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ECO402 Microeconomics Important Solved MCQs for final Term Exam

ECO402 Microeconomics Important Solved MCQs for final Term Exam

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1. Which of the following strategies are used by business firms to capture consumersurplus?

1.     price discrimination.
2.     bundling.
3.     two-part tariffs.
4.     d.         all of the above.

 

                   2.  Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women.  By engaging in this practice, the firm:

1.     is trying to reduce its costs and therefore increase its profit.

2.     is engaging in an illegal activity that is prohibited by the Sherman Antitrust Act.

3.     is attempting to convert producer surplus into consumer surplus.

4.     d.         is attempting to convert consumer surplus into producer surplus.

5.     both (a) and (c) are correct.

 

 

                   3.  An electric power company uses block pricing for electricity sales.  Block pricing is an example of

1.     first-degree price discrimination.

2.     second-degree price discrimination.

3.     third-degree price discrimination.

4.     Block pricing is not a type of price discrimination.

 

                   4.  When a firm charges each customer the maximum price that the customer is willing to pay, the firm

1.     engages in a discrete pricing strategy.

2.     charges the average reservation price.

3.     engages in second-degree price discrimination.

4.     d.         engages in first-degree price discrimination.

 

                   5.  The maximum price that a consumer is willing to pay for each unit bought is the ______________ price.

1.     market

2.     b.         reservation

3.     consumer surplus

4.     auction

5.     choke

 

                   6.  Second-degree price discrimination is the practice of charging

1.     the reservation price to each customer.

2.     b.         different prices for different blocks of the same good or service.

3.     different groups of customers different prices for the same products.

4.     each customer the maximum price that he or she is willing to pay.

 

                   7.  A firm is charging a different price for each unit purchased by a consumer.  This is called

1.     a.         first-degree price discrimination.

2.     second-degree price discrimination.

3.     third-degree price discrimination.

4.     fourth-degree price discrimination.

5.     fifth-degree price discrimination.

100% CORRECT ANSWERS.....

 

                   8.  A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults.  The tennis pro is practicing

1.     first-degree price discrimination.

2.     second-degree price discrimination.

3.     c.         third-degree price discrimination.

4.     fourth-degree price discrimination.

5.     fifth-degree price discrimination.

 

                   9.  Discrimination based upon the quantity consumed is referred to as ______________ price discrimination.

1.     first-degree

2.     b.         second degree

3.     third-degree

4.     group

 

                 10.  A doctor sizes up patients' income and charges wealthy patients more than poorer ones.  This pricing scheme represents a form of

1.     first-degree price discrimination.

2.     second-degree price discrimination.

3.     c.         third-degree price discrimination.

4.     pricing at each consumer’s reservation price.

 

                 11.  Third-degree price discrimination involves

1.     charging each consumer the same two part tariff.

2.     charging lower prices the greater the quantity purchased.

3.     the use of increasing block rate pricing.

4.     d.         charging different prices to different groups based upon differences in elasticity of demand.

 

                 12.  The maximum price that a consumer is willing to pay for a good is called:

1.     a.         the reservation price.

2.     the market price.

3.     the first-degree price.

4.     the block price.

5.     the choke price.

 

                 13.  McDonald's restaurant located near the high school offered a Tuesday special for high school students.  If high school students showed their student ID cards, they would be given 50 cents off any special meal.  This practice is an example of:

1.     collusion.

2.     b.         price discrimination.

3.     two-part tariff.

4.     bundling.

5.     tying.

 

                 14.  In 1994, the Walt Disney Corporation ran a special promotion on tickets to Disneyland.  Residents of southern California were offered admission at the special price of $22.  Other visitors to Disneyland were charged about $30.  This practice is an example of:

1.     collusion.

2.     b.         price discrimination.

3.     two-part tariff.

4.     bundling.

5.     tying.

 

                 15.  Some grocery stores are now offering customers coupons which entitle them to a discount on certain items on their next visit when they go through the check-out line.  This practice is an example of:

1.     intertemporal price discrimination.

2.     b.         third degree price discrimination.

3.     a two-part tariff.

4.     bundling.

5.     none of the above.

 

                 16.  Which of the following is NOT a condition for third degree price discrimination?

1.     Monopoly power.

2.     Different own price elasticities of demand.

3.     c.         Economies of scale.

