Question

1. Which of the following correctly summarizes the strategy used by firms that employ third-degree price discrimination?

Group of answer choices

a.The firm’s marginal revenue will be lower in the market with the more elastic demand.

b.The firm sets the price higher in the market with the more elastic demand.

c.The firm sets the price lower in the market with the more inelastic demand.

d.The firm’s marginal revenue will be higher in the market with the more elastic demand.

e.None of the choices shown is correct.

2. A firm’s marginal cost decreases when it has _______ and its long run average total cost decreases when it has _______.

Group of answer choices

a.increasing marginal returns, increasing returns to scale

b.diminishing marginal returns, economies of scope

c.increasing marginal returns, decreasing returns to scale

d. diminishing marginal returns, decreasing returns to scale

e. diminishing marginal returns, increasing returns to scale

3. Which of the following statements is correct regarding the Sweezy model of oligopoly?

Group of answer choices

a.None of the statements listed is correct.

b.The flatter portion of the demand curve corresponds to the quantity range where competitors match price changes.

c.The marginal revenue curve of the firm is horizontal.

d.The firm faces more elastic demand when it lowers its price than when it raises its price.

e. Competitors match price increases but do not match price decreases.

4. In which way are contestable markets different from markets that are perfectly competitive?

Group of answer choices

a.This question makes no sense because there are no differences between contestable markets and markets that are perfectly competitive.

b.There are a few firms in the industry.

c.Firms charge a price that does not equal marginal cost.

d.Firms have a positive economic profit in the long run.

e.There is imperfect information—some firms have access to information while others do not.

Answer 1

Question 1

Third degree price discrimination implies the charging different prices from different group of customers based on the respective elasticity of demand for the product and the strict prevention of resale between two groups.

This form of price discrimination is attempted by a monopolist.

In this price discrimination, firm charges lower price from that group of customers that have more elastic demand and higher price from that group of customers that have more inelastic demand.

In case of monopoly, price is always greater than the marginal revenue.

So, price would be greater than the marginal revenue in case of both group of customers. Since, firm charges lower price from group with more elastic demand relative to group with more inelastic demand, it can be deduced that marginal revenue would be lower for the group with more elastic demand relative to group with more inelastic demand.

Thus,

The correct answer is the option (a) [The firm's marginal revenue will be lower in the market with more elastic demand.