Question

If the demand for a newly released novel is less price-elastic than the demand for an older novel, which of the following pricing strategies would a price-discriminating publishing firm follow?

A) Sell newly released novels and older novels for the same price.
B) Set price according to the marginal cost of printing the novels.
C) Charge a higher price for newly released novels.
D) Charge a higher price for older novels.

Answer 1

C

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

If the demand for a newly released novel is less price-elastic than the demand for an older novel, it means that the demand for the new novel is less price sensitive when compared to the older novel.

A price discriminating firm would sell the new novel at a higher price than the older novel because demand is less sensitive to price. As a result, total revenue would increase.