4.     Separate markets.

 

                 17.  A third-degree price discriminating monopolist can sell its output either in the local market or on an internet auction site (or both).  Having sold all of its output it discovers that the marginal revenue in the local market is $20 while its marginal revenue on the internet auction site is $30. To maximize profits the firm should

1.     have sold more output in the local market and less at the internet auction site.

2.     do nothing until it acquires more information on costs.

3.     have sold less output in the local market and more on the internet auction site.

4.     sell less in both markets until marginal revenue is zero.

5.     sell more in both markets until marginal cost is zero.

 

                 18.  Suppose that the marginal cost of an additional ton of steel produced by the Japanese is the same whether the steel is set aside for domestic use or exported abroad.  If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct?

1.     The Japanese will sell more steel abroad than they will sell in Japan.

2.     The Japanese will sell more steel in Japan than they will sell abroad.

3.     c.         The Japanese will sell steel at a lower price abroad than they will charge domestic users.

4.     The Japanese will sell steel at a higher price abroad than they will charge domestic users.

5.     Insufficient information exists to determine whether the price or quantity will be higher or lower abroad.

 

                 19.  You are the producer of stereo components.  There are two markets, foreign and domestic.  The two groups of consumers cannot trade with one another.  If your firm practices third-degree price discrimination, when you have maximized profits, the marginal revenue

1.     in the foreign market will equal the marginal cost.

2.     in the domestic market will equal the marginal cost.

3.      in the domestic market will equal the marginal revenue in the domestic market.

4.     d.         all of the above.

5.     none of the above

 

                 20.  You are the producer of stereo components.  There are two markets, foreign and domestic.  The two groups of consumers cannot trade with one another.  You will charge the higher price in the market with the

1.     a.         lower own price elasticity of demand (more inelastic demand).

2.     higher own price elasticity of demand (more elastic demand).

3.     larger teenage population.

4.     greater consumer incomes.

 

                 21.  For a perfect first-degree price discriminator, incremental revenue is

1.     greater than price if the demand curve is downward sloping.

2.     the same as the marginal revenue curve if the firm is a non-discriminating monopolist.

3.     c.         equal to the price paid for each unit of output.

4.     less than the marginal revenue for a non-discriminating monopolist.

 

                 22.  In third-degree price discrimination a firm faces two markets.  In the first market the firm charges $30 per unit, and in the second market it charges $22 per unit.  Which of the following represents the ratio of elasticities of demand in the two markets?

1.     E2 = (21/29)E1.

2.     E2 = (29/21)E1

3.     E2 = E1.

4.     E2 = (22/30)E1.

5.     e.         none of these. 

 

                 23.  A firm sells an identical product to two groups of consumers, A and B.  The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize profits.  Which of the following best describes the price and output strategy that will maximize profits?

1.     PA = PB = MC.

2.     MRA = MRB.

3.     c.         MRA = MRB = MC.

4.     (MRA - MRB) = (1 - MC).

 

                 24.  Bindy, an 18 year old high school graduate, and Luciana, a 40 year old college graduate, just purchased identical hot new sports cars.  Acme Insurance charges a higher rate to insure Bindy than Luciana.  This practice is an example of:

1.     collusion.

2.     price discrimination.

3.     two-part tariff.

4.     bundling.

5.     e.         none of the above.

 

                 25.  Under perfect price discrimination, marginal profit at each level of output equal

1.     0

2.     P-AC.

3.     c.         P-MC.

4.     P-AR.

 

                 26.  Under perfect price discrimination, consumer surplus

1.     is less than zero.

2.     is greater than zero.

3.     c.         equals zero.

4.     is maximized.

 

                 27.  When a monopolist engages in perfect price discrimination,

1.     the marginal revenue curve lies below the demand curve.

2.     b.         the demand curve and the marginal revenue curve are identical.

3.     marginal cost becomes zero.

4.     the marginal revenue curve becomes horizontal.

 

                 28.  The manager of a firm is attempting to practice third degree price discrimination.  She has equated the marginal revenue in each of her markets.  By doing this her

1.     profits are maximized. 

2.     costs are minimized given her level of output.

3.     c.         revenues are maximized given her level of output.

4.     all of the above.

 

 

                 29.  When a company introduces new audio products, it often initially sets the price high and about a year later it lowers the price. This is an example of

1.     a two-part tariff.

2.     second-degree price discrimination.

3.     c.         intertemporal price discrimination.

