If a monopoly is price discriminating between two groups,A and B,based on observable customer characteristics,there is no difference in the marginal cost of selling to the two groups,and the elasticity of demand for group A is -1.5 while the elasticity of demand for group B is -2.1,which of the following is true?
A) The markup and price for group A customers will be higher than for group B customers.
B) The markup and price for group B customers will be higher than for group A customers.
C) The markup for group A customers will be higher than for group B customers, but there is not enough information to determine which price will be higher.
D) The price for group A customers will be higher than for group B customers, but there is not enough information to determine which markup will be higher.

Question

Quizplus · Accepted Answer

The monopoly is price discriminating based on observable customer characteristics, and the elasticity of demand for group B is more elastic than for group A. Therefore, the monopoly will charge a higher markup and price for group A customers because they are less responsive to price changes, and a lower markup and price for group B customers because they are more sensitive to price changes. Therefore, choice A is the best option.

If a Monopoly Is Price Discriminating Between Two Groups,A and B,based