Question

Suppose that a price-discriminating firm divides its market into two segments. If the firm sells its product for a price of $22 in the market segment where demand is relatively less elastic, the price in the market segment whose customers' demand is more elastic will be

Answer 1

The correct answer is: less than $22.

Step-by-step explanation:

Price discrimination is a situation where a firm charges different prices for the same product. Different price is charged generally from consumers with different price elasticities.

A firm charges a higher prices from the consumer with lower price elasticity because with a higher price there demand will decrease less than proportionate.

Lower price is charged from consumers having a higher price elasticity of demand because these consumers will decrease their demand more than proportionate at a higher price.

So if a firm charges $22 in the market segment with less elastic demand, the price in the more elastic market segment will be lower than $22.