Figure 11.2.3
-Refer to Figure 11.2.3 above. In this case, the firm charges two different prices. This pricing scheme corresponds to:
A) First degree price discrimination.
B) Second degree price discrimination.
C) Third degree price discrimination.
D) Perfect price discrimination.

Question

Figure 11.2.3
-Refer to Figure 11.2.3 above. In this case, the firm charges two different prices. This pricing scheme corresponds to:
A) First degree price discrimination. 
B) Second degree price discrimination. 
C) Third degree price discrimination. 
D) Perfect price discrimination.

Quizplus · Accepted Answer

In this pricing scheme, the firm charges two different prices to two different consumer groups. This corresponds to third degree price discrimination, where the firm is able to segregate the market and charge different prices to each group based on their different elasticities of demand. This allows the firm to capture more consumer surplus and increase profits. First degree price discrimination would involve charging each customer their willingness to pay, which is not the case here since there are two distinct prices. Second degree price discrimination would involve offering quantity discounts, which is also not the case here. Perfect price discrimination would involve charging each customer their willingness to pay, but this is not possible in practice since customers do not reveal their willingness to pay.

Figure 11.2.3 -Refer to Figure 11.2.3 Above. in This Case, the Firm