Final answer:
Group A, with the highest absolute value of price elasticity (-1.24), would be charged the lowest price in a price discrimination scenario, as they are most sensitive to price changes. The correct answer is option: a: -1.24
Step-by-step explanation:
To determine which consumer group would be charged the lowest price if a firm wanted to implement price discrimination, we need to look at the price elasticities of demand. Price elasticity measures the responsiveness of the quantity demanded to a change in price. Generally, a product with a high (absolute value) elasticity of demand (>1) means that consumers are sensitive to price changes, while a lower elasticity (<1) means they are less sensitive.
In this case, Group A has a price elasticity of -1.24, Group B has -0.35, Group C has -0.88, and Group D has 0. Since the negative sign indicates the inverse relationship between price and quantity demanded and is typically ignored when discussing absolute values, we can compare the absolute values: Group A has the highest elasticity, and Group D has the lowest, meaning they have no sensitivity to price changes at all.
With price discrimination, the firm would charge each group a different price based on their price elasticity. The group with the highest absolute value of price elasticity (Group A) would be charged the lowest price because they are the most price-sensitive. Conversely, Group D would be charged the highest price as they are completely insensitive to price changes (elasticity of 0).