Assume a monopolist produces rum and knows there are two groups of rum consumers, 1 and 2, with different price elasticities. Group 1 is highly price elastic with E1=-10; Group 2 exhibits a lower price elasticity of E2=-2.5. Assume the company can separate these two groups (e.g., by handing out special ID cards) and can charge two different prices. If P2=$14, how much can it charge to Group 1?

Assume a monopolist produces rum and knows there are two groups of rum consumers, 1 and 2, with different price elasticities. Group 1 is highly price elastic with E1=-10; Group 2 exhibits a lower price elasticity of E2=-2.5. Assume the company can separate these two groups (e.g., by handing out special ID cards) and can charge two different prices. If P2=$14, how much can it charge to Group 1?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.9P

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