A Price-Discriminating Monopolist Sells in Two Separate Markets Such That

question 16

Multiple Choice

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other. It charges $2 in one market and $12 in the other market. At these prices, the price elasticity in the first market is -2.50 and the price elasticity in the second market is -0.70. Which of the following actions is sure to raise the monopolist's profits?

• A) Raise p₂.
• B) Raise both p₁ and p₂.
• C) Lower p₂.
• D) Raise p₁ and lower p₂.
• E) Raise p₂ and lower p₁.

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Definitions:

Service

An intangible activity or benefit provided to satisfy the needs of a consumer or business.

Essential Goods

Items considered necessary for basic human survival and well-being, such as food, water, and shelter.

Nonessential Goods

Goods considered as luxuries or not necessary for basic living, often subject to reduced spending during economic downturns.

Expensive

Involving high cost or price; something that is costly.