CA Foundation · Business Economics · Price Determination in Different Markets
A monopolist practising third-degree price discrimination has equal marginal revenue in two markets. The price elasticity of demand is 2 in market A and 4 in market B. If the price in market A is ₹90, what is the price in market B?
The price in market B is ₹60. Using MR = P(1 - 1/e), MR in market A is 90 × 0.5 = ₹45. Setting 0.75P = 45 for market B gives ₹60, lower because demand there is more elastic.
- A₹60Correct
- B₹120
- C₹45
- D₹80
Explanation
MR = P(1 - 1/e). Market A: MR = 90 × (1 - 1/2) = 45. Market B: P × (1 - 1/4) = 0.75P. Equating MRs, 0.75P = 45, so P = 60. The price is lower in market B, which has the more elastic demand. Option ₹120 reverses the elasticities.
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