Assume that a profit-maximizing firm practices price discrimination in two different market segments. If the marginal cost of producing the good is the same, the price:
A) will be lower in the segment with lower cross price elasticity of demand.
B) will be higher in the segment with higher income elasticity of demand.
C) will be lower in the segment with lower fixed costs.
D) will be higher in the segment with more inelastic demand.
E) will be higher in the segment with higher marginal revenue.

Question

Quizplus · Accepted Answer

Price discrimination involves charging different prices to different groups of consumers. In order to maximize profits, the firm must set a higher price in the market segment with more inelastic demand, as consumers in this group are willing to pay more for the product. This allows the firm to capture more surplus from this group of consumers. Therefore, choice D - setting a higher price in the segment with more inelastic demand - is the correct answer.

Assume That a Profit-Maximizing Firm Practices Price Discrimination in Two