Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm must have market power to set prices
B
Consumers must have perfect information about prices
C
The product must be homogeneous across all consumers
D
There should be no barriers to entry for competitors
Understanding the Answer
Let's break down why this is correct
Answer
For price discrimination to work well, a company must be able to separate customers into different groups based on their willingness to pay. This means that the company can charge different prices to different groups without them being able to resell the product to each other. For example, a movie theater might charge students a lower price than adults because students typically have less money to spend. Additionally, the company needs to have some control over the price it sets, allowing it to adjust prices for different groups. Overall, the ability to segment the market and prevent resale is crucial for effective price discrimination.
Detailed Explanation
A company needs to have some control over prices to charge different amounts. Other options are incorrect because Some might think that if everyone knows the prices, they can’t charge different amounts; It's a common mistake to think all products must be the same for different prices.
Key Concepts
conditions for price discrimination to be effective
price discrimination and market segmentation
Topic
Understanding Price Discrimination
Difficulty
medium level question
Cognitive Level
understand
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