Question

Explain how a monopolist can increase profits by price discriminating. What are the conditions necessary for price discrimination

Answer 1

monopolist can increase profits by price discrimination. price discrimination is a practice of charging different prices from different consumers of the same product sold. so, monoplist charges higher prices from the some consumer and lower prices from some consumer of the same product sold and increase their profit.

conditions necessary for price discrimination are-

1) monopolist must have monopoly bar (i.e price charged by monopolist should be greater than marginal cost)

2) monopolist is in position to seperate market into two or more sub markets

3) price elasticity in each sub market should be same

4) lower price consumer should not resale the product to high price consumer.

5) high price consumer should not directly purchase product from low price consumer