not all buyers actually use the coupon. The most likely explanation for this is that:

• all coffee drinkers have a highly elastic demand.

• all coffee drinkers have a highly inelastic demand.

• the coffee drinkers who use the coupons have less elastic demand than the coffee drinkers who pay full price.

• the coffee drinkers who use the coupons have more elastic demand than the coffee

• drinkers who pay full price.

1. Cost-conscious consumers use cents-off coupons when purchasing items such as soap or frozen dinners. As a result, they pay a lower price. This is an example of:

1. first degree price discrimination B) breaking even.

C)quantity discrimination. D) third degree price discrimination.

3. The table below shows the demand and cost data facing "Velvet Touches" a monopolistically competitive producer of velvet pillows. Use the data to answer the following questions ( 6 points)

Q Price TR MR Total Cost Marginal Cost

1 30 32

2 28 43

3 26 53

4 24 64

5 22 76

6 20 90

7 18 106

8 16 126

1. Fill-in the missing values in the table.

1. Refer to the table. The Velvet Touches should produce _____ units to maximize and charge

price ________ to maximize profit:

a. 4 ; $ 24 b. 7, $18 c. 5; $22 d.3, $26

C) How the Velvet Touches chooses its profit maximizing output and price? Explain briefly.

1. The firm total profit/loss at the profit maximizing output and price is:_____

a. ( -$ 25) b. $34 c.$56 d. (-$ 8)

1. What should the firm and other firms in velvet throw pillows industry expect in the long-run?

1. Some firms will exit the market c. Some firms will shut down
2. New firms will enter the market d. There will be no entry, no exit.

1. In the long-run the firm's demand curve will become ________ elastic and the firm will earn profit/loss of $_________,.

a. less ; $34 b. more; $0 c. less, $$56 d. more, $10