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

question 7

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 p₁ = $2 in one market and p₂ = $8 in the other market.At these prices, the price elasticity in the first market is -2.20 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits?

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

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Definitions:

Joint Cost Function

A concept in economics where certain costs are incurred to produce multiple products simultaneously, making it challenging to allocate the costs distinctly to each product.

Economies of Scope

Cost advantages that enterprises obtain through the variety of products rather than through a high volume of a single product.

Cost Function

A mathematical relationship describing how production costs change with changes in the quantity of output produced.

Economies of Scope

Economies of scope occur when it is more cost-effective for a company to produce two or more products together rather than separately.