Theory question 107
Market Structures(a) Who is a discriminating monopolist?
(b) Explain any four conditions necessary for a monopolist to practise price discrimination.
(c) Explain any two benefits enjoyed by a discriminating monopolist.
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(a) A discriminating monopolist is a sole seller who charges different prices to different buyers or markets for the same product for reasons not related to cost.
(b) Any four: the seller must be a monopolist (no close substitutes); markets must be separable so buyers cannot resell (no seepage); different elasticities of demand in the markets; consumer ignorance or indifference; distance, tariffs or time separating markets; nature of the product (personal services such as medical care); legal sanction.
(c) Any two: higher total revenue and profit; can sell to more buyers by charging low prices to the poor/elastic market; can use excess capacity; can dispose of surplus abroad (dumping); covers costs of services that would otherwise be unprofitable.
Separate markets with different elasticities are essential.