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CA Foundation · Business Economics · Price Determination in Different Markets

A monopolist sells in two separate markets. At the profit-maximising allocation, marginal revenue is ₹30 in market A and ₹30 in market B. The price elasticity of demand is higher in market A than in market B. Which statement is correct about the prices charged?

Price is lower in market A. Since marginal revenue equals P(1 - 1/e) and MR is the same in both markets, the market with higher elasticity must have a lower price. The more price-sensitive market therefore gets the lower price under discrimination.

  1. APrice is higher in market A than in market B
  2. BPrice is lower in market A than in market BCorrect
  3. CPrices are equal in both markets
  4. DPrice in market A is equal to marginal revenue

Explanation

MR = P(1 - 1/e). With equal MR, a market with higher elasticity must have a lower price, since the factor (1 - 1/e) is larger there. So market A, the more elastic one, has the lower price. Charging equal prices would make the MRs unequal.

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