4.     first-degree price discrimination.

 

                 30.  Club Med, which runs a number of vacation resorts, offers vacation packages at a lower price in the winter, the "off season," than in the summer.  This practice is an example of:

1.     peak-load pricing.

2.     intertemporal price discrimination.

3.     two-part tariff.

4.     bundling.

5.     e.         both (a) and (b) are correct.

 

                 31.  In peak load pricing,

1.     marginal revenue is equal in both periods.

2.     b.         marginal revenue in the peak period is greater than in the off-peak period.

3.     marginal revenue in the peak period is less than in the off-peak period.

4.     the sum of the marginal revenues is greater than the sum of the marginal costs.

 

                 32.  When the movie "Jurassic Park" debuted in Westwood, California, the price of tickets was $7.50.  After several months the ticket price had fallen to $4.00.  This is an example of

1.     peak-load pricing.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

 

                 33.  The price of on-campus parking from 8:00 AM to 5:00 PM, Monday through Friday, is $3.00.  From 5:00 PM to 10:00 PM, Monday through Friday, the price is $1.00.  At all other times parking is free.  This is an example of

1.     bundling.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

 

                 34.  A local restaurant offers "early bird" price discounts for dinners ordered from 4:30 to 6:30 PM.  This is an example of

1.     a.         peak-load pricing.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     none of the above.

 

                 35.  A local theater prices every ticket in the theater at $5.00 for matinees.  During the evening, ticket prices are much higher.  This is an example of

1.     a.         peak-load pricing.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     bundling.

5.     none of the above.

 

 

                 36.  An amusement park charges an entrance fee of $75 per person, then $2.50 per ride.  This is an example of

1.     first-degree price discrimination.

2.     b.         a two-part tariff.

3.     second-degree price discrimination.

4.     bundling.

5.     tying.

 

                 37.  When people pay a monthly fee to have a hookup to the telephone company's line plus a fee for each call actually made, we would say that the telephone company is using

1.     limit pricing. 

2.     b.         a two-part tariff.

3.     second-degree price discrimination.

4.     two stage price discrimination.

 

                 38.  A pricing strategy that requires consumers pay an up-front fee plus an additional fee for each unit of product purchased is a

1.     tying contract.

2.     b.         two-part tariff.

3.     form of perfect price discrimination.

4.     none of these.

 

                 39.  A national chain of bookstores has initiated a frequent buyer program.  If you buy a frequent buyer card for $10, you are entitled to a 10 percent discount on all purchases for 1 year.  This practice is an example of:

1.     peak-load pricing.

2.     intertemporal price discrimination.

3.     c.         two-part tariff.

4.     bundling.

5.     both (a) and (b) are correct.

 

                 40.  A firm setting a two-part tariff with only one customer should set the entry fee equal to

1.     marginal cost.

2.     b.         consumer surplus.

3.     marginal revenue.

4.     price.

 

                 41.  The local cable TV company charges a "hook-up" fee of $30 per month.  Customer can then watch programs on a "pay-per-view" basis (a fee is charged for every program watched).  This is an example of

1.     peak-load pricing.

2.     second-degree price discrimination.

3.     c.         a two-part tariff.

4.     intertemporal price discrimination.

5.     none of the above.

 

                 42.  The pricing technique known as tying

 

1.     permits a firm to meter demand.

2.     permits a firm to practice price discrimination.

3.     enables a firm to extend its monopoly power to new markets.

4.     d.         all of the above.

 

                 43.  Season ticket holders for the St. Louis Rams received a surprise when they received their applications to renew their season tickets.  In order to get your season ticket to the Rams' home games, you had to buy tickets to the preseason games.  Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders.  This practice is an example of:

1.     peak-load pricing.

2.     intertemporal price discrimination.

3.     two-part tariff.

4.     d.         bundling.

5.     both (a) and (b) are correct.

 

                 44.  A local restaurant sells strawberry pie for $3.00 per slice.  However, if you order the prime rib dinner, you can get a slice of pie for only a dollar.  This is an example of

1.     a.         bundling.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     none of the above.

 

                 45.  A local restaurant offers an "all-you-can-eat" salad bar for $3.49.  However, with any sandwich, a customer can add the "all-you-can-eat" salad bar for $1.49.  This is an example of 

1.     peak-load pricing.

2.     second-degree price discrimination.

3.     a two-part tariff.

