In order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage.

Question

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Price discrimination involves charging different prices to different consumers for the same product, which requires the firm to have some degree of market power to set prices above marginal cost. Additionally, preventing arbitrage is crucial, as it ensures consumers cannot buy the product at a lower price in one market and sell it in another, undermining the firm's ability to price discriminate.

In Order for a Firm to Maximize Profits Through Price