Item7Item 7Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has: multiple choicethe higher elasticity of demand.the lower elasticity of demand.relatively richer members.
Question
Item7Item 7Suppose that a monopolist can segregate his buyers into two different groups to which he can charge two different prices. In order to maximize profit, the monopolist should charge a higher price to the group that has: multiple choicethe higher elasticity of demand.the lower elasticity of demand.relatively richer members.
Solution
In order to maximize profit, a monopolist who can segregate his buyers into two different groups and charge them different prices should charge a higher price to the group that has the lower elasticity of demand.
Here's why:
Elasticity of demand refers to how sensitive the quantity demanded of a good is to a change in its price. If a group has a higher elasticity of demand, it means that they are more sensitive to price changes - a small increase in price will lead to a large decrease in the quantity demanded. On the other hand, if a group has a lower elasticity of demand, they are less sensitive to price changes - a price increase will not significantly affect the quantity demanded.
Therefore, to maximize profit, the monopolist should charge a higher price to the group with a lower elasticity of demand, as this group will continue to purchase nearly the same quantity even at a higher price.
Similar Questions
A monopolist's profits with price discrimination will beGroup of answer choiceslower than if the firm charged a single, profit-maximizing price.higher than if the firm charged a single price because the costs of selling the good will be lower.the same as if the firm charged a single, profit-maximizing price.higher than if the firm charged just one price because the firm will capture more consumer surplus.
Item11Item 11A monopolist is:Multiple Choiceany firm realizing all existing economies of scale.any firm whose demand curve is downward sloping.any firm which can engage in price discrimination.a one-firm industry.
Suppose a monopolist lowers the price of its good, this would cause consumers to: A. continue to buy the same amount B. buy more or less, depending on elasticity of demand C. buy more D. buy less
Monopolistic competition is characterized by firmsMultiple Choiceproducing differentiated products.making economic profits in the long run.producing at optimal productive efficiency.producing where price equals marginal cost.
True or False. Evaluate each statement. a. Because they can control product price, monopolists can guarantee profitable production by simply charging the highest price consumers will pay. b. The pure monopolist seeks the output that will yield the greatest per-unit profit. c. An excess of price over marginal cost is the market’s way of signaling the need for more production of a good. d. The more profitable a firm, the greater its monopoly power. e. The monopolist has a pricing policy; the competitive producer does not. f. With respect to resource allocation, the interests of the seller and of society coincide in a purely competitive market but conflict in a monopolized market.
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