4.     tying.

5.     e.         none of the above.

 

                 46.  Bundling products makes sense for the seller when

1.     consumers have heterogeneous demands.

2.     the products are complementary in nature.

3.     firms cannot price discriminate.

4.     d.         both (a) and (c).

 

                 47.  Bundling is effective when demands are ____________ and ____________ correlated.

1.     a.         different; negatively

2.     different; positively

3.     similar; negatively

4.     similar; positively

5.     identical; perfectly

 

                 48.  Bundling raises higher revenues than selling the goods separately when

1.     demands for two goods are highly positively correlated.

2.     demands for two products are mildly positively correlated.

3.     c.         demands for two products are negatively correlated.

4.     there is a perfect positive correlation between the demands for two goods.

5.     the goods are complementary in nature.

 

                 49.  Mixed bundling is more profitable than pure bundling when

1.     the marginal cost of each good being sold is positive.

2.     the consumers’ reservation values of each good being sold are not perfectly negatively correlated with one or another.

3.     c.         both (a) and (b) apply.

4.     the marginal cost of one good is zero. 

 

 

                 50.  One Guy's Pizza advertising expenditures are $1,200 and sales are $30,000.  When advertising increases to $1,400, sales increase to $32,000.  The arc advertising elasticity of demand is approximately

1.     0

2.     0.1

3.     c.         0.4

4.     2.5

5.     12.5

 

                 51.  A 10 percent decrease in advertising results in a 5 percent sales decrease.  The advertising elasticity of demand is

1.     -2.0

2.     -0.5

3.     c.         0.5

4.     2

5.     none of the above.

           

                 52.  Use the following statements to answer this question.

I.    To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising just brings forth an additional dollar of revenue.

II.   The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about.

 

1.     Both I and II are true.

2.     I is true, and II is false.

3.     c.         I is false, and II is true.

4.     Both I and II are false.

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                 53.  Use the following statements to answer this question.

I.    To maximize profit, a firm will advertise more when the advertising elasticity is larger.

II.   To maximize profit, a firm will advertise more when the price elasticity of demand is smaller.

1.     a.         Both I and II are true.

2.     I is true, and II is false.

3.     I is false, and II is true.

4.     Both I and II are false.

 

                 54.  The price elasticity of demand for nursery products is -10.  The advertising elasticity of demand is 0.4.  Using the "Rule of Thumb for Advertising," the level of advertising will be set at _____ of sales.

1.     0.25 percent

2.     0.4 percent

3.     c.         4 percent

4.     40 percent

 

                 55.  Grocery store chains advertise more than convenience stores because:

1.     the advertising elasticity of demand is smaller for grocery store chains than for convenience stores.

2.     convenience stores have more elastic demand for their products then grocery store chains.

3.     c.         the advertising elasticity of demand for convenience stores is near zero and is much smaller than for grocery store chains.

4.     all of the above.

5.     none of the above.

 

                 56.  The Acme Oil Company is a vertically integrated firm.  It explores for and extracts crude oil.  It also refines the crude oil into gasoline and other products, and sells these products to consumers.  The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries is called:

1.     the shadow price.

2.     b.         the transfer price.

3.     the market price.

4.     the non-market price.

5.     none of the above.

 

                 57.  The Acme Oil Company is a vertically integrated firm.  It explores for and extracts crude oil.  It also refines the crude oil into gasoline and other products, and sells these products to consumers.  There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive.  The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to one of its refineries:

1.     a.         equals the market price for crude oil.

2.     equals the market price for crude oil less a discount because Acme Oil does not to profit from itself.

3.     is unrelated to the market price of crude oil.

4.     is greater than the marginal cost of extracting crude oil.

 

                 58.  What is net marginal revenue?

1.     The same as marginal profit.

2.     b.         The additional revenue the firm earns from an extra unit of an internally produced intermediate input.

3.     The additional revenue the firm earns from producing one more unit of output.

4.     The additional revenue the firm earns from selling one more unit of output.

 

                 59.  What is the profit maximizing condition for a vertically integrated firm?

1.     Net marginal revenue equals the sum of the marginal costs of the intermediate inputs.

2.     Marginal revenue equals the marginal cost of the final output.

3.     c.         Net marginal revenue equals the marginal cost of each intermediate good.

4.     The sum of net marginal revenues equals the marginal cost of the final output.

 

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