2018 Nov (Price Discrimination) Paper 3 HL

2018 Nov (Price Discrimination) 

Paper 3 HL

Urban customers PED = .8 (inelastic)

Rural customers PED = 1.2 (elastic)

 

To raise Revenue Firm B could

·      Price Discriminate in two separate markets (charge different prices in different/separate markets)

·      Charge a higher price to urban customers (or a lower price to rural)

·      When there is inelastic demand a price increase will increase Total Revenue or when there is elastic demand lowering the price will increase Total Revenue.

·      Firm B needs to separate the two markets so there is no resale (or firm B needs to have some monopoly/price-setting power)