If two identifiable markets differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will
A)set a higher price in the market that is more price inelastic.
B)set a lower price in the market that is more price inelastic.
C)set price so as to equate the elasticity of demand across markets.
D)set price equal to marginal cost in both markets.

Question

Quizplus · Accepted Answer

A firm with market power will set a higher price in the market that is more price inelastic because it can capture a larger portion of consumer surplus in that market without experiencing a significant decline in demand. This allows the firm to increase its profit margins in the more inelastic market.

If Two Identifiable Markets Differ with Respect to Their Price