Why Is It Important for Firms Practicing Price Discrimination to Prevent

question 120

Multiple Choice

Why is it important for firms practicing price discrimination to prevent arbitrage of their product?

• A) Arbitrage is unrelated to firms' profits since the products are still being sold.
• B) Smugglers alter product quality as they pass from market to market, hence harming the reputation and future profits of firms.
• C) Arbitrage reduces the profits from price discrimination for firms, and increases profits for smugglers.
• D) Arbitrage increases deadweight loss in the market.

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Definitions:

Selling And Administrative Budget

Forecasts expected expenses related to selling the product and managing the business, excluding manufacturing costs.

Cash Budget

A financial plan that estimates cash inflows and outflows over a particular period, often used to assess whether the entity can maintain its operations and obligations.

Units Produced

The total number of finished products that a company manufactures during a specific period.

Ending Inventory

The total value of all unsold goods held by a company at the end of an accounting period.