The strategy underlying price discrimination is to:
A) charge higher prices to customers who have better access to substitutes.
B) charge everyone the same price but limit the quantity they are allowed to buy.
C) increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.
D) reduce per-unit costs by charging higher prices to those with the most elastic demand and lower prices to those with the most inelastic demand.

Question

Quizplus · Accepted Answer

The strategy of price discrimination aims to increase total revenue by charging higher prices to those customers who are less sensitive to price changes (have inelastic demand) and lower prices to those customers who are more sensitive to price changes (have elastic demand). This allows the seller to capture a larger portion of the consumer surplus and maximize profits. Option A is not correct as the strategy is not based on the access to substitutes. Option B is not correct as it is the strategy of quantity discrimination, not price discrimination. Option D is also not correct as charging higher prices to those customers with elastic demand does not help in reducing per-unit costs.

The Strategy Underlying Price Discrimination Is To