Asked by Ritvik Rekhi on May 02, 2024
Verified
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.
Price-Discriminating Monopolist
A monopolist that charges different prices to different consumers or groups of consumers, often based on their willingness to pay.
Price Elasticity
A measure of how much the quantity demanded of a good responds to a change in the price of that good, illustrating the sensitivity of demand to price changes.
Separate Markets
Distinct spaces or platforms where goods, services, or financial instruments are traded independently, often with little to no interaction or effect on each other.
- Understand the significance of demand elasticity in determining pricing strategies for monopolistic entities.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
B
Explanation :
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.
Learning Objectives
- Understand the significance of demand elasticity in determining pricing strategies for monopolistic entities.