Exam 4 Review Slides In the context of the Five Forces Industry Analysis which of the following describes a situation of strong buyer power A Walmart s rural customers in the 1980s had relatively little choice in where to shop B Airline customers are price sensitive and have little or no brand loyalty C Minimum efficient scale is very large in the automobile industry D Delta airlines purchases its airplanes in a market where there is only two major competitors Boeing and Airbus Which of the following is not a condition necessary for price discrimination to be successful A Market power B Inelastic demand C The good cannot be easily resold D The firm can identify different demands Big Buds Burgers has a constant MC of 4 The elasticity of demand for seniors citizens is 5 while the elasticity of demand for non seniors is 3 To maximize profit Big Bud should charge seniors A 6 and non seniors 9 B 9 and non seniors 6 C 5 and non seniors 6 D 4 5 and non seniors 5 Under perfect price discrimination A Deadweight loss is zero B Consumer surplus is zero C Producer surplus is equal to total economic surplus D All of the above You have two different market segments in which you charge different prices MC does not differ by segment After selling all of your output you discover that in market segment 1 MR was 300 and in market segment 2 MR was 500 Did you maximize profit If not in which segment should you have allocated more output A Market 1 B Market 2 C Not possible to tell D I love Sun Devils You have two different market segments in which you charge the same price In market 1 elasticity of demand is 3 and in market 2 elasticity of demand is 2 If you charge different prices in which segment should you give the discount A Market 1 B Market 2 C Not possible to tell D I don t know but I love economics Suppose a monopoly sells to two identifiably different types of customers A and B who are unable to practice arbitrage The inverse demand curve for group A is PA 40 2QA and the inverse demand curve for group B is PB 30 0 5QB The monopolist is able to produce the good for either type of customer at a constant marginal cost of 10 and the monopolist has no fixed costs If the monopolist practices group price discrimination the profit maximizing prices charged to each type of customer are A PA 20 and PB 25 B PA 25 and PB 20 C PA 15 and PB 25 D PA 25 and PB 15 At the current price of a good Anne s consumer surplus equals 250 and Bill s consumer surplus equals 300 By using two part pricing a monopolist could increase his profit by A 250 B 300 C 500 D 550 If the firm does not change the per unit use fee what effect will the imposition of an access fee have on the amount that Bill purchases Why A profit maximizing monopolistically competitive firm is charging a price of 100 and has AC of 120 In the long run this firm can anticipate that A The demand for the firm s output will become more elastic B the demand for the firm s output will decrease C firms will exit the industry D A B What is true of both perfect competition and monopolistic competition A P MC when maximizing profit B Intense advertising competition C Firms produce at minimum efficient scale D Economic profit equals zero in the long run Alison Bob Television 20 12 Internet 18 24 Assume a company can offer customers cable television and internet service at a marginal and average cost of 10 Also assume the company does not price discriminate The following table shows each customer s marginal willingness to pay for television internet services and for a bundle containing both If the company sells the products separately which strategy yields the maximum profit Charge for television and for internet A 12 18 B 12 24 C 20 18 D 20 24 Alison Bob Television 20 12 Internet 18 24 Assume a company can offer customers cable television and internet service at a marginal and average cost of 10 Also assume the company does not price discriminate The following table shows each customer s marginal willingness to pay for television internet services and for a bundle containing both Which strategy yields the maximum profit and what maximum profit is obtained A Sell separately and make a profit of 26 B Sell separately and make a profit of 20 C Bundle and make a profit of 36 D Bundle and make a profit of 32 Which of the following is true for Oligopoly A High barriers to entry B High degree of interdependence between firms C Positive economic profits are possible in the long run D All of the above Which of the following is true for a cartel A Each firm has an individual incentive to cooperate with the cartel B When firms cheat on a cartel total economic surplus decreases C For an individual firm cheating on the cartel agreement will be most profitable if all other firms continue to collude D None of the above