A. Set forth the basic markup pricing technique. B. What role does price elasticity play in...

A. Set forth the basic markup pricing technique.

B. What role does price elasticity play in markup pricing? Respond in terms of a more elastic demand, and then a more inelastic demand.

C. Generally speaking, why is price discrimination typically a good thing for both businesses and consumers?

Expert Solution

(a)

where is elasticity of demand.

(b) if the elasticity of demand is very high then markup will be low and if elasticity of demand is low then markup will be high.

(c) for business price descrimination help generate more profit then standard monopoly case. This intern leads to more investement as more profitable firms invest more.

price discrimination is not always bad for consumer as once all high willingness to pay types consumers are done then firms reduces prices to serve low willingness to pay type consumer. This makes all types to avail the benefit of the product. This is possible because of price discrimination. Price discriination also helps in avoiding congestion. As initially firms charge higher prices which leads to less congestion and then slowly firm reduces prices which brings some kind of regulation in the market.

Rahul Sunny answered 2 years ago

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