Question

Suppose group price discrimination is possible but a firm chooses not to and sets the same price in each market. As a result Select one:
a. price elasticity of demand is the same in each market.
b. the price-inelastic market will buy zero units.
c. marginal revenue in the more price-elastic market exceeds marginal revenue in the less price-elastic market.
d. the deadweight loss is less than if the firm price discriminated.

Answer 1

Answer:

C) marginal revenue in the price-elastic market exceeds marginal revenue in the price-inelastic market

Explanation:

Marginal revenue will increase as the price elasticity of demand increases. When marginal revenue is positive, the demand is elastic, when marginal revenue is negative, the demand is inelastic.

Therefore if the company sets the same price for different markets, the marginal revenue will be higher where the price elasticity of demand is higher (more elastic). But it will be lower where the price elasticity of demand is lower (more inelastic).