If a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities,then
A)consumers that buy larger quantities have a higher price elasticity of demand.
B)consumers that buy larger quantities have a lower price elasticity of demand.
C)consumers that buy smaller quantities have a lower price elasticity of demand.
D)Both A and C.

Question

Quizplus · Accepted Answer

When a monopoly charges higher prices to consumers who buy smaller quantities than to consumers who buy larger quantities, it suggests that the monopoly is practicing price discrimination based on the different price elasticities of demand among consumers. Consumers who buy larger quantities are likely to have a lower price elasticity of demand than consumers who buy smaller quantities. Therefore, they are less sensitive to changes in prices and can afford to pay more. Customers who buy smaller quantities are more sensitive to price changes because price increases may lead them to switch to substitutes or reduce their consumption of the product. Therefore, they have a higher price elasticity of demand. Thus, both (A) consumers who buy larger quantities have a higher price elasticity of demand and (C) consumers who buy smaller quantities have a lower price elasticity of demand are correct.

If a Monopoly Charges Higher Prices to Consumers Who Buy