Suppose that a third degree price discriminating monopolist divides the market into two segments. If the firm sells its product for a price of $120 in the market segment with the more elastic demand, the price in the market with the more inelastice demand will be O a. $120. O b. less than $120. O c. greater than $120. O d. equal to marginal revenue in that market segment.
ANS
If the monopolist is practicing price discrimination of third-degree, then under this pricing strategy the monopolist will charge different levels of prices for the same good in different markets. In this type of price discrimination consumers are charged a price based on his willingness to pay for a product or a service.
If the demand is more elastic then the change in quantity (Q) demanded due to a certain change in price will be higher compared to the scenario where the demand is less elastic. Thus if the demand is less elastic then a monopolist can charge a comparatively higher price because charging a higher price will not reduce the Q demanded significantly.
Therefore, if a monopolist is charging a price of $120 in a market where the demand is elastic then in a market where the demand is inelastic the monopolist will charge a price that is above $120.
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