Assume that a profit-maximizing firm practices price discrimination in two different market segments.If the marginal cost of producing the good is the same,the price:
A)will be lower in the segment with lower cross price elasticity of demand.
B)will be higher in the segment with higher income elasticity of demand.
C)will be lower in the segment with lower fixed costs.
D)will be higher in the segment with lower price elasticity of demand.
E)will be higher in the segment with higher marginal revenue.

Question

Quizplus · Accepted Answer

In price discrimination, a firm charges different prices for the same product or service in different market segments, based on varying levels of demand elasticity. The goal is to charge higher prices to consumers with a relatively low price elasticity of demand and lower prices to consumers with a relatively high price elasticity of demand. This allows the firm to capture the maximum amount of consumer surplus while still maximizing profits. Therefore, the firm will charge a higher price in the segment with lower price elasticity of demand, as consumers in that segment are less likely to be deterred by higher prices, resulting in higher profits for the firm.

Assume That a Profit-Maximizing Firm Practices Price Discrimination in Two