What strategy should a monopoly use to maximize profits when facing different price elasticities of demand?

A monopoly aiming to maximize profits should adopt a pricing strategy that reflects the varying price elasticities of demand among its customers. When demand is elastic, a small change in price leads to a large change in quantity demanded. Therefore, in these cases, if the monopoly lowers the price, it can attract significantly more customers, resulting in a higher total revenue. Conversely, when demand is inelastic, changes in price do not significantly affect the quantity demanded, allowing the monopoly to increase prices without losing many customers.

By lowering prices for elastic demand customers, the monopoly encourages greater purchasing, thus potentially increasing overall sales volume. Simultaneously, raising prices for inelastic demand customers yields more revenue per unit sold, since these customers are less sensitive to price changes. This strategic differentiation in pricing based on the elasticity of demand effectively enhances overall profits.

The other options present less effective strategies for profit maximization. A uniform price disregards the different sensitivities to price among customers, potentially leaving money on the table where increased willingness to pay exists. Targeting only inelastic demand customers severely limits the customer base and misses out on opportunities to capture revenues where demand is more responsive. Simply increasing the price for all customers can lead to a loss in sales volume, especially in