Suppose that a monopolist sells a product to men and women. If the firm sets a s

Question

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 -1.5, and the price elasticity of demand for women is -0.50. The monopolist is considering whether he should set discriminatory prices and asks for your advice.

Suppose the monopolist is thinking about charging women a 10% higher price. If the monopolist does so, the quantity demanded by women would fall by:______________

Explanation / Answer

elasticity is given by the percentage change in quantity demanded to the percentage change in prices.

here if the price for men is 10% higher than,

the demand by man will fall by, 1.5*10 = 15%

now here if the prices for women will rise by 10%,

quantity will fall by 0.5*10 = 5%

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