A group price discriminator sells its product in Florida for three times the price it sells it in New York. Assuming the firm faces the same constant marginal cost in each market and the price elasticity of demand in New York is -2.0, the demand in Florida
A)has an elasticity of -6.0.
B)is more price elastic than the demand in New York.
C)has an elasticity of -1.2.
D)has an elasticity of -0.67.

Question

Quizplus · Accepted Answer

The demand in Florida has an elasticity of -1.2, which is calculated using the formula for optimal pricing under price discrimination, where the price ratio is inversely proportional to the elasticity ratio. Given the price is three times higher in Florida and the elasticity in New York is -2.0, the elasticity in Florida is -2/3, which simplifies to -1.2.

A Group Price Discriminator Sells Its Product in Florida for Three