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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 -3.50, and the price elasticity of demand for women is -0.80. The monopolist is considering whether he should set discriminatory prices and asks for your advice.a. Suppose the monopolist is thinking about charging men a 10% higher price. If the monopolist does so, the quantity demanded by men would fall by %. b. 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 %. c. Because the demand for men is relatively • elastic than it is for women. the monopolist should charge

Respuesta :

Answer:

a) Fall in men's demand = 35% ; b) Fall in women's demand = 8%

c) Price for men should be lower , price for women should be higher.

Explanation:

Elasticity of Demand denotes responsive change in demand, due to change in price. Elasticity = % change in demand / % change in price.

a) Fall in Men's demand = Elasticity x (% change in price) = 10 x 3.5 = 35%

b) Fall in Women's demand =  Elasticity x % change in price = 10 x 0.8 = 8%

If elasticities for different market segments is different, monopolist (single seller) should sell at discriminated prices. The market segment having lower elasticity should be charged higher price, the market segment having higher elasticity should be charged lower price

  • Men's Elasticity (3.5) > Women's Elasticity (0.8). So, same price rise would reduce more demand for men & less for women (shown in part a, b). So, the monopolist should charge higher price from women, lower price from men

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