A specialized rice grower sells rice in two markets, the United States

A specialized rice grower sells rice in two markets, the United States and Japan, and the marginal cost is the same in both markets. The price elasticity of demand in the United States is -2.0, and the price elasticity of demand in Japan is -1.5.

If the grower practices group price discrimination, which country’s consumers will pay a higher price and by how much?

ANSWER

PUS(1 + 1/-2 ) = PJ(1 + 1/-1.5 ). Rearranging yields PUS = (2/3 )PJ. The price in the United States will be 2/3 the price in Japan.