Suppose there is a firm with at least some market power that supplies the same product to two markets. Price elasticity of demand has been calculated and differs across the two markets. Marginal cost is the same for supplying both markets. Should they price discriminate? а. No, they should set price below marginal cost. b. Yes, they should charge a higher price in the market where price elasticity of demand is less elastic (i.e. a lower absolute value of elasticity). С. No, they should set price equal to marginal cost. d. No, they should set price equal to marginal cost. d. Yes, they should charge a higher price in the market where price elasticity of demand is more elastic (i.e. a larger absolute value of elasticity).

Suppose there is a firm with at least some market power that supplies the same product to two markets. Price elasticity of demand has been calculated and differs across the two markets. Marginal cost is the same for supplying both markets. Should they price discriminate? а. No, they should set price below marginal cost. b. Yes, they should charge a higher price in the market where price elasticity of demand is less elastic (i.e. a lower absolute value of elasticity). С. No, they should set price equal to marginal cost. d. No, they should set price equal to marginal cost. d. Yes, they should charge a higher price in the market where price elasticity of demand is more elastic (i.e. a larger absolute value of elasticity).

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 3SCQ: Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into...

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