Multiple choice

1. “Airlines” Scenario

An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.

Refer to “Airlines” Scenario. How much additional profit can the firm earn by charging each customer their willingness to pay relative to charging a flat price of $600 per ticket?

a. $15,000

b. $40,000

c. $70,000

d. $25,000


2. Price discrimination

a. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price.

b. forces monopolies to charge a lower price as a result of government regulation.

c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.

d. increases the consumer surplus associated with a monopolistic market.


3. Suppose that you run a house-painting company and currently have 2 workers painting a total of 4 houses per month. If you hire a third worker, 6 houses can be painted per month. If you hire a fourth worker, 9 houses can be painted, and a fifth and sixth worker will increase the number of houses painted to 13 and 15, respectively. Diminishing returns

a. set in when the fourth worker is hired.

b. set in when the fifth worker is hired.

c. set in when the sixth worker is hired.

d. have not yet set in because output is still increasing


4. Use the following table to answer this question.

Price Total Revenue

$10 $100

$12 $108

$14 $112

$16 $112

Demand is unit elastic when quantity demanded changes from

a. 10 to 9.

b. 9 to 8.

c. 8 to 7.

d. There is not enough information given to determine the correct answer.


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