Question

Which of the following statements is FALSE? I. If the demand curves are different, it is more profitable to set a single price than different prices in markets. II. To maximize profit the firm should set a lower price in markets with more elastic demand. III. The presence of arbitrage makes it easy for a firm to price discriminate.

Answer 1

1st & 3rd are False, 2nd is True .

Step-by-step explanation:

Price Discrimination is pricing strategy - involving firms charging different prices from different customers, for same goods & services.

If demand curves of different markets (customer groups) are different it is profitable for firms to do price discrimination - i.e selling at different prices, rather than single price. This enables firm charging maximum of their paying capacity from each customer group. Hence 1st statement is False

Markets having customers with more elastic (more price sensitive) demand should be charged lower prices. Markets having customers with less elastic (less price sensitive) demand should be charged higher prices. So, 2nd statement is True.

Arbitrage is ability of buying goods from low priced markets, selling them in high priced markets. In presence of arbitrage, it is difficult for firms to discriminate. So, 3rd statement is False.