The Hawaiian Sea Salt Company sells salt to retail grocery chains in Hawaii and

Question

The Hawaiian Sea Salt Company sells salt to retail grocery chains in Hawaii and on the mainland. The demand function in each of these markets is: Hawaii grocery chains: P1 = 180 – 8Q1 Mainland grocery chains: P2 = 100 – 4Q2 Where P1 and P2 are the prices charged and Q1 and Q2 are the quantities sold in the respective markets. Hawaiian Sea Salt Company’s total cost function for salt is: TC = 50 + 20 (Q1 + Q2) If all transportation and other transaction costs between Hawaii and the Mainland were zero, could Hawaiian Sea Salt Company practice price discrimination?

a. No, because consumers would only buy it from the cheaper location.

b. Yes, because demands still differ.

c. Yes, because the salt can only be produced in Hawaii.

d. No, because on the mainland there are more substitutes available.

Explanation / Answer

a. No, because consumers would only buy it from the cheaper location.

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