Suppose that a monopolist sells a product to men and women. If the firm sets a single price, the monopolist would produce 100,000 units and sell them at a price of $5.00 per unit. Suppose that at that price, the price elasticity of demand for men is - 3.50, and the price elasticity of demand for women is - 0.80. The monopolist is considering whether he should set discriminatory prices and asks for your advice.

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Business

Elsie

27 June, 13:47

Suppose that a monopolist sells a product to men and women. If the firm sets a single price, the monopolist would produce 100,000 units and sell them at a price of $5.00 per unit. Suppose that at that price, the price elasticity of demand for men is - 3.50, and the price elasticity of demand for women is - 0.80. The monopolist is considering whether he should set discriminatory prices and asks for your advice.

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Fernando Cruz · Answer 1

Monopolist can charge a higher price from women.

Explanation:

A monopolist is producing 100,000 units of a product.

The price of the product is $5 per unit.

The price elasticity of demand for men at this price is - 3.5.

The price elasticity for women, on the other hand, is - 0.8.

This means that the men have a relatively elastic demand for the product. While on the other hand, women have relatively inelastic demand. This implies that if the price is increased the demand from women will not change by a greater proportion.

While demand from men can change to a greater proportion because of a change in price.

In this situation, the firm can charge a higher price from women. This is an example of third-degree price discrimination.