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B. A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges p1 = $5 in one market and p2 = $10 in the other market. At these prices, the price elasticity in the rst market is 1.40 and the price elasticity in the second market is 0.10. Which of the following actions is sure to raise the monopolist's profits? a. Lower p;. b. Raise p;. c. Raise p1 and lower pa. (1. Raise both p1 and 132. e. Raise p2 and lower p1. ANS: B DIF: 2 14. Roach Motors has a monopoly on used cars in Enigma, Ohio. By installing secret microphones in the showroom, the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice rst-degree price discrimination, extracting from each customer his entire consumer's surplus. The inverse demand function for cars in Enigma is P = 2,000 100. Roach Motors purchases its stock of used cars at an auction in Cleveland for $500 each. Roach motors will sell 75 cars for a total prot of $56,250. sell 150 cars at a price of $300 a car. sell 150 cars for a total prot of $112,500. sell 180 cars and make a total prot of $180,000. shut down since revenue will not cover variable costs. ANS: C 9999'? 17. Bayerische Motoren Werk (BMW) charges a considerably higher price for its automobiles in the North American market than it does in its home market of Europe. Assuming that the goal of BMW's pricing policy is profit maximization, which of the following would be a plausible explanation for BMW's pricing policy? a. The income elasticity of demand in North America must be greater than 1, making BMWs a luxury good in North America, and between 0 and 1 in Europe, making BMWs a normal good there. b. The income elasticity of demand in North America must be between 0 and 1, making BMWs a normal good in North America, and less than 0 in Europe, making BMWs an inferior good there. c. The price elasticity of demand in North America must be greater than 1, making the demand for BMWs price elastic in North America, and between 0 and 1 in Europe, making the demand for BMWs price inelastic there. d. The income elasticity of demand in both North America and Europe is greater than 1, since BMWs are a luxury good, but per capita income in North America is much higher than in Europe. e. The price elasticity of demand is greater than 1 in both North America and Europe, making BMWs price elastic, but it must be higher in Europe. ANS: E