1			A firm selling in two markets is practicing price discrimination…
			A)	anytime it charges different consumers different prices.
			B)	when it refuses to sell the good to some group of consumers.
			C)	when it is charging different consumers different prices and the price difference is not based upon cost differences.
			D)	all of the above
			E)	none of the above
2			To maximize profit a price discriminating firm should…
			A)	allocate the output so that marginal revenue is the same in each market.
			B)	allocate the optimal output so the elasticity is the same in each market.
			C)	produce the output at which total marginal revenue equals marginal cost.
			D)	both a and c
			E)	both b and c
3			In order to maximize profit, a firm that sells its output in two markets will allocate total output between the two markets so that:
			A)	marginal revenue for the firm is equal to the sum of the marginal costs
			B)	marginal revenue for the firm is equal to the sum of the marginal revenues.
			C)	marginal revenue is equal in the two markets.
			D)	both a and b
			E)	none of the above

The next 2 questions refer to the following:

A newspaper offers students a discount on the regular subscription rate. The total number of subscriptions is optimal and, at the current prices, the marginal revenue from the last subscription sold to a student is $8, while the marginal revenue from the last subscription sold to a regular customer is $12.

4			In order to maximize profit, the magazine should…
			A)	offer all customers the same discount received by the students.
			B)	offer students a lower discount (raise the price to students).
			C)	offer students a higher discount (lower the price to students).
			D)	stop offering students a discount on the regular subscription rate.
5			If the magazine sells one more subscription to a regular customer and one less subscription to a student:
			A)	profit will increase $4
			B)	profit will increase $12
			C)	profit will decrease $8
			D)	profit will decrease $12
			E)	none of the above
6			To successfully practice price discrimination
			A)	it must be difficult for consumers in one market to sell to consumers in the other market.
			B)	the firm must possess market power.
			C)	the firm must be a pure monopoly.
			D)	both a and b
			E)	both a and c

The next 5 questions refer to the following figure:

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The graph shows the demands and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MR_T, and marginal cost.

7			What total output should the firm produce?
			A)	200 units
			B)	300 units
			C)	400 units
			D)	450 units
			E)	850 units
8			How should the firm allocate sales between the two markets?
			A)	150 in each market
			B)	250 in market 1, 200 in 2
			C)	150 in market 1, 300 in 2
			D)	200 in each market
			E)	300 in market 1, 100 in 2
9			What price should the firm charge in each market?
			A)	P1 = $60, P2 = $60
			B)	P1 = $55, P2 = $70
			C)	P1 = $40, P2 = $50
			D)	P1 = $30, P2 = $40
			E)	Impossible to say because market demand is not given
10			At the optimal price and quantity, what is demand elasticity in each market?
			A)	E1 = −1.5, E2 = −3
			B)	E1 = −2.2, E2 = −1.4
			C)	E1 = −2.5, E2 = −3.5
			D)	E1 = −3.67, E2 = −2.33
			E)	Impossible to day because market demand is not given
11			What rule do your answers to the previous two questions demonstrate for price determination for a firm that practices price discrimination?
			A)	profit is maximized when both prices and elasticities are equal
			B)	elasticity and price are not related
			C)	price is higher in the lower elasticity market
			D)	price is lower in the lower elasticity market
			E)	none of the above

The next 2 questions relate to the following:

A firm is producing two goods (X and Y) that are related in consumption. The demand function for X is:

Q_d = 80 -2P_x - 12P_y

12			Which of the following pairs of goods might the firm be producing?
			A)	cola and diet cola
			B)	golf shoes and golf gloves
			C)	magazines and tennis rackets
			D)	bran cereal and sugar-frosted corn flakes
			E)	both a and d
13			In order to maximize profit, the firm should…
			A)	choose the levels of output for goods X and Y at which total marginal revenue equals total marginal cost.
			B)	treat the price of Y as given when determining the optimal production of good X.
			C)	determine jointly the levels of output for the two goods.
			D)	sum the demand curves for X and Y vertically to find the optimal levels of X and Y.
14			Farmer Joe has 60 acres of land in cultivation and is currently planting both soybeans and corn. The last acre planted in soybeans yielded 30 bushels, and the last bushel of soybeans added $1.00 to Farmer Joe's total revenue. The last acre planted in corn yielded 15 bushels and the last bushel of corn added $0.50 to Farmer Joe's total revenue. Farmer Joe:
			A)	should devote 30 acres to each crop.
			B)	should devote more acres to soybeans and fewer to corn.
			C)	should devote more acres to corn and fewer to soybeans.
			D)	is maximizing profit.

The next 2 questions refer to the following:

A publishing company has a production line that can print two types of magazines, Endless Shopping and Unrealistic Home. The production line runs 24 hours a day and the firm is currently allocating 10 hours a day to publishing Endless Shopping and 14 hours a day to Unrealistic Home. Marginal product is 20 for both magazines, the last issue to Endless Shopping added $2 to total revenue, and the last issue to Unrealistic Home added $3 to total revenue.

15			The firm
			A)	should allocate more hours to Endless Shopping and fewer to Unrealistic Home.
			B)	should allocate more hours to Unrealistic Home and fewer to Endless Shopping.
			C)	should allocate 12 hours to each magazine.
			D)	is maximizing profit.
16			If the firm allocates 15 hours a day to Unrealistic Home and 9 hours to Endless Shopping instead;
			A)	total revenue will decrease $1.
			B)	total revenue will increase $1.
			C)	total revenue will increase $20.
			D)	total revenue will decrease $40.
			E)	total revenue will increase $60.

Use the figure below to answer the next 3 questions.

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The figure shows the MRP curves for a firm producing two products, X and Y, which are substitutes in production. The MC curve measures the additional cost of another unit of the production facility.

17			What is the profit-maximizing total level of use of the production facility?
			A)	F1
			B)	F2
			C)	F3
			D)	F4
			E)	F5
18			What level of use of the production facility should be devoted to producing X?
			A)	F1
			B)	F2
			C)	F3
			D)	F4
			E)	F5
19			What level of use of the production facility should be devoted to producing Y?
			A)	F1
			B)	F2
			C)	F3
			D)	F4
			E)	F5
20			To maximize profit, a firm that produces two goods that are related in consumption should chose the levels of output at which:
			A)	marginal revenue equals marginal cost for each good.
			B)	total marginal revenue equals the marginal cost of each good.
			C)	the marginal revenue of each good equals total marginal cost.
			D)	total marginal revenue equals total marginal cost.
			E)	total marginal revenue exceeds marginal cost by the greatest amount.