Question

Dr. Julian, as the only physician in town, has the tradition of charging patients different prices for the same procedure, based on his perception of what they may be willing to pay. As a monopolist, if his judgment is correct, what is a possible implication?

a.	Julian’s average cost per patient will decrease.	b.	Julian’s patients will receive no consumer surplus.
c.	The deadweight loss for this custom would be significant.	d.	Julian will have few patients.

__________ and ________ are the key conditions for successful price discrimination.

a.	Market segmentation; prevention of resale	b.	Market segmentation; identical marginal costs
c.	Market segmentation; highly inelastic product demand	d.	Highly inelastic product demand; prevention of resale

Which of the following does the two-part pricing strategy charge?

a.	An access fee and an exit fee	b.	A user fee and an exit fee
c.	Two prices for the same good	d.	An access fee and a user fee

What is the least likely strategy of two-part pricing?

a.	Country clubs	b.	Furniture stores
c.	Night clubs	d.	Costco

What will a firm also do if it charges an access fee?

a.	Reduce prices of individual goods	b.	Limit the number of customers
c.	Reduce profits to a normal level	d.	Reduce the number of items sold

A firm that has _________ is the most likely to favor a two-part price.

a.	been losing market share	b.	high fixed costs and low marginal costs
c.	experiencing a loss	d.	high fixed costs and high marginal costs

A firm with ______ fixed costs and ______ marginal costs would be a good candidate for a two-part pricing strategy.

a.	low; low	b.	high; low
c.	low; high	d.	high; high

The two components of two-part pricing are _______ fee and _______ fee.

a.	a limit; a use	b.	an access; a user
c.	an entrance; an exit	d.	an access; a membership

Answer 1

1) This is a case of price discrimination preferably perfect price discrimination as the doctor assumes who will pay what therefore the possible implication of this should be b) consumers will receive no consumer surplus as the doctor knows how to extract the most of everyone of what they are willing to pay and is a price discriminating.

2) a) market segmentation and prevention of resale are the key conditions for successful price discrimination as the supplier must have market power and the producer should be able to control the access.

3)d) an access fee and a user fee which is the same as lumpsum charge and the per unit charge used in the two part tariff strategy.

4) b)Furniture stores will be the least likely to implement two part strategy as furnitures are one time investments and don't require further maintenance like car etc. In clubs we need to pay for the entry and then the drinks too.

5) a)When a firm charges an access fee it will reduce the price of individual goods as compared to a monopoly with no price discrimination as in this way it will be able to capture the consumer surplus with low access fee which is set at the MC= P level.

6)b)firm that has high fixed cost and low marginal costs will implement two part tariff strategy as it will be able to capture all of the consumer surplus which it would have missed if only it had been a monopoly.

7) b) Firms with high fixed cost and low marginal costs are a better candidate for the two part tariff strategy as explained above.

8) b) an access and user fee which is the same as lumpsum charge and the per unit charge.