Q. 8 For each of the following exampl... [FREE SOLUTION]

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Chapter 24: Q. 8 (page 554)

For each of the following examples, explain how and why a monopoly would try to price discriminate.
a. Air transport for businesspeople and tourists
b. Serving food on weekdays to businesspeople and retired people- (Hint: Which group has more flexibility during a weekday to adjust to a price change and, hence, a higher price elasticity of demand?
c. A theater that shows the same movie to Large families and to individuals and couples. (Hint: For which set of people will the overall expense of a movie be a larger part of their budget, \(s\) o that demand is relatively more elastic?)

Short Answer

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a. A monopoly aircraft segregates by pricing business a larger fare over visitors.

b. Elasticity of demand is taken into account to discriminate the worth.

c. Demand elasticity is taken in to the account for discriminating the worth.

Step by step solution

Introduction

A dominance will be when one organization has a dominant position in an industry or sector with both the purpose of banning all those other potential competitors. Monopolies are often discouraged in free-market nations. Because users do have choice, they are considered as lead to market manipulation and declining product.

Explanation (a)

(a) A mono company applies price gouging to maximize revenue.. The profit maximization is that the main motive of price discrimination. A monopoly firm would charge higher price for transport for the businesspeople than the tourists considering elasticity of demand. As a corollary, a monopoly aircraft segregates by pricing business a larger fare over visitors.

Explanation (b)

(b) A monopolist would attempt to discriminate price by charging higher price to businesspeople and comparatively lower to retired people. Businesspeople have inelastic demand for foods than that of retired people. Thus, elasticity of demand is taken into account to discriminate the worth.

Explanation (c)

(c) A theatre person takes price competition to create revenue.. Price is discriminated by charging higher prices to individuals and couples considering their inelastic demand. Demand elasticity is taken in to the account for discriminating the worth.