If the marginal cost of production is $10,the elasticity of demand for group 1 is -1.5,the elasticity of demand for group 2 is -2.5,and the price paid by group 1 is $15,the price for group 2 is
A) $8.33.
B) $27.
C) $15.
D) Impossible to tell.

Question

Quizplus · Accepted Answer

We can use the formula for price discrimination under perfect price discrimination to solve for the price for group 2:

Price = Marginal Cost + (1 + (1/Elasticity of Demand)) * (Price for Group 1 - Marginal Cost)

For group 1:

Price = $10 + (1 + (1/-1.5)) * ($15 - $10) = $13

For group 2:

Price = $10 + (1 + (1/-2.5)) * ($15 - $10) = $8.33

Therefore, the price for group 2 is $8.33.

If the Marginal Cost of Production Is $10,the Elasticity of Demand