Question

When a company charges whatever the market will bear, the company is using:

Strategic pricing

Price discrimination

A push strategy

A pull strategy

Answer 1

Answer- b: Price discrimination

Price discrimination is the practice of selling different units of a good or service for different prices. To practice price discrimination, a monopoly must be able to: i) identify and separate different buyer types, and ii) sell a product that cannot be resold. The key idea to price discrimination is to charge different consumers different prices, according to their willingness to pay for the good. This transfers potential consumer surplus under the single-price scenario into producer surplus, raising the monopoly’s profit.