Price discrimination works best when:

• A. the seller faces constant marginal costs
• B. the market is perfectly competitive
• C. all buyers have identical willingness to pay
• D. the seller can prevent resale between buyers

Answer: (D)

Verified step by step guidance

1. Understand the concept of price discrimination: it occurs when a seller charges different prices to different buyers for the same good or service, based on their willingness to pay.
2. Recognize that for price discrimination to be effective, the seller must be able to segment the market and charge different prices to different groups without allowing buyers to resell the product to others at a lower price.
3. Analyze why constant marginal costs or perfect competition are not necessary conditions for successful price discrimination; these conditions relate more to cost structure and market structure rather than the ability to price discriminate.
4. Consider why identical willingness to pay among buyers would make price discrimination ineffective, since there would be no variation in willingness to pay to exploit.
5. Conclude that the key condition for price discrimination to work best is the seller's ability to prevent resale between buyers, ensuring that different prices charged to different groups cannot be arbitraged away.