Suppose a Monopoly Sells to Two Identifiably Different Types of Customers,A

question 74

Multiple Choice

Suppose a monopoly sells to two identifiably different types of customers,A and B,who are unable to practice arbitrage.The inverse demand curve for group A is P_A = 10 - Q_A,and the inverse demand curve for group B is P_B = 18 - Q_B.The monopolist is able to produce the good for either type of customer at a constant marginal cost of 2,and the monopolist has no fixed costs.If the monopolist is able to practice group price discrimination,the values of the elasticities of the two groups at the profit-maximizing prices are

• A) ε_A = -1.25, and ε_B = -1.5.
• B) ε_A = -1.5, and ε_B = -1.25.
• C) ε_A = -0.67, and ε_B = -0.8.
• D) ε_A = -0.8, and ε_B = -0.67.

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