A book publisher faces two different markets with different price elasticities of demand for its books.In market A the price elasticity of demand is 6 and in market B the elasticity is 1.5.If the marginal cost of producing a book is $10,how should the firm price its books in the two markets?
A)market A = $12 and market B = $30
B)market A = $60 and market B = $15
C)market A = $15 and market B = $60
D)market A = $30 and market B = $12

Question

Quizplus · Accepted Answer

The firm should use price discrimination, charging a lower price in the more elastic market (A) and a higher price in the less elastic market (B) to maximize profit. Given the marginal cost of $10, a markup formula based on elasticity (Price = Marginal Cost / (1 - 1/Elasticity)) can be applied. For market A (Elasticity = 6), the price is $12. For market B (Elasticity = 1.5), the price is $30.

A Book Publisher Faces Two Different Markets with Different Price