# Solution to Selected Questions: CHAPTER 11 PRICING WITH MARKET POWER

Size: px
Start display at page:

Transcription

2 e. Charging high-income patients more than low-income patients for plastic surgery. The plastic surgeon might not be able to separate high-income patients from lowincome patients, but he or she can guess. One strategy is to quote a high price initially, observe the patient s reaction, and then negotiate the final price. Many medical insurance policies do not cover elective plastic surgery. Since plastic surgery cannot be transferred from low-income patients to high-income patients, arbitrage does not present a problem. 8. Sal s satellite company broadcasts TV to subscribers in Los Angeles and New York. The demand functions for each of these two groups are Q NY P NY Q LA P LA where Q is in thousands of subscriptions per year and P is the subscription price per year. The cost of providing Q units of service is given by C Q where Q Q NY Q LA. a. What are the profit-maximizing prices and quantities for the New York and Los Angeles markets? Sal should pick quantities in each market so that the marginal revenues are equal to one another and equal to marginal cost. To determine marginal revenues in each market, first solve for price as a function of quantity: P NY 40 4Q NY, and P LA 00 Q LA. Since marginal revenue curves have twice the slope of their demand curves, the marginal revenue curves for the respective markets are: MR NY 40 8Q NY, and MR LA 00 4Q LA. Set each marginal revenue equal to marginal cost, which is \$40, and determine the profitmaximizing quantity in each submarket: Q NY, or Q NY 5 thousand, and Q LA, or Q LA 40 thousand. Determine the price in each submarket by substituting the profit-maximizing quantity into the respective demand equation: P NY 40 4(5) \$140, and P LA 00 (40) \$10. b. As a consequence of a new satellite that the Pentagon recently deployed, people in Los Angeles receive Sal s New York broadcasts, and people in New York receive Sal s Los Angeles broadcasts. As a result, anyone in New York or Los Angeles can receive Sal s broadcasts by subscribing in either city. Thus Sal can charge only a single price. What price should he charge, and what quantities will he sell in New York and Los Angeles? Sal s combined demand function is the horizontal summation of the LA and NY demand functions. Above a price of \$00 (the vertical intercept of the LA demand function), the total

3 demand is just the New York demand function, whereas below a price of \$00, we add the two demands: Q T P P, or Q T P. Solving for price gives the inverse demand function: P Q, and therefore, MR Q. Setting marginal revenue equal to marginal cost: Q 40, or Q 65 thousand. Substitute Q 65 into the inverse demand equation to determine price: P (65), or P \$ Although a price of \$16.67 is charged in both markets, different quantities are purchased in each market. Q NY (16.67) 8.3 thousand and Q LA (16.67) 36.7 thousand. Together, 65 thousand subscriptions are purchased at a price of \$16.67 each. c. In which of the above situations, a or b, is Sal better off? In terms of consumer surplus, which situation do people in New York prefer and which do people in Los Angeles prefer? Why? Sal is better off in the situation with the highest profit, which occurs in part a with price discrimination. Under price discrimination, profit is equal to: P NYQ NY P LAQ LA [ (Q NY Q LA)], or \$140(5) \$10(40) [ (5 40)] \$4700 thousand. Under the market conditions in b, profit is: PQ T [ Q T], or \$16.67(65) [ (65)] \$ thousand. Therefore, Sal is better off when the two markets are separated. Under the market conditions in a, the consumer surpluses in the two cities are: CS NY (0.5)(5)(40 140) \$150 thousand, and CS LA (0.5)(40)(00 10) \$1600 thousand. Under the market conditions in b, the respective consumer surpluses are: CS NY (0.5)(8.3)( ) \$ thousand, and CS LA (0.5)(36.7)( ) \$ thousand. New Yorkers prefer b because their price is \$16.67 instead of \$140, giving them a higher consumer surplus. Customers in Los Angeles prefer a because their price is \$10 instead of \$16.67, and their consumer surplus is greater in a. 3

