Challenges that a
Explanation of Solution
Price discrimination is the practice of charging different prices for the same commodity from different consumers. In order to set effective price discrimination, the price maker has to overcome certain challenges.
First, the firm has to differentiate the group of consumers with different elasticities of demand. The firm will charge a higher price when the price elasticity is inelastic. This is because there will be a little responsiveness or the change in quantity demanded due to high change in price. If the
Second, the firms that engaged in price discrimination should need the ability to prevent arbitrage. This means that the firms have to prevent the activities like resale of the commodity to restrict money creation for those who are buying the commodity at a lower price.
Price discrimination: Price discrimination is the practice of charging different prices for the same commodity for different consumers.
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Chapter 11 Solutions
Principles of Microeconomics Instructor's Edition 2nd Edition
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