********Answers to most questions are provided in bold below***********
These questions are just to give you an idea of what types of questions to expect on the exam. They obviously do not reflect a complete coverage of material, and there may be a slightly different mix of types of questions (i.e. more multiple choice, less true/false, etc.).
Multiple Choice (no explanation needed)
1. Which of the following is an example of a two-part tariff (or two-part pricing) that a producer might use to engage in price discrimination for software that consumers must regularly upgrade via downloadable file transfers?
a. Selling two versions of its software at different prices.
b. Selling two software products together as a single package.
c. Including unlimited free updates/upgrades to the software in the initial software price.
d. Charging consumers a price for the software and also requiring them to pay a small additional fee each time they choose to download an update/upgrade of the software.
2. Suppose airline fuel prices suddenly increase dramatically and are expected to stay high for the foreseeable future. Airlines are most likely to respond by:
a. Increasing ticket prices for the flights that they are already scheduled to fly.
b. Decreasing ticket prices for the flights that they are already scheduled to fly in order to assure that they are filled to capacity.
c. Reducing the number of flights they announce for future months in which they have not yet committed to a schedule or started to sell tickets.
d. None of the above.
3. The main difference between group pricing and menu pricing is that:
a. group pricing involves packages of units while menu pricing involves different prices for each unit of the product sold.
b. menu pricing is the only one of the two strategies that is possible if you cannot assign specific prices to specific groups of consumers.
c. group pricing involves having different groups self-select a pricing option while menu pricing does not.
d. group pricing requires the firm to be able to prevent resale of the product from one group to another, while in menu pricing the firm does not have to worry about resale of the product.
4. A pair of products exhibit economies of scope in production when:
a. their average cost of production is declining with output.
b. consumers get more utility out of buying the goods from the same firm than from different firms.
c. it costs less for one firm to produce the products than for them to be produced by separate firms.
d. one product is produced before the other
5. Selling two products for sale only as a bundle and not offering them as stand-alone products can reduce social welfare. True or False?
6. The quantity produced by a monopolist that has the ability to perfectly price discriminate (first-degree price discrimination) will be equal to the socially efficient level of production for the market. True or False?
7. Suppose the fixed costs of a monopolist double. This would lead to a doubling of the profit-maximizing price charged by the monopolist. True or False?
8. Short run marginal costs are always higher than long run marginal costs.
9. Why is a monopolist’s MR < P?
Because a monopolist must lower price on all units sold in order to sell and additional unit. (This is true when the monopolist is only able to use per unit prices.) 10. What is required for a firm to be able to price discriminate?
a. Firm has to have market power
b. Firm has to be aware of differences in willingness to pay across consumers or across units of the good that are purchased, and must find a way to offer different prices to different groups or on different units of the good sold.
c. Firm must be able to prevent resale or prevent high-value customers from buying at the lower price.
11. Define economies of scale.
12. A popular statistical software