A price-discriminating monopolist sets prices that _____________________ the absolute value of the elasticity of demand.

Question

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In order to maximize profits, a price-discriminating monopolist sets different prices for different groups of consumers based on their willingness to pay. The monopolist will charge a higher price to the group of consumers with a relatively inelastic demand because they are less responsive to changes in price. Conversely, the monopolist will charge a lower price to the group of consumers with a relatively elastic demand because they are more responsive to changes in price. Thus, the monopolist's prices vary inversely with the absolute value of the elasticity of demand.

A Price-Discriminating Monopolist Sets Prices That _____________________ the Absolute Value