2. The EarthCom Company prices its wireless service differently in the two marke

Question

2. The EarthCom Company prices its wireless service differently in the two market segments it serves even though the cost of adding a new customer is the same in each segment. Market research has shown that EarthCom can increase its profits by price-discriminating, rather than charging the same price to all customers. Currently, the extra revenue that EarthCom obtains from a monthly subscription is $25 in market one and $15 in market two. (Note that these figures are marginal revenues, not prices.) Which of the following statements is most likely correct?




A. EarthCom's price-discrimination policy is probably maximizing its profits.

B. From the information provided, we can't determine whether EarthCom's pricing policy is maximizing its profits.

C. EarthCom's price-discrimination policy is not maximizing EarthCom's profits.

Explanation / Answer

B. We cannot tell becasue we know nothing about the demands of the two groups. In addition, we do not know if they are currentyl pricing at the profit maximizing condition where MC=MR. There is absolutly no way to tell witht he information given.

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