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 p₂ and lower p₁.

Question

Quizplus · Accepted Answer

To maximize profits, a price-discriminating monopolist should adjust prices in each market according to the price elasticity of demand. In the market with a price elasticity of -0.40 (inelastic demand), raising the price (option B) will increase total revenue because the percentage decrease in quantity demanded will be less than the percentage increase in price.

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