Third-degree price discrimination charges different prices to different consumers in order to:

• A. maximize profits by segmenting the market based on consumers' willingness to pay
• B. encourage all consumers to purchase the same quantity of goods
• C. eliminate competition by setting a single price for all consumers
• D. reduce production costs by offering bulk discounts

Answer: (A)

Verified step by step guidance

1. Understand that third-degree price discrimination involves charging different prices to different groups of consumers based on identifiable characteristics, such as age, location, or income.
2. Recognize that the goal of this pricing strategy is to segment the market into groups with different price elasticities of demand or willingness to pay.
3. By charging different prices to each segment, the firm can capture more consumer surplus and increase total profits compared to charging a single uniform price.
4. Note that this strategy does not aim to encourage all consumers to buy the same quantity, nor does it eliminate competition by setting a single price.
5. Also, third-degree price discrimination is not primarily about reducing production costs but about maximizing profits through market segmentation.