4 10. As the owner of the only tennis club in an isolated wealthy community, you must decide on membership dues and fees for court time. There are two types of tennis players. Serious players have demand Q 1 10 P where Q 1 is court hours per week and P is the fee per hour for each individual player. There are also occasional players with demand Q 4 0.5P. Assume that there are 1000 players of each type. Because you have plenty of courts, the marginal cost of court time is zero. You have fixed costs of \$10,000 per week. Serious and occasional players look alike, so you must charge them the same prices. a. Suppose that to maintain a professional atmosphere, you want to limit membership to serious players. How should you set the annual membership dues and court fees (assume 5 weeks per year) to maximize profits, keeping in mind the constraint that only serious players choose to join? What would profits be (per week)? In order to limit membership to serious players, the club owner should charge an entry fee, T, equal to the total consumer surplus of serious players and a usage fee P equal to marginal cost of zero. With individual demands of Q 1 10 P, individual consumer surplus is equal to: (0.5)(10 0)(10 0) \$50, or (50)(5) \$600 per year. An entry fee of \$600 maximizes profits by capturing all consumer surpluses. The profitmaximizing court fee is set to zero, because marginal cost is equal to zero. The entry fee of \$600 is higher than the occasional players are willing to pay (higher than their consumer surplus at a court fee of zero); therefore, this strategy will limit membership to the serious players. Weekly profits would be (50)(1000) 10,000 \$40,000. b. A friend tells you that you could make greater profits by encouraging both types of players to join. Is your friend right? What annual dues and court fees would maximize weekly profits? What would these profits be? When there are two classes of customers, serious and occasional players, the club owner maximizes profits by charging court fees above marginal cost and by setting the entry fee (annual dues) equal to the remaining consumer surplus of the consumer with the lesser demand, in this case, the occasional player. The entry fee, T, equals the consumer surplus remaining after the court fee P is assessed: T 0.5 Q (16 P ), where Q P. Therefore, T 0.5(4 0.5 P)(16 P) 3 4P 0.15 P. Total entry fees paid by all players would be 000T 000(3 4P 0.15 P ) 64, P 50 P. Revenues from court fees equal 4

5 P(1000Q Q) P[1000(10 P) 1000(4 0.5 P)] 14,000P 150 P. Therefore, total revenue from entry fees and court fees is TR 64, P 1000 P. Marginal cost is zero, so we want to maximize total revenue. To do this, differentiate total revenue with respect to price and set the derivative to zero: dtr P 0. dp Solving for the optimal court fee, P \$3.00 per hour. Serious players will play hours per week, and occasional players will demand 4 0.5(3) 3.5 hours of court time per week. Total revenue is then 64, (3) 1000(3) \$73,000 per week. So profit is \$73,000 10,000 \$63,000 per week, which is greater than the \$40,000 profit when only serious players become members. Therefore, your friend is right; it is more profitable to encourage both types of players to join. c. Suppose that over the years young, upwardly mobile professionals move to your community, all of whom are serious players. You believe there are now 3000 serious players and 1000 occasional players. Would it still be profitable to cater to the occasional player? What would be the profit-maximizing annual dues and court fees? What would profits be per week? An entry fee of \$50 per week would attract only serious players. With 3000 serious players, total revenues would be \$150,000 and profits would be \$140,000 per week. With both serious and occasional players, we may follow the same procedure as in part b. Entry fees would be equal to 4000 times the consumer surplus of the occasional player: T 4000(3 4P 0.15 P ) 18,000 16,000P 500P Court fees are P(3000Q Q) P[3000(10 P) 1000(4 0.5 P)] 34,000P 350P, and TR 18,000 18,000P 750P. dtr 18, P 0, so P \$3.7 per hour. dp With a court fee of \$3.7 per hour, total revenue is 18,000 18,000(3.7) 750(3.7) \$157,455 per week. Profit is \$157,455 10,000 \$147,455 per week, which is more than the \$140,000 with serious players only. So you should set the entry fee and court fee to attract both types of players. The annual dues (i.e., the entry fee) should equal 5 times the weekly consumer surplus of the occasional player, which is 5[3 4(3.7) 0.15(3.7) ] \$1053. The club s annual profit will be 5(147,455) \$7.67 million per year. 5

### Chapter 10: Monopoly

Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue

### Econ 2113: Principles of Microeconomics. Spring 2009 ECU

Econ 2113: Principles of Microeconomics Spring 2009 ECU Chapter 12 Monopoly Market Power Market power is the ability to influence the market, and in particular the market price, by influencing the total

### MARKET STRUCTURES. Economics Marshall High School Mr. Cline Unit Two FC

MARKET STRUCTURES Economics Marshall High School Mr. Cline Unit Two FC Price Discrimination Our previous example assumed that the monopolist must charge the same price to all consumers. But in some cases,

