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JAMB Economics 1982 Question 43

Question 43

Market Structures

Price discrimination can be practised profitably by a monopolist when the elasticity of demand for his product is

  1. A.elastic in both markets
  2. B.unitary elastic in both markets
  3. C.inelastic in both markets
  4. D.elastic in one market and inelastic in the other
  5. E.unitary elastic in none of the markets.
Show the answer and explanation

Answer: D (elastic in one market and inelastic in the other)

Explanation

Discrimination pays only if elasticities differ: the monopolist charges a higher price where demand is inelastic and a lower price where it is elastic.