Question

For a firm to be able to engage in price discrimination, it must

a. face a downward sloping demand curve.

b. produce more than one product

c. have customers of different levels of wealth and age.

d. have economies of scale.

Answer 1

For a firm to be able to engage in price discrimination, it must

a. face a downward sloping demand curve

The discriminating monopolist too have a downward sloping AR or demand curve. It otherwise means that a monopolist too has to decrease the price to sell more of a commodity.

c. have customers of different levels of wealth and age.

It is also a necessary requirement of discrimination. This condition otherwise says that the customer of different market must have different elasticity of demand. Discrimination is possible if the elasticity is differnet. In market elasticity is high, the price charged will be less and if the elasticity is less, price will be more.