You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Analysts at your firm have determined that group 1’s elasticity of demand is −3, while group 2’s is −2. Your marginal cost of producing the product is $70. a. Determine your optimal markups and prices under third-degree price discrimination. Markup for group 1:  Price for group 1: $    Markup for group 2:  Price for group 2: $  b. Which of the following are necessary conditions for third-degree price discrimination to enhance profits. check all that apply At least one group has elasticity of demand less than one in absolute value. We are able to prevent resale between the groups. At least one group has elasticity of demand greater than 1 in absolute value. There are two different groups with different (and identifiable) elasticities of demand.

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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.