A monopolist has segmented its customers into three groups,A,B,and C,and is discriminating prices between them.Each type A customer has a price elasticity of demand equal to 1.2;each type B customer has a price elasticity of demand equal to 6;and each type C customer has a price elasticity of demand equal to 11.If the firm charges type C customers $11 per unit,what prices should it charge its type A and type B customers in order to maximize profit?
A)Type A = $1.20 per unit and type B = $6.00 per unit
B)Type A = $1.33 per unit and type B = $1.66 per unit
C)Type A = $12.00 per unit and type B = $6.00 per unit
D)Type A = $60.00 per unit and type B = $12.00 per unit

Question

Quizplus · Accepted Answer

To maximize profit, the monopolist should set prices inversely proportional to the price elasticity of demand. Therefore, if type C customers are charged $11 with an elasticity of 11, type A customers with an elasticity of 1.2 should be charged $60, and type B customers with an elasticity of 6 should be charged $12.

A Monopolist Has Segmented Its Customers into Three Groups,A,B,and C,and