A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $6 in one market and $8 in the other market. At these prices, the price elasticity in the first market is -2.10 and the price elasticity in the second market is -0.40. Which of the following actions is sure to raise the monopolist's profits? A) Raise both p₁ and p₂. B) Raise p₂. C) Lower p₂. D) Raise p₁ and lower p₂. E) Raise p₂and lower p₁.

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Quizplus · Accepted Answer

The monopolist should raise the price in the second market because the demand is inelastic (elasticity of -0.40), meaning consumers are less sensitive to price changes, allowing the monopolist to increase revenue and profits.

A Price-Discriminating Monopolist Sells in Two Separate Markets Such That