Firms That Can Effectively Price Discriminate

question 128

Multiple Choice

Firms that can effectively price discriminate

• A) can be either perfectly competitive firms or monopolies.
• B) can prevent the resale of their products.
• C) have only one class of buyers, buyers willing to pay a high price.
• D) Both answers A and B are correct.
• E) Both answers A and C are correct.

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Definitions:

M&M I

The Modigliani-Miller Theorem I, which suggests that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by its capital structure.

Interest Tax Shield

The decrease in income tax due to the permissible deduction on interest expenses.

Capital Structure

The composition of a company's liabilities and equity, defining how it finances its overall operations and growth.

M&M Proposition I

A principle of corporate finance stating that the value of a firm is unaffected by how it is financed, in the absence of taxes, bankruptcy costs, and asymmetric information.