Which of the following is the main principle behind price discrimination?
A) If the demand curves are different, it is more profitable to set different prices in different markets than a single price that covers all markets.
B) To maximize profit the firm should set a higher price in markets with more inelastic demand.
C) Arbitrage makes it difficult for a firm to set different prices in different markets thereby reducing the profit from price discrimination.
D) All of the answers are correct.

Question

Quizplus · Accepted Answer

All of the answers are correct. Price discrimination is based on the idea that firms can increase their profits by charging different prices to different groups of consumers based on their willingness to pay. This can be done by segmenting the market and setting different prices in each segment. The main principle behind price discrimination is that different consumers have different demand curves, and hence, they are willing to pay different prices for the same product. To maximize profits, the firm should set a higher price in markets with more inelastic demand, as these consumers are less responsive to changes in price. However, arbitrage can make it difficult for the firm to set different prices in different markets, as consumers may buy the product in the lower-priced market and resell it in the higher-priced market.

Which of the Following Is the Main Principle Behind Price