Which statement is true of market segmentation in economics?

• A. Market segmentation prevents firms from maximizing profits.
• B. Market segmentation allows firms to target specific groups of consumers based on their preferences.
• C. Market segmentation eliminates all forms of price discrimination.
• D. Market segmentation is only relevant in perfectly competitive markets.

Answer: (B)

Verified step by step guidance

1. Understand the concept of market segmentation: it involves dividing a broad consumer or business market into sub-groups of consumers based on shared characteristics such as preferences, needs, or behaviors.
2. Recognize that market segmentation allows firms to tailor their products, marketing strategies, and pricing to specific groups, which can help in better meeting consumer demands and potentially increasing profits.
3. Know that market segmentation does not prevent firms from maximizing profits; rather, it often helps firms to do so by targeting different segments more effectively.
4. Be aware that market segmentation does not eliminate price discrimination; in fact, it can facilitate price discrimination by identifying groups with different willingness to pay.
5. Understand that market segmentation is not limited to perfectly competitive markets; it is more commonly relevant in imperfectly competitive markets where firms have some control over prices and product differentiation.