An Informative Microeconomics Quiz!

The practice described in the question, where McDonald's offers a special discount to high school students who show their student ID cards, is an example of price discrimination. Price discrimination refers to the practice of charging different prices to different customers for the same product or service based on their willingness to pay. In this case, McDonald's is offering a lower price to high school students as a way to attract their business and potentially increase their sales.

Under perfect price discrimination, consumer surplus equals zero. This is because perfect price discrimination occurs when a seller is able to charge each customer the maximum price they are willing to pay for a product or service. In this scenario, the seller captures all of the consumer surplus, leaving none for the consumer. As a result, consumer surplus is reduced to zero.

The correct answer is MRA = MRB = MC. This means that the marginal revenue for both groups of consumers is equal to the marginal cost. By setting prices in this way, the firm can maximize its profits because it is charging the highest price that each group of consumers is willing to pay, while also ensuring that the cost of producing each additional unit is covered. This strategy allows the firm to capture the maximum possible revenue from both groups of consumers without incurring any additional costs.

Under perfect price discrimination, the marginal profit at each level of output is equal to the difference between the price (P) and the marginal cost (MC). This means that the firm is able to charge each customer the maximum price they are willing to pay, resulting in the highest possible profit. By setting the price equal to the marginal cost, the firm maximizes its profit by capturing the entire consumer surplus. This is because the firm is able to extract the full value that each customer places on the product, without any surplus being left to the consumer.

A perfectly discriminating monopolist can charge each consumer the maximum price they are willing to pay, resulting in a price equal to the consumer's willingness to pay. The monopolist will continue to sell units of the product until the marginal cost equals the consumer's willingness to pay. In this case, the marginal cost is $4 and the demand curve is P = 10 - Q. Setting the marginal cost equal to the willingness to pay, we have 4 = 10 - Q. Solving for Q, we find Q = 6. Therefore, the firm will sell 6 units if it profit maximizes.

The maximum price that a consumer is willing to pay for each unit bought is referred to as the reservation price. This is the highest price that a consumer is willing to pay in order to obtain a product or service. It represents the consumer's perceived value or utility of the product, and any price above this level would result in the consumer not making a purchase.

Third-degree price discrimination involves charging different prices to different groups based upon differences in elasticity of demand. This means that the seller will charge higher prices to consumers with a more inelastic demand, who are less sensitive to price changes, and lower prices to consumers with a more elastic demand, who are more sensitive to price changes. By doing so, the seller can capture a larger portion of consumer surplus and increase their profits.

The correct answer is 1. In order to maximize profits, a monopoly will set its price where marginal cost equals marginal revenue. By reducing the price from $6 to $5, the monopoly is indicating that its marginal cost is less than $5. Since none of the other options are less than $5, the only possible answer is 1.

For a perfect first-degree price discriminator, incremental revenue is equal to the price paid for each unit of output. This means that the additional revenue generated from selling one more unit of output is equal to the price charged for that unit. In other words, the price charged for each unit is based on the individual consumer's willingness to pay, maximizing the total revenue for the firm. This is different from a non-discriminating monopolist, where the incremental revenue is less than the marginal revenue, as the monopolist must lower the price to sell additional units.

In perfect price discrimination, the firm is able to charge each customer the maximum price they are willing to pay. Since the firm has zero marginal costs, it can capture the entire consumer surplus. The demand curve P = 10 - Q represents the willingness to pay of each customer. By setting the price equal to the willingness to pay, the firm can maximize its profits. At a price of 10, the quantity demanded would be 0, resulting in zero profits. At a price of 12, the quantity demanded would be 10, resulting in profits of 12*(10-0) = 120. However, since fixed costs are given as 12, the profits would be 120 - 12 = 108. Therefore, the correct answer is 38.

Second-degree price discrimination is the practice of charging different prices for different blocks of the same good or service. This means that the seller divides the market into distinct groups based on certain characteristics or purchasing behaviors, and then sets different prices for each group. By doing so, the seller can capture more consumer surplus and maximize profits. This strategy is often used when it is difficult to identify individual customers' reservation prices or when the seller wants to incentivize certain purchasing behaviors.

In the case of perfect price discrimination, the monopolist is able to charge each consumer their maximum willingness to pay, resulting in higher profits for the producer. This is because the producer can extract all consumer surplus and capture the entire market demand. However, it does not necessarily mean that consumers are better off as a group because more of the product is produced. The producer may choose to produce less in order to maintain higher prices and maximize profits. Therefore, only the second statement is true.

If the price elasticity of demand for steel is greater abroad than it is in Japan, it means that the demand for steel is more responsive to changes in price in the foreign market compared to the domestic market. This implies that if the Japanese want to sell more steel abroad, they will have to lower the price to attract more buyers. On the other hand, since the demand is less responsive to price changes in Japan, the Japanese can charge higher prices to domestic users. Therefore, the correct answer is that the Japanese will sell steel at a lower price abroad than they will charge domestic users.

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The correct answer is to sell more in both markets until marginal cost is zero. This is because a monopolist in third-degree price discrimination aims to maximize profits by equating marginal revenue with marginal cost in each market. Since the marginal revenue in the local market is $20 and the marginal revenue on the internet auction site is $30, the firm should continue to sell more in both markets until the marginal cost reaches zero. This will allow the firm to maximize its profits by producing and selling at the point where marginal cost equals marginal revenue in each market.