How does price discrimination help cover fixed costs?
A) If price discrimination expands the size of the market, the fixed costs can be spread over a much larger output level.
B) If price discrimination lowers profits, firms will produce less and have lower fixed costs.
C) Consumers with inelastic demand are less costly to serve, lowering the fixed costs of production.
D) Consumers with elastic demand are less costly to serve, lowering the fixed costs of production.

Question

Quizplus · Accepted Answer

Price discrimination allows firms to charge higher prices to consumers who are willing to pay more, and lower prices to those who are willing to pay less. This expands the size of the market by attracting consumers who were previously unwilling or unable to pay the higher price, increasing the overall output level. As a result, fixed costs can be spread over a larger quantity, helping to cover those costs.

How Does Price Discrimination Help Cover Fixed Costs