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Price discrimination will be profitable only if the elasticity of demand in different sub markets is:
Uniform
Different
Less
Zero
- Option 1: Uniform
- If elasticity is uniform, demand responds similarly across all markets. This limits the effectiveness of price discrimination because consumers would react to price changes in the same way.
- Option 2: Different
- *Correct Answer*
- When elasticity differs, firms can charge higher prices where demand is inelastic and lower prices where it's elastic, maximizing profits. This is the essence of price discrimination.
- Option 3: Less
- Less elastic demands mean consumers do not respond significantly to price changes, but it doesn't address the condition for profitability across submarkets.
- Option 4: Zero
- Zero elasticity implies absolutely no response to price changes. While able to set any price, it doesn’t help with differential pricing across markets.
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