Question

16. When an airline is able to use the elasticity of demand to set different prices for different groups of travelers, this is an example of ____ price discrimination

(a) first degree
(b) second degree

(c) third degree

(d) peak
(e) natural

17. Which statement regarding price discrimination is FALSE?

(a) Price discrimination is always socially inefficient.

(b) It requires different prices to be able to be set for the same product or service.

(c) It converts consumer surplus into producer surplus.

(d) Peak load pricing is a form of price discrimination.

(e) Total output can increase compared to when there is no price discrimination.

18. If a market is monopolistically competitive, then:

A. the goods and services are perfect complements.
B. a firm has a high amount of market power.
C. competition reduces a firm’s demand, but each firm has some market power.

D. price will be set equal to marginal cost to determine each firm’s output.
E. each firm has perfectly elastic demand.

19. Game theory is not useful in understanding perfect competition because:

(a) perfectly competitive firms are honest and don’t play games with each other.

(b) there are too many players and they can’t be identified properly.

(c) it is too hard to figure out their strategy as there are too many players.

(d) it is assumed perfectly competitive firms are unable to influence price.

(e) the payoffs, choices, and prices are not known.

Answer 1

Ans 16)

Option C is correct because in 3rd degree price discrimination where higher prices will be charged to those consumers who are with low elasticity of demand and lower prices are charged to those consumers who are high on elasticity of demand

Hence option C is correct

Ans 17)

Option A) is correct because when First degree price discrimination is employed then all the consumer surplus is eroded which is not socially efficient whereas in third degree price discrimination prices are set depending upon their elasticity of demand profile.this would create just social welfare or higher consumer surplus than that of first degree price discrimination

Hence it is not the case that price discrimination are always socially inefficient.

Option A) is correct answer

Ans 18)

Option C is correct because each firm demand curve is downward sloping and though in the long run Price adjusts towards Average total cost but due to downward sloping demand curve each firm is left with some market power (which gets reduced due to competition)

Hence Option C is correct.

Ans 19)

Option D is correct answer because there is only possible outcome is to charge price that equals to Marginal Cost and due to infinite number of participants they are price takers.

Hence Option D is correct

Ans 19)