Mod 4.3 Price Discrimination

Which of the following characteristics is necessary in order for a firm to price-discriminate?

• free entry and exit

• differentiated product

• many sellers

• some control over price

• horizontal demand curve

Which industries can practice price discrimination (SELECT ALL THAT APPLY)?

• perfect competition

• monopoly

• monopolistic competition

• oligopoly

A price-discriminating monopolist will charge a higher price to consumers with

• a more inelastic demand

• a more elastic demand

• a higher income

• a lower willingness to pay

• less experience in the market

In order to carry out perfect price discrimination, a firm must know:

• consumers' incomes

• competitors' marginal cost

• consumers' willingness to pay

• competitor’s advertising budget

• consumers' price elasticity of demand

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight’s departure date rather than on the day of departure. This pricing strategy is based on the assumption that:

• travelers are not aware of how airline prices change across time

• travelers do not have alternative modes of transportation

• travelers will pay any price to travel as the departure date approaches

• the marginal cost of the last few seats on an airplane is higher than that for the first few seats

• travelers’ demand becomes less elastic as the departure date approaches

CHOOSE 2: A perfectly price-discriminating monopolist ...

• earns no more than a normal profit.

• achieves allocative efficiency

• creates deadweight loss.

• produces less output than a single-price monopolist.

• maximizes producer surplus