### Practice Final Exam. Write an expression for each of the following cost concepts. [each 5 points]

Practice Final Exam Total : 200 points Exam time: 7:00 9:00. You have 6 questions in 3 pages. Please make your diagrams clear and label it. Good Luck! 1. Amy is currently spending her income to maximize

### Managerial Economics

Managerial Economics Unit 4: Price discrimination Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2017 Managerial Economics: Unit 4 - Price discrimination 1 / 39 OBJECTIVES Objectives Explain

### Managerial Economics

Managerial Economics Unit 4: Price discrimination Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2014 Managerial Economics: Unit 4 - Price discrimination 1 / 39 OBJECTIVES Objectives Explain

### UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 Monopolistic markets and pricing with market power (PR 10.1-10.4 and 11.1-11.4) Module 4 Sep. 20, 2014

### Lecture 6 Pricing with Market Power

Lecture 6 Pricing with Market Power 1 Pricing with Market Power Market Power refers to the ability of a firm to set its own price, as opposed to firms that are price takers and take market price as given.

### 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

### A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

### Econ Microeconomic Analysis and Policy

ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

### Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

### Monopoly and How It Arises

Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

Chapter 13 MODELS OF MONOPOLY Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved. 1 Monopoly A monopoly is a single supplier to a market This firm may choose to produce

### ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

### Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

### PRICING. Quantity demanded is the number of the firm s product customers wish to purchase. What affects the quantity demanded?

PRICING So far we have supposed perfect competition: the firm cannot affect the price. Whatever the firm produces is sold at the world market price. Most commodity businesses are highly competitive: regardless

Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

### Basic Monopoly Pricing and Product Strategies

Chapter 3 Basic Monopoly Pricing and Product Strategies Industrial 1 Introduction A monopolist has the power to set prices Consider how the monopolist exercises this power Focus in this section on a single-product

### Pricing with Perfect Competition. Advanced Pricing Strategies. Markup Pricing. Pricing with Market Power

Pricing with Perfect Competition Advanced Pricing Strategies Herbert Stocker herbert.stocker@uibk.ac.at Institute of International Studies University of Ramkhamhaeng & Department of Economics University

### ECON 2100 (Summer 2016 Sections 10 & 11) Exam #3C

ECON 21 (Summer 216 Sections 1 & 11) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique

### Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM

Economics of Managerial Decision Making (MGEC 611) SAMPLE EXAM QUESTION 1 Short Questions. This part consists of three short, stand-alone questions of lower math intensity. Please provide an answer or

### Price Discrimination: Part 1

Price Discrimination: Part 1 Sotiris Georganas January 2010 \The textbook monopolist is a wasteful agent." 1 Pricing tactics Pigou's (1920) taxonomy of price discrimination: { First-degree (or perfect)

### Monopoly. Cost. Average total cost. Quantity of Output

While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

### Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

### 1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot):

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): Quantity Total utility Marginal utility 0 0 XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 200 0 = 200 1 200 XXXXXXXXXXX

What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

### Principles of Economics Final Exam. Name: Student ID:

Principles of Economics Final Exam Name: Student ID: 1. In the absence of externalities, the "invisible hand" leads a competitive market to maximize (a) producer profit from that market. (b) total benefit

### Chapter 10 Lecture Notes

Chapter 10 Lecture Notes I. Pure Monopoly: An Introduction A. Definition: Pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes. B. There are

### ECON 115. Industrial Organization

ECON 115 Industrial Organization 1. Linear (3rd Degree) Price Discrimination First Hour QUIZ Second Hour Introduction to Price Discrimination Third-degree price discrimination Two Rules Examples of price

### SCHOOL OF ECONOMICS AND FINANCE THE UNIVERSITY OF HONG KONG ECON6021 MICROECONOMICS PROBLEM SET NO.3 COMPETITIVE MARKETS AND MONOPOLY

SCHOOL OF ECONOMICS AND FINANCE THE UNIVERSITY OF HONG KONG ECON60 MICROECONOMICS PROBLEM SET NO.3 COMPETITIVE MARKETS AND MONOPOLY This problem set contains short-answer (true, false, uncertain) problems

### Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

### Perfect price discrimination (PPD) 1 Graph. Monopolist sells product with downward-sloping demand curve Each consumer demands one unit: demand curve

Price discrimination Up to now, consider situations where each firm sets one uniform price Consider cases where firm engages in non-uniform pricing: 1. Charging customers different prices for the same

### EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus

EconS 30 Intermediate Microeconomics Review Session #9 Chapter : Capturing Surplus. With second-degree price discrimination a) The firm tries to price each unit at the consumer s reservation price. b)

### Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam

Economics 001.01: Principles of Microeconomics Spring 01 Instructor: Robert Munk April, 01 Final Exam Exam Guidelines: The exam consists of 5 multiple choice questions. The exam is closed book and closed

### CHAPTER NINE MONOPOLY

CHAPTER NINE MONOPOLY This chapter examines how a market controlled by a single producer behaves. What price will a monopolist charge for his output? How much will he produce? The basic characteristics

### Ecn Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman. Final Exam

Ecn 100 - Intermediate Microeconomic Theory University of California - Davis December 10, 2009 Instructor: John Parman Final Exam You have until 12:30pm to complete this exam. Be certain to put your name,

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason

### Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

### COST OF PRODUCTION & THEORY OF THE FIRM

MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

### Chapter 7: Market Structures Section 2

Chapter 7: Market Structures Section 2 Objectives 1. Describe characteristics and give examples of a monopoly. 2. Describe how monopolies, including government monopolies, are formed. 3. Explain how a

### Price Discrimination

Price Discrimination Firm charges either di erent consumers, di erent prices for the same product supplied with identical costs or di erent consumers the same price even though the cost of supplying them

### a. Find MG&E s marginal revenue function. That is, write an equation for MG&E's MR function.

Economics 101 Spring 2015 Answers to Homework #5 Due Thursday, May 7, 2015 Directions: The homework will be collected in a box before the lecture. Please place your name on top of the homework (legibly).

### Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

### INTERPRETATION. SOURCES OF MONOPOLY (Related to P-R pp )

ECO 300 Fall 2005 November 10 MONOPOLY PART 1 INTERPRETATION Literally, just one firm in an industry But interpretation depends on how you define industry General idea a group of commodities that are close

### Solutions to Final Exam

Solutions to Final Exam AEC 504 - Summer 2007 Fundamentals of Economics c 2007 Alexander Barinov 1 Veni, vidi, vici (30 points) Two firms with constant marginal costs serve two markets for two different

### ECON 202 2/13/2009. Pure Monopoly Characteristics. Chapter 22 Pure Monopoly

ECON 202 Chapter 22 Pure Monopoly Pure Monopoly Exists when a single firm is the sole producer of a product for which there are no close substitutes. There are a number of products where the producers

### Chapter 8 Profit Maximization and Competitive Supply. Read Pindyck and Rubinfeld (2013), Chapter 8

Chapter 8 Profit Maximization and Competitive Supply Read Pindyck and Rubinfeld (2013), Chapter 8 1/29/2017 CHAPTER 8 OUTLINE 8.1 Perfectly Competitive Market 8.2 Profit Maximization 8.3 Marginal Revenue,

### Total revenue Quantity. Price Quantity Quantity

s in Competitive Markets WHAT IS A COMPETITIVE MARKET? A perfectly competitive market has the following characteristics: There are many buyers and sellers in the market. The goods offered by the various

### Perfect Competition and The Supply Curve

chapter: 13 >> Perfect Competition and The Supply Curve The following materials are taken from Chap. 13, Economics, 2 nd ed., Krugman and Wells(2009), Worth Palgrave MaCmillan. 2009 Worth Publishers 1

### Micro Chapter 10 study guide questions

Micro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the competitive price searcher, a. price will exceed marginal

### VIII 1 TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES. I. Monopoly - Single Firm With No Threat of Close Competition. Other Industry Structures

TOPIC VIII: MONOPOLY AND OTHER INDUSTRY STRUCTURES I. Monopoly - Single Firm With No Threat of Close Competition II. Other Industry Structures CONCEPTS AND PRINCIPLES MONOPOLY We now consider the opposite

### AP Microeconomics Chapter 11 Outline

I. Learning Objectives In this chapter students should learn: A. The characteristics of pure monopoly. B. How a pure monopoly sets its profit-maximizing output and price. C. The economic effects of monopoly.

