When using group pricing, each group's price should be set by what two steps?
A)Identify the group's average income or ability to pay, and multiply this by the average share of income spent on this product.
B)Identify the quantity where the marginal cost equals marginal revenue for each group, and then find the price for that quantity on each group's demand curve.
C)Divide the demand by the number of segments, and choose the price on the marginal revenue curve associated with each segment's quantity.
D)Choose the profit-maximizing price according to the rational rule for sellers, and then adjust the price up or down based on the number of segments.

Question

Quizplus · Accepted Answer

Group pricing should be based on the quantity where the marginal cost equals marginal revenue for each group, which will help maximize profits. Finding the price for that quantity on each group's demand curve will ensure that each group pays a fair price based on their willingness to pay. Option A is incorrect because it assumes that each group has the same ability to pay and spends the same share of their income on the product, which may not be the case. Option C is incorrect because it assumes that demand is divided equally among segments, which may not be true. Option D is incorrect because it does not take into account the differences in willingness to pay among groups.

When Using Group Pricing, Each Group's Price Should Be Set