A specialized rice grower sells rice in two markets, the United States and Japan, and the marginal cost is the same in both markets. The price elasticity of demand in the United States is -2.0, and the price elasticity of demand in Japan is -1.5
If the grower practices group price discrimination, which country's consumers will pay a higher price and by how much?
PUS(1 + 1/-2 ) = PJ(1 + 1/-1.5 ). Rearranging yields PUS = (2/3 )PJ. The price in the United States will be 2/3 the price in Japan.
You might also like to view...
Which of the following is NOT a characteristic of a perfectly competitive industry?
A) There are many firms. B) There are no restrictions on entry into the market. C) Each firm produces a slightly differentiated product. D) Each firm takes price as given, determined by the equilibrium of industry supply and industry demand.
The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $400, what is the rent?
A) $800 B) $600 C) $400 D) None of the above answers is correct.