A firm with production located in a poor Georgia town sells toys locally for $10

Question

A firm with production located in a poor Georgia town sells toys locally for $10 each and ships the same toys to sell in a wealthy North Carolina town for $15 each. They are not price discriminating if:

A. Laws in Georgia allow it.

B. Laws in North Carolina allow it.

C. Total advertising costs are $5 per unit.

D. Total transportation costs are $5 per unit.

A firm with production located in a poor Georgia town sells toys locally for $10 each and ships the same toys to sell in a wealthy North Carolina town for $15 each. They are not price discriminating if:

A. Laws in Georgia allow it.

B. Laws in North Carolina allow it.

C. Total advertising costs are $5 per unit.

D. Total transportation costs are $5 per unit.

Explanation / Answer

Correct option is (D).

If total transportation cost is $5 per unit, this is included as a unit variable cost in total selling price, therefore to include the transportation cost, the firm will increase its price in North Carolina by $5. So, this is not price discrimination.

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