Skip to content

IAI Actuarial Core Principles · Business Economics · Pricing strategies in the financial services sector

A monopolist insurer sells to two segments with MC = Rs 200 constant. Segment A has demand P = 1,000 - 2Q and Segment B has demand P = 600 - Q. Under third-degree price discrimination, what is the profit-maximising price in Segment A?

The Segment A price is Rs 600. Marginal revenue is 1,000 minus 4Q; equating it to marginal cost of 200 gives Q of 200, and substituting into the demand curve gives a price of 600.

  1. ARs 600Correct
  2. BRs 500
  3. CRs 400
  4. DRs 700
  5. Rs 300

Explanation

For A, MR = 1,000 - 4Q. Setting this equal to 200 gives Q = 200. Then P = 1,000 - 400 = 600. Check: for B, MR = 600 - 2Q = 200 gives Q = 200 and P = 400. Rs 400 is the Segment B price, not A's.

Did you get it right without looking?

One question tells you little. A timed set on Pricing strategies in the financial services sector shows your real accuracy, how long you take and where you lose marks.

Practise Pricing strategies in the financial services sectorFree diagnostic mock

More Pricing strategies in the financial services sector questions