If a firm sells to two distinct identifiable markets and resale is impossible, why is price discrimination more profitable than setting a single price?
What will be an ideal response?
If the firm charges a single price on the two different markets, marginal revenue in one market will exceed marginal revenue in the other. Without changing output level the firm could raise its profit as follows. The firm could sell one less unit in the low MR market and sell that unit in the higher MR market. As long as MRs differ, the firm can increase profit by changing sales in this direction. As this happens price is increasing in the market where sales are falling and price is falling in the market where sales are increasing.
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_____________is the extra revenue associated with the production and sale of one additional unit of output.
Fill in the blank(s) with the appropriate word(s).
Lindsey's auto-insurance company issued her a policy that required the installation of a devise that monitors her driving habits. Lindsey is confused because she had never gotten into an accident before she bought the insurance. The insurance company is protecting itself against
a. Adverse selection b. Moral hazard c. Bad drivers d. None of the above