Question

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with: the higher price elasticity of demand. the lower price elasticity of demand. the fewer close substitutes. The answer cannot be determined with the information given.

Answer 1

The correct answer is letter "A": the higher price elasticity of demand.

Step-by-step explanation:

Elasticity is a measure of the reaction of a variable to fluctuations in another variable. It can describe to what degree a product or service's supply or demand, varies with the price of the goods or consumer income. Elasticity is calculated by dividing the percentage change in quantity demanded with the percentage change in price.

Thus, while allocating prices, a company should provide a lower price to a sector with high elasticity because that part of the market is prone to make big demand changes if the price varies abruptly.

Answer 2

the higher price elasticity of demand

Step-by-step explanation:

A monopoly is when there is only one firm operating in an industry.

Price discrimination is when a producer sells the same good for different prices in different markets.

Elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Demand is elastic when a change in price has greater effect on the quantity demanded.

A monopoly would charge the lower price for customers with a higher elasticity of demand because if price is high consumers would reduce the quantity demanded and the revenue of the monopoly firm would fall.

I hope my answer helps you.