Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand.If the producer's objective is to increase total revenue, she should:
A)increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand
B)decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand
C)charge the same price to both groups of customers
D)increase the price for both groups of customers

Question

Quizplus · Accepted Answer

When the producer decreases the price charged to customers with the price elastic demand, the quantity demanded from this group will increase, resulting in an increase in total revenue. On the other hand, when the producer increases the price charged to customers with the price inelastic demand, the quantity demanded from this group will only decrease slightly, resulting in an increase in total revenue. Therefore, decreasing the price for price elastic demand customers and increasing the price for price inelastic demand customers will result in an increase in total revenue.

Suppose a Producer Is Able to Separate Customers into Two