Refer to the following figure:

The graph shows the demands and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MR T , and marginal cost.
-What rule do your answers to the previous two questions demonstrate for price determination for a firm that practices price discrimination?
A) elasticity and price are not related
B) price is lower in the higher elasticity market
C) price is higher in the higher elasticity market
D) profit is maximized when both prices and elasticities are equal
E) none of the above

Question

Refer to the following figure:
  
The graph shows the demands and marginal revenue in two markets, 1 and 2, for a price discriminating firm along with total marginal revenue, MR T , and marginal cost.
-What rule do your answers to the previous two questions demonstrate for price determination for a firm that practices price discrimination?
A) elasticity and price are not related 
B) price is lower in the higher elasticity market 
C) price is higher in the higher elasticity market 
D) profit is maximized when both prices and elasticities are equal 
E) none of the above

Quizplus · Accepted Answer

In price discrimination, firms charge a lower price in markets with higher price elasticity of demand because consumers are more sensitive to price changes, allowing the firm to maximize profits by capturing more consumer surplus.

Refer to the Following Figure