Why do the prices offered to business customers differ from those offered to "individuals"? - Business customers are better informed

Economics Dec 12, 2020

Why do the prices offered to business customers differ from those offered to "individuals"?

- Business customers are better informed.

- Business customers pay different taxes on dropbox subscriptions.

- The price elasticity of business customers' demand differs from that of individual customers.

- More business customers use dropbox compared to residential customers, so the firm can hope for more profit from them.

Expert Solution

Q10) The answer is (c) The price elasticity of business customers' demand differs from that of individual customers.

According to the Lerner's index, we have:

(P - MC / P) = -1/elasticity

Thus, if the elasticity of demand of business customers' is different from individual customers., and the firm has the same marginal cost for both, the prices charged from the two groups will be different.

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