A firm can effectively practice price discrimination and increase profit if
A) the marginal cost of production in each market is different.
B) the average cost of production in each market is different.
C) the price elasticity of demand in each market is different.
D) the product can be produced in two different factories.

Question

Quizplus · Accepted Answer

Price discrimination is based on charging different prices to different customers based on their willingness and ability to pay. To effectively practice price discrimination, the firm must be able to identify and segment the market based on the price elasticity of demand. This means that the firm should be able to charge higher prices to customers with more inelastic demand and lower prices to customers with more elastic demand. The marginal cost of production or having two different factories does not necessarily lead to effective price discrimination. The average cost of production is also not a determining factor in the practice of price discrimination.

A Firm Can Effectively Practice Price Discrimination and Increase Profit