### Agenda. Profit Maximization by a Monopolist. 1. Profit Maximization by a Monopolist. 2. Marginal Revenue. 3. Profit Maximization Exercise

Agenda 1. Profit Maximization by a Monopolist 2. Marginal Revenue 3. Profit Maximization Exercise 4. Effect of Elasticities on Monopoly Price 5. Comparative Statics of Monopoly 6. Monopolist with Multiple

### SAMPLE MULTIPLE CHOICE FINAL EXAM CHAPTER 6 THE ANALYSIS OF COSTS

1. SAMPLE MULTIPLE CHOICE FINAL EXAM CHAPTER 6 THE ANALYSIS OF COSTS Long-run average cost equals long-run marginal cost whenever a) the production function exhibits constant returns to scale. b) fixed

### Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

### Unit 4: Imperfect Competition

Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

### MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes

1 MONOPOLY SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market might have a monopoly because: (1) a key resource is owned by a single firm; (2) the government gives a single firm the exclusive right

### a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

### 2007 Thomson South-Western

WHAT IS A COMPETITIVE MARKET? A competitive market has many buyers and sellers trading identical products so that each buyer and seller is a price taker. Buyers and sellers must accept the price determined

### Section I (20 questions; 1 mark each)

Foundation Course in Managerial Economics- Solution Set- 1 Final Examination Marks- 100 Section I (20 questions; 1 mark each) 1. Which of the following statements is not true? a. Societies face an important

### Perfect Competition & Welfare

Perfect Competition & Welfare Outline Derive aggregate supply function Short and Long run euilibrium Practice problem Consumer and Producer Surplus Dead weight loss Practice problem Focus on profit maximizing

### Review 01. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Name: Class: Date: Review 01 Multiple Choice Identify the choice that best completes the statement or answers the question. Table 3-1 Assume that Sardi and Tinaka can switch between producing corn and

### Monopoly Behavior or Price Discrimination Chapter 25

Monopoly Behavior or Price Discrimination Chapter 25 monoply.gif (GIF Image, 289x289 pixels) http://i4.photobucket.com/albums/y144/alwayswondering1/monoply.gif?... Announcement Pre-midterm OH: Grossman

### Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination.

What is price discrimination? Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated

### Bremen School District 228 Social Studies Common Assessment 2: Midterm

Bremen School District 228 Social Studies Common Assessment 2: Midterm AP Microeconomics 55 Minutes 60 Questions Directions: Each of the questions or incomplete statements in this exam is followed by five

### CLEP Microeconomics Practice Test

Practice Test Time 90 Minutes 80 Questions For each of the questions below, choose the best answer from the choices given. 1. In economics, the opportunity cost of an item or entity is (A) the out-of-pocket

### Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

10 Pure Monopoly McGraw-Hill/Irwin Copyright 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Four Market Models Characteristics of the Four Basic Market Models Characteristic Number of firms

### Practice Problems 2. State Price Elasticity Massachussets \$ Ohio \$ Utah \$

Firms and Markets Assignments and Problems Price Discrimination and Auctions Practice Problems 2 1. Many states sell vanity license plates (with personalized initials) to drivers, for extra fees. The cost

### Imperfect Competition

Imperfect Competition 6.1 There are only two firms producing a particular product. The demand for the product is given by the relation p = 24 Q, where p denotes the price (in dollars per unit) and Q denotes

### Preface. Chapter 1 Basic Tools Used in Understanding Microeconomics. 1.1 Economic Models

Preface Chapter 1 Basic Tools Used in Understanding Microeconomics 1.1 Economic Models 1.1.1 Positive and Normative Analysis 1.1.2 The Market Economy Model 1.1.3 Types of Economic Problems 1.2 Mathematics

### 1 of 14 5/1/2014 4:56 PM

1 of 14 5/1/2014 4:56 PM Any point on the budget constraint Gives the consumer the highest level of utility. Represent a combination of two goods that are affordable. Represents combinations of two goods

### Perfect Competition CHAPTER 14. Alfred P. Sloan. There s no resting place for an enterprise in a competitive economy. Perfect Competition 14

CHATER 14 erfect Competition There s no resting place for an enterprise in a competitive economy. Alfred. Sloan McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

### Chapter 11. Monopoly

Chapter 11 Monopoly Topics Monopoly Profit Maximization. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions That Create Monopolies. Government Actions

### Chapter 13. Microeconomics. Monopolistic Competition: The Competitive Model in a More Realistic Setting

Microeconomics Modified by: Yun Wang Florida International University Spring, 2018 1 Chapter 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Outline 13.1 Demand and

### 5/2/2016. Intermediate Microeconomics W3211. Lecture 22: Game Theory 4 Not Really Game Theory. The Story So Far. Today. Two Part Tariff.

