Multiple choice

Price discrimination will be profitable only if the elasticity of demand in different markets, in which the total market has been divided, is

  1. uniform

  2. different

  3. less than one

  4. zero

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Price discrimination is profitable only when different market segments have different price elasticities of demand. The monopolist charges a higher price in the less elastic market (where consumers are less sensitive to price) and a lower price in the more elastic market (where consumers are more price-sensitive). If elasticities were uniform, charging different prices would simply shift sales between markets without increasing total profit.