Q1: Which of the following is correct?

a) For direct customization to be used consumers must have observable characteristics that are correlated with their price sensitivity.

b) When a monopolist offers a vertically differentiated product line (i.e. different quality levels), higher quality version is more expensive because it is costlier to produce a better quality product.

c) All of a monopolist's potential customers regardless of their WTP prefer uniform pricing to direct segmentation.

d) When the cost of development for a product is higher than anticipated, the seller should increase its prices to cover these costs.

Q2: A monopolist sells a product in two micro-markets. Monopolist's MC = 20. The demand curves are given by:

Micro-market #1: Q1 = 120 - P.

Micro-market #2: Q2 = 80 - 2P.

Suppose the monopolist must charge the same price in both markets. What is the optimal price?

a) 50

b) 40

c) 70

d) 60

Q3: A monopolist sells a product in two micro-markets. Monopolist's MC = 20. The demand curves are given by:

Micro-market #1: Q1 = 120 - P.

Micro-market #2: Q2 = 80 - 2P.

The monopolist is able to charge different prices in the two micro-markets. Compare the prices in the two micro-markets with the uniform price that it would charge if it had to charge the same price in both markets. The optimal prices are:

a) 70 micro-market #1 and 30 in micro-market #2.

b) 70 micro-market #1 and 20 in micro-market #2.

c) 60 micro-market #1 and 30 in micro-market #2.

d) 70 micro-market #1 and 60 in micro-market #2.

Q4: Suppose a monopolist has MC=0. The monopolist faces two demand curves. The demand curve in micro-market #1 is Q₁ = 24-P anddemand curve in micro-market #2 is Q₁ = 16-P. Then the monopolist's surplus with directsegmentationis:

a) 25% higher than its surplus with uniform price.

b) 4% higher than its surplus with uniform price.

c) 50% higher than its surplus with uniform price.

d) 20% higher than its surplus with uniform price.

Q5: It is sometimes said that a monopolist creates "dead-weight loss". By this it is meant that a monopolist

a) Need not be efficient and therefore tend to have excessively high cost levels.

b) Produce a quantity (below its capacity) where price is below average total cost.

c) Produce a quantity (below its capacity) where average total cost is not minimized.

d) Produce a quantity (below its capacity) where price is above marginal cost.