Ricky and Anita are 10 year-olds who have a lemonade stand on a busy beach and would like to practice price discrimination. They know that they are the only sellers of lemonade on the beach and that adults have a less elastic demand for lemonade than kids so they decide to sell their lemonade for $0.25 to kids and $0.50 to adults. Will their price discrimination be successful? Why or why not?
A) Yes, they have all of the necessary criteria to successfully price discriminate.
B) Yes, the only necessary conditions is that they know the relative elasticities of the market segments.
C) No, the kids who buy their lemonade can practice arbitrage.
D) No, Ricky and Anita are price takers.

Question

Quizplus · Accepted Answer

Since kids can buy the cheaper lemonade and resell it to adults for a profit, they have the ability to practice arbitrage and eliminate the price discrimination. Therefore, Ricky and Anita's price discrimination may not be successful.

Ricky and Anita Are 10 Year-Olds Who Have a Lemonade