Which of the following is NOT a condition for a firm to engage in price discrimination?
A. There is no resale market for the good.
B. The consumers are sincere in revealing their true natures.
C. The firm has a means of identifying consumer types.
D. Consumers are partitioned into two or more types, with one type having a more elastic demand than the other.
Answer: B
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Suppose that the consumer side of the market for good x can be modeled using a representative consumer with (initially - until part (d)) non-quasilinear preferences, and suppose the industry that produces x is perfectly competitive with identical firms. a. Illustrate a demand and supply graph with the market clearing price and quantity. b. Would a social planner who takes the distribution of income as given and seeks to maximize social surplus choose the same output quantity as the market clearing quantity in (a)?
c. Does your answer to (b) change if the social planner initially redistributes income in a lump-sum way and then maximizes social surplus? d. Next, suppose tastes are quasilinear in the good x and identical for all individuals. But there are two different types of consumers (represented in equal proportion in the population) - rich type 1 consumers and poor type 2 consumers. At their current income levels, type 2 consumers consume only the goodx (at quantity x? ) and no "other goods". For what type of lump-sum redistribution will we no longer be able to represent the consumer side as if it arose from choices by a representative consumer? e. Continuing with (d), suppose further that utility for an individual is given by the utility level associated with her consumption of xplus the dollar value of all other goods she consumes. Let type 2's utility level at her current consumption x? be given by u?. If she were to then also consume $10 worth of other goods, her utility would be (u? + 10). If a social planner could redistribute "$'s of other goods" from type 1 to type 2 in a lump-sum way, what shape would the utility possibility frontier have in the range where individuals get at least u?. f. Continuing with (e), draw the entire (first-best) utility possibility frontier (all the way to the horizontal and vertical axes) assuming that the utility possibility set has the feature you discovered in (e) and is convex. Indicate where on that utility possibility frontier we currently are in the absence of any redistribution. Which utility combination would be preferred to this by a Rawlsian social planner? Would a social planner who only cares about total utility object to the Rawlsian choice? g. Now suppose that every dollar that is redistributed entails a penny of deadweight loss. How would your answer to (f) change? What would have to be true for the Rawlsian social planner to let go of his desire for full equality? What will be an ideal response?
Which of the following is true at the output level where P=MC?
A) The monopolist is maximizing profit. B) The monopolist is not maximizing profit and should increase output. C) The monopolist is not maximizing profit and should decrease output. D) The monopolist is earning a positive profit.
If a regulator sets the price equal to the natural monopolist's marginal cost,
a. the monopoly will experience a loss b. the monopoly will earn a profit c. the monopoly will earn zero profit d. consumers will be worse off than they would be if the firm's profit maximization activities were unregulated e. the monopoly will be better off than it would be if its profit maximization activities were unregulated
Which of the following is the major difference between the chained consumer price index and the regular consumer price index?
a. The chained index assumes that households purchase the same bundle of goods over a lengthy time period; the regular price index makes allowance for shifts away from goods that have become more expensive. b. The chained index makes allowance each month for shifts away from goods that have become more expensive; the regular consumer price index fails to adjust for these shifts. c. The chained consumer price index reflects changes in the prices of all final goods and services produced during a period, whereas the regular consumer price index reflects only changes in the prices of goods purchased by households. d. The chained consumer price index will generally result in a higher measured rate of inflation than the regular consumer price index.