The monopolist engaged in ordinary price discrimination:
A)the monopolist will have troubles finding out the exact value of the price elasticities of demand.
B)charges higher prices in markets with higher absolute value of the price elasticity of demand.
C)the prices in the two markets are not related to the respective price elasticities of demand.
D)charges higher prices in markets with lower absolute value of the price elasticity of demand.

Question

Quizplus · Accepted Answer

In ordinary price discrimination, the monopolist charges higher prices in markets with lower absolute value of the price elasticity of demand. This is because in markets with inelastic demand, consumers are less sensitive to price changes and are willing to pay higher prices, whereas in markets with elastic demand, consumers are more price sensitive and will not pay as much. The monopolist can thus extract more consumer surplus from the markets with inelastic demand by charging higher prices. It is also easier to identify and separate these markets as they usually have different consumer characteristics or geographical locations.

The Monopolist Engaged in Ordinary Price Discrimination