The table given below shows the price, marginal revenue and marginal cost of a monopolist at different levels of the output. The firm does not incur a fixed cost of production.Table 11.4

-To practice price discrimination, a firm:
A)must face a relatively elastic demand curve.
B)must have customers with different elasticities of demand.
C)must not be able to distinguish between customers based on elasticities of demand.
D)must not be able to prevent resale of the product.
E)must be a price taker.

Question

The table given below shows the price, marginal revenue and marginal cost of a monopolist at different levels of the output. The firm does not incur a fixed cost of production.Table 11.4
 
-To practice price discrimination, a firm:
A)must face a relatively elastic demand curve. 
B)must have customers with different elasticities of demand. 
C)must not be able to distinguish between customers based on elasticities of demand. 
D)must not be able to prevent resale of the product. 
E)must be a price taker.

Quizplus · Accepted Answer

Price discrimination is the practice of charging different prices to different customers for the same product or service. In order to practice price discrimination, the firm must have customers with different elasticities of demand, as this allows the firm to charge a higher price to customers with a relatively inelastic demand and a lower price to customers with a relatively elastic demand. This enables the firm to increase its profits by capturing some of the consumer surplus that would otherwise be lost if a single price were charged to all customers. Therefore, option B is the correct answer.

The Table Given Below Shows the Price, Marginal Revenue and Marginal