Suppose there are two groups, a high price group and a low price group. Assume t

Question

Suppose there are two groups, a high price group and a low price group. Assume the monopoly has no fixed costs such that operating with a loss corresponds to operating where revenue is less than variable production costs. Also assume that if the monopoly sells to the low price group then it will incur a loss. With the ability to group price discriminate, the monopoly a. would sell to the low price group because it only cares about combined group profit b. would not sell to the low price group because optimal group prices are set jointly c. might sell to the low price group because sales to both groups are interdependent d. might sell to the low price group to cover a portion of the variable production costs e. would not sell to the low price group because it could just sell to the high price group and avoid losses

Explanation / Answer

With the ability to group price discriminate, the monopoly:

c. might sell to the low price group because sales to both groups are interdependent

(Price-discriminating monopoly does not discriminate based on prejudice, stereotypes, or ill-will toward any person or group. Rather, it divides its customers into different categories based on their willingness to pay for good)

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