Intermediate Microeconomics W3 Lecture : Game Theor 4 Not Reall Game Theor Introduction Columbia Universit, Spring 06 Mark Dean: mark.dean@columbia.edu The Stor So Far. 3 Toda 4 Last lecture we compared

### Chapter Summary and Learning Objectives

CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

### I enjoy teaching this class. Good luck and have a nice Holiday!!

ECON 202-501 Fall 2008 Xiaoyong Cao Final Exam Form A Instructions: The exam consists of 2 parts. Part I has 35 multiple choice problems. You need to fill the answers in the table given in Part II of the

### Intermediate Microeconomics Midterm

Econ 201 Spring 2016 Name: Student ID: Intermediate Microeconomics Midterm Thursday April 21, 2016 Beomsoo Kim There are 7 questions and 130 possible points. There are 2 pages to this exam. Please write

### Gregory Clark Econ 1A, Winter 2012 SAMPLE FINAL

Gregory Clark Econ 1A, Winter 2012 SAMPLE FINAL 1. Medical doctors in the USA earn very high incomes compared to some other countries such as Canada. Label each of the following with N for NORMATIVE, or

### Chapter 12: more on monopoly pricing

Chapter 12: more on monopoly pricing 1 Motivation for price discrimination: 2 Types of price discrimination First-degree: the firm is aware of each individual buyer s demandcurve ==> relate to consumer

### Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

### Chapter Eleven. Monopoly

Chapter Eleven Monopoly Topics Monopoly Profit Maximization. Effects of a Shift of the Demand Curve. Market Power. Welfare Effects of Monopoly. Cost Advantages That Create Monopolies. Government Actions

### Chapter 2 The Basics of Supply and Demand

Chapter 2 The Basics of Supply and Demand Read Pindyck and Rubinfeld (2013), Chapter 2 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 Chapter

### Other examples of monopoly include Australia Post.

In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

### Economics 101 Midterm Exam #2. April 9, Instructions

Economics 101 Spring 2009 Professor Wallace Economics 101 Midterm Exam #2 April 9, 2009 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not

### Assume that both pricing systems for beer are price discrimination. What type of price discrimination is each?

Microeconomics, Price discrimination, final exam practice problems (The attached PDF file has better formatting.) *Question 1.1: Football Parties At the Harvard-Yale weekend, both football teams have beer

### Monopoly. Chapter 15

Monopoly Chapter 15 Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly u A firm is considered a monopoly if... it is the sole seller of its product. its product

### Basics of Economics. Alvin Lin. Principles of Microeconomics: August December 2016

Basics of Economics Alvin Lin Principles of Microeconomics: August 2016 - December 2016 1 Markets and Efficiency How are goods allocated efficiently? How are goods allocated fairly? A normative statement

### Competitive Markets. Chapter 5 CHAPTER SUMMARY

Chapter 5 Competitive Markets CHAPTER SUMMARY This chapter discusses the conditions for perfect competition. It also investigates the significance of competitive equilibrium in a perfectly competitive

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. FIGURE 1-2

Questions of this SAMPLE exam were randomly chosen and may NOT be representative of the difficulty or focus of the actual examination. The professor did NOT review these questions. MULTIPLE CHOICE. Choose

### 1. Suppose that policymakers have been convinced that the market price of cheese is too low.

ECNS 251 Homework 3 Supply & Demand II ANSWERS 1. Suppose that policymakers have been convinced that the market price of cheese is too low. a. Suppose the government imposes a binding price floor in the

### ECON 115. Industrial Organization

ECON 115 Industrial Organization 1. Tonight is a calculus review. 2. And a review of basic microeconomics. 3. We will do a couple of problems in class. First hour: Calculus Thinking on the margin. Introducing

### Special Pricing Practices. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e

Special Pricing Practices Chapter 11 Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Special Pricing Policies Introduction Cartel Arrangements Revenue

### 1. Supply and demand are the most important concepts in economics.

Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Def: Market is a group of buyers and sellers of a particular good or service. P. 66. b. Def: A competitive

### Chapter 8. Competitive Firms and Markets

Chapter 8 Competitive Firms and Markets Topics Perfect Competition. Profit Maximization. Competition in the Short Run. Competition in the Long Run. 8-2 Copyright 2012 Pearson Addison-Wesley. All rights