You are the manager of a firm that charges customers $16 per unit for the first unit purchased, and $12 per unit for each additional unit purchased in excess of one unit. The accompanying graph summarizes your relevant demand and costs. Price 20 18 16 14 12 10 8 6 4 2 1 2 3 4 Quantity MO-AC D 5 6 7 a. What is the economic term for your firm's pricing strategy? First degree price discrimination O Fourth degree price discrimination O Third degree price discrimination O Second degree price discrimination

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Price Discrimination

Price discrimination or differential pricing is based on the principle that the seller will charge the buyer a price based on the buyer’s ability and willingness to pay for the product rather than applying uniform pricing for all.