What pricing strategies would a price-discriminating magazine publisher follow if a college student's demand for magazine subscriptions is more price-elastic than a business executive's demand for magazine subscriptions?
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In this scenario, the magazine publisher would want to maximize the magazine's profits by charging a higher price to the business executive than to the college student.
When we say that a market segment's demand for something is more price-elastic than that of another market segment, we are saying that people in the first segment would be more inclined to stop buying the good or service if the price went up. Those in the second segment do not care so much about the price and are more willing to keep on buying even if the price rises.
Therefore, it makes sense for this publisher to charge a lower price to college students. Charging them the lower price will allow more of them to buy the magazine. Meanwhile, charging a higher price to the business executive allows for greater profit than if the magazine were sold to business executives at the college student price.
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