A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $5 in one market and p₂ = $10 in the other market.At these prices, the price elasticity in the first market is -1.40 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits? A)Lower p₂. B)Raise p₂. C)Raise p₁ and lower p₂. D)Raise both p₁ and p₂. E)Raise p₂ and lower p₁.

Question

Quizplus · Accepted Answer

The monopolist should raise the price in the second market (p₂) where the price elasticity of demand is 0.10, indicating inelastic demand. In inelastic markets, increasing prices can lead to higher revenues because the percentage decrease in quantity demanded is less than the percentage increase in price.

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