Question

In order to most profitably engage in price discrimination, a firm will lower the price for consumers whose demand is ______ and raise the price for consumers whose demand is ______?

1) elastic, inelastic
2) inelastic, elastic
3) high, low
4) low, high

Answer 1

To engage in price discrimination, a firm will lower the price for consumers with elastic demand and raise the price for those with inelastic demand, thereby maximizing revenue.

Step-by-step explanation:

In order to most profitably engage in price discrimination, a firm will lower the price for consumers whose demand is elastic, and raise the price for consumers whose demand is inelastic. When demand is elastic, consumers are highly responsive to price changes, which means a small decrease in price can lead to a significant increase in the quantity demanded. Conversely, when demand is inelastic, consumers are not as responsive to price changes, so the firm can raise prices without a significant decrease in the quantity demanded. Understanding this aspect of consumer behavior allows firms to maximize their revenues by adjusting prices according to the elasticity of demand among different groups of consumers.