Suppose that a price discriminating monopolist is able to divide its market into two groups. If the firm sells its product for $25 to the group whose customers have the least elastic demand, what price are they likely to charge to the group whose customers have the most elastic demand?
A) $25
B) more than $25
C) less than $25
D) The answer depends on the marginal revenue for that group.

Question

Quizplus · Accepted Answer

Price discriminating monopolists charge a higher price to the group with less elastic demand and a lower price to the group with more elastic demand. Since the group with the most elastic demand is more price sensitive, the firm will have to lower the price to incentivize them to buy the product. Therefore, the price charged to the group with the most elastic demand is likely to be less than $25.

Suppose That a Price Discriminating Monopolist Is Able to Divide