Suppose a firm practices price discrimination LOADING... to increase its profits

Question

Suppose a firm practices price discrimination

LOADING...

to increase its profits. What potentially limits price discrimination?

A firm's ability to practice price discrimination will be limited if

A.

its managers engage in yield management such that they rapidly adjust prices.

B.

consumers who can buy a good at a low price resell it to consumers who would otherwise have to pay high prices.

C.

demand for its product is relatively inelastic.

D.

arbitrage is illegal.

E.

it experiences economies of scale such that its average costs decrease with output.

Explanation / Answer

the answer here is arbitrage,

now if in case of price discrimination a person buys goods from the market with low price and resell the same good in the market with higher prices at low price only, this will lead to the consumers in market with higher prices to shift to the products supplied by this person from the market with lower prices, thus leads to the destruction of the main purpose of price discrimination

thus answer is "consumers who can buy a good at a low price resell it to consumers who would otherwise have to pay high prices."

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