Question

Price discrimination is a rational strategy for a profit-maximizing monopolist when A. consumers are unable to be segmented into identifiable markets. B. the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior. C. there is no opportunity for arbitrage across market segments.

Answer 1

Price discrimination is a rational strategy for a profit-maximizing monopolist when there is no opportunity for arbitrage across market segments.

Option: C

Explanation:

Price disparity is a pricing strategy in which businesses charge different rates to each consumer for the same goods or services depending on how much the consumer is actually willing to pay. The consumer usually doesn't know that such actions are taking place. Thus this help monopolies to earn more profit which is drived during market arbitrage, which is basically to reap the benefits of a price gap as it is a simultaneous bartering of the same commodity in various markets. It comes about because of asymmetric knowledge among sellers and buyers.