Multiple Choice Questions:
1. Under average cost pricing by a natural monopoly,
a. Price is greater than marginal cost.
b. A welfare cost will be incurred.
c. The producer will earn a normal rate of return.
d. A producer experiences little or no incentive to hold down costs.
e. All of the preceding are true.
2. Which of the following is not a limitation that regulators face when they implement average cost pricing?
a. Average cost pricing provides little or no incentive for firms to keep costs down.
b. The accurate calculation of a firm’s costs is difficult.
c. Decisions are political and often influenced by special interests.
d. All of the preceding are limitations faced by regulators implementing average cost pricing.
3. A price-discriminating monopolist will
a. Price where marginal revenue equals marginal cost for each different group of demanders.
b. Charge a higher price to those with a greater willingness to pay (the more inelastic demanders).
c. Have to face customers who have a difficult time reselling the good to others who were charged more.
d. Do all of the preceding.
4. A price-discriminating monopolist will tend to charge a lower price to students if it believes that student demand is
a. More elastic than that of other demanders.
b. More inelastic than that of other demanders.
c. Unit elastic.
d. Graphically represented by a vertical curve.
5. Which of the following is not true of successful price discriminators?
a. They could make greater profits by charging everyone a higher, uniform price.
b. Their customers must differ in their willingness to pay.
c. Their customers must have difficulty reselling the good to other customers.
d. They must have monopoly power.
6. Price discrimination may be a rational strategy for a profit-maximizing monopolist when
a. It has no opportunity for reselling across market segments.
b. It has a substantial opportunity for reselling across market segments.
c. Consumers are unable to be segmented into identifiable markets.
d. The willingness to pay is the same across all customers.