Get premium membership and access questions with answers, video lessons as well as revision papers.

Explain why firms engage in price discrimination.

      

Explain why firms engage in price discrimination.

  

Answers


marlyne
Price discrimination occurs when a firm sells the same product in two or more markets at different prices. In other words consumers pay different prices for the same goods.
To price discriminate the following conditions need to exist:
• the firm must have some market power, not be a price taker
• the firm must be able to separate the markets
• buyers in different markets must have a different elasticity of demand
• firms must be able to prevent reselling by those buyers who paid the low price to those who would pay the higher price
If these conditions exist, firms can charge those with less elastic demand higher prices and therefore gain higher levels of revenue. If the increased revenue from price discrimination is greater than the addition to cost then the firm will gain higher levels of profit
marlinbito answered the question on July 5, 2018 at 15:11


Next: Explain why the cost of supplying a litre of tap water is likely to be lower than the cost of supplying a litre of bottled...
Previous: Evaluate the desirability of a total ban on price discrimination.

View More Economics Questions and Answers | Return to Questions Index


Learn High School English on YouTube

Related Questions