Studied by 0 people
Looks like no one added any tags here yet for you.
A new government program reduces the cost of a college education at public universities by 50%. In the long run, this can be expected to _____ long-run aggregate supply (LRAS) and _____ aggregate demand (AD).
have no effect on; have no effect on
Price discrimination exists when a firm sells _____ goods at different prices to _____ groups of customers.
identical; different
Which of the following best describes price discrimination?
A firm selling the same good at more than one price to different group of customers.
A price maker is a firm that
has some market power.
For a firm to be able to practice price discrimination, it must be a price
maker.
One reason that firms may be able to utilize price discrimination as a viable strategy is because
firms are unable to prevent resale of the product they offer for sale.
Which of the following conditions is a requirement for price discrimination?
Firms are able to prevent resale of the good. This condition ensures that different prices can be charged to different consumers without the risk of arbitrage.
Which of the following statements is true?
Firms that can prevent reselling may be able to engage in price discrimination.
Airlines require every passenger with a ticket to have a matching, government-issued photo identification. price discrimination is made easier because
this practice prevents a passenger who purchased a discounted fare from reselling that ticket to another customer who is willing to pay more.
Hotwire.com, an online travel company specializing in cheap and discounted hotel rates and airfares, often asks customers if their travel dates are flexible when pricing potential bookings. This practice helps Hotwire.com practice price discrimination by allowing the site to
easily distinguish between different groups of buyers.
Which of the following will prevent a firm from being able to price discriminate?
All of its customers have the same tastes.
An executive, a surfer, and a school teacher each decide to fly from Atlanta, Georgia, to Honolulu, Hawaii. The school teacher can travel only during the months of June and July. The executive must travel in May for a meeting with her overseas board of directors. The surfer can travel anytime during the calendar year, but he faces a limited budget. The lowest airfare for each month is summarized in the following table. Assuming that the airline faces a constant cost of production each month for a flight, why is it beneficial for the airline to charge different prices each month?
Because the airline is able to separate its customers into distinct groups—those who must travel during the summer months and those who can travel any time of the year—it is able to price discriminate and enjoy higher profits.This allows the airline to maximize revenue by charging higher prices to those with less flexibility and lower prices to more price-sensitive travelers.
Internet service providers (ISPs) are able to price discriminate easily for many reasons. Which of the following is a reason for them to price discriminate?
ISPs can easily distinguish new customers from old customers.
Firms engage in legal price discrimination if they
charge different prices for the same good based on tastes.
Firms engage in price discrimination primarily to
make additional profits.
Custom Art is a new business venture aimed toward selling custom works of art. The new Custom Art business owner is uncertain about what price to charge for the works of art. After consulting with multiple sources, the owner has decided to set a high sticker price, but to allow potential buyers to negotiate down to their individual reservation price. The business owner is attempting to practice
perfect price discrimination.
A watch store posts prices on a watch and then a salesperson bargains with each customer to determine the highest price a customer is willing to pay for the watch to reach a deal. In this scenario, the salesperson is practicing
perfect price discrimination.
Two identical recreational vehicle (RV) companies have decided to experiment with different pricing structures. RV One, sets its prices using the profit-maximizing rule, and charges the same price to each customer. Bargain RV sets its prices using a two-tiered, price-discrimination model. Assuming that both companies face the same market demand curves, marginal costs, and costs of production, and wield significant market power for their service area, which of the following is most likely to occur?
Bargain RV will generate a higher profit than RV One.This occurs because Bargain RV can capture consumer surplus by charging different prices based on customers' willingness to pay, leading to increased overall profits compared to a uniform pricing strategy.
Wedding Creations specializes in unique, handmade wedding dresses. Each dress offered for sale is made after an extensive customer consultation that results in a one-of-a-kind wedding dress. To maximize profits, the firm owner should charge
a price that is close to each customer's willingness to pay.
Some internet service providers (ISP) offer lower prices to new customers and higher prices to existing customers for the same service. What is the motivation for practicing this type of price discrimination, despite knowing that if its customers found out, the company could potentially experience a loss in customers?
Price discrimination increases profit.
