Suppose that a price-discriminating firm divides its market into two segments. If the firm sells its product for a price of $42 in the market segment where demand is relatively less elastic, the price in the market segment whose customers' demand is more elastic will be

Question

Quizplus · Accepted Answer

In order to maximize profits, the price in the segment with less elastic demand should be higher than the price in the segment with more elastic demand. Since the price in the less elastic segment is $42, the firm should set a lower price in the more elastic segment in order to attract more customers and increase sales. Therefore, the price in the more elastic segment should be less than $42, making choice C the correct answer.

Suppose That a Price-Discriminating Firm Divides Its Market into Two