Suppose a firm produces identical goods for two separate markets and practices third-degree price discrimination. In the first market the firm charges $30 per unit, and it charges $22 per unit in the second market. Which of the following represents the ratio of price elasticities of demand in the two markets?
A) E2 = (21/29)E1
B) E2 = (29/21)E1
C) E2 = E1
D) E2 = (22/30)E1
E) none of these

Question

Quizplus · Accepted Answer

The correct ratio of price elasticities of demand in the two markets under third-degree price discrimination cannot be determined solely based on the prices charged in each market. The formula for determining the ratio of price elasticities involves not just the prices but also the marginal cost and quantities sold in each market, none of which are provided in the question.

Suppose a Firm Produces Identical Goods for Two Separate Markets