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Price discrimination will be profitable only if the elasticity of demand in different sub markets is:
Uniform
Different
Less
Zero
- Uniform: If the elasticity of demand is the same across all sub-markets, price discrimination isn’t beneficial. Each segment responds similarly to price changes, so uniform pricing is likely optimal.
- Different: If demand elasticity varies across sub-markets, price discrimination is effective. Sellers can charge higher prices in markets with inelastic demand and lower prices in those with elastic demand, maximizing profits.
- Less: This option is vague. Less elastic means demand is relatively inelastic, possibly yielding higher revenues when prices are raised, but doesn’t fully address sub-market variability.
- Zero: If elasticity is zero, demand is perfectly inelastic. Consumers buy the same amount irrespective of price, which doesn’t provide information on the benefits of price discrimination across different markets.
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