Suppose your manufacturing firm is not a price-taking seller (i.e., has some control over your product price) and sells machinery to U.S. (domestic) buyers as well as foreign buyers. The domestic demand for your product is inelastic but the foreign demand is elastic, and the machinery is bulky so that the high transport costs prevent resale among the buyers. You could charge both groups of buyers the same price for the machinery, but you know that you could increase total sales revenue by charging the domestic buyers a ________ price and charging the foreign customers a ________ price.

Question

Quizplus · Accepted Answer

Since the domestic demand is inelastic, a higher price could be charged without significant loss of sales. Meanwhile, the foreign demand is elastic, meaning that a higher price would likely result in a significant loss of sales. Therefore, charging the domestic buyers a higher price and the foreign buyers a lower price would maximize total sales revenue.

Suppose Your Manufacturing Firm Is Not a Price-Taking Seller (I