Question

9. Price discrimination occurs when different prices are charged to different people, and it ______ based on cost differences. Price discrimination _______ in the delivery of medical care.

a. is // occurs

b. is not // occurs

c. is // does not occur

d. is not // does not occur

10. A restaurant in an apartment building operates at a loss. Its goal is to serve the people who live in the building. They also let nonresidents eat at the restaurant at the same prices. Marginal analysis shows that this is a rational action. Which of these would be consistent?

a. The money has already been spent on plant and equipment (e.g. stoves). The marginal cost of hiring a few more servers is less than the marginal revenue from nonresidents.

b. The money has already been spent on plant and equipment (e.g. stoves). The marginal cost of hiring a few more servers exceeds than the marginal revenue from nonresidents.

c. The restaurant is a monopoly; so it can do whatever it wants.

d. The restaurant is an oligopoly; so that changes the rules of marginal analysis.

11. John faces the following expenses with his apartment:

Rent: $1,500/month

Land-Line Phone: $100/month

Electricity: $10 day (Assume if not at home all electricity can be turned off.)

Water: $5/day (Assume if not at home all water can be turned off.)

John is gone 10 days of the month, which happens to be the 10 days a friend of his needs a temporary place to stay. He rents it to his friend for $200. This may sound incredibly low, but marginal analysis shows that John benefits from this arrangement. Actually the marginal cost to John of renting out the apartment for the 10 days is only

a. $50

b. $100

c. $150

d. $180

12. John Stossel says that health insurance is overused and can be compared to

a. fire insurance.

b. auto insurance.

c. grocery insurance.

d. both a) and b) are correct.

Answer 1

9. Option B. is not // occurs

Explanation: In the case of price discrimination, the difference charged to different consumers is not because of cost differences. Also, in medical services too it is common to charge a different price to different patients for the same service because of their different paying capacity.

10. Option A. The money has already been spent on plant and equipment (e.g. stoves). The marginal cost of hiring a few more servers is less than the marginal revenue from nonresidents.

Explanation: A profit-maximizing firm increases production as long as the marginal revenue is greater than